Beagle Research Group

On-demand infrastructure

Zuora introduced itself to the world this week and while they are not a typical CRM company their position should have a big impact on CRM and all other markets that offer on-demand solutions.  Founders Tien Tzuo and K.V. Rao and Cheng Zou formerly of Salesforce.com and WebEx, chose the usually sedate billing market because they have a new idea that looks like it has legs.

One of the big disconnects in the on-demand market has been the constraints on product packaging imposed by billing systems.  The on-demand model takes a product and renders it as a service but existing billing systems more or less still bill for the service as if it were a product.  Confused?  Think of it this way.  Conventional software sells product by the seat in a one-time transaction while on-demand currently sells by the seat each month.  For most situations that works pretty well but it works largely because it’s the only game in town.  What happens, for example, if you negotiate a different seat price?  Conventional product oriented billing systems would have issues with that.

On-demand computing was once called the utility model because it mimics the delivery of water, gas, electricity and other services.  In a utility model there is really only one product to sell but vendors can package that one product in numerous ways.  The packaging and pricing model is driven by what the billing system can support.  It’s not a stretch to say that if the billing system can’t adapt to a packaging idea, the idea cannot be implemented.

A utility billing system takes much more into account than simple product information or even the nature of a recurring charge.  For example, utilities are always thinking about rates and fee schedules and many times quantities—you get a certain rate for a specific quantity and often rates become more favorable for customers that buy in higher volumes.  There are also special situations such as non-profit organizations which are often billed according to different schedules.

In the product world multiple rates and quantity discounts are available but not to the same degree as in the service world.  Part of the reason is the greater cost associated with making and selling a product.  While mass produced goods can have very low incremental costs, specialized products like software often don’t reach those economies of scale.  But in the on-demand world the incremental cost of an additional seat sale can be very small opening up more opportunities for creative pricing and packaging—if the billing system will support them.

Enter Zuora, a company dedicated to providing flexible billing for subscription companies.  As an idea, billing for subscription companies may be the fourth wave of Internet commerce.  Other models and their paradigms include Amazon for retailing, PayPal for one-time payments processing and Google for advertising.  The other models have become very successful and lend support to the idea that many economic entities that were once part of the brick and mortar economy are moving to the virtual world.

Of course there are practical limits to how far any of these models will go.  As successful as a company like Amazon is, there will always be a need for a hardware store and a cash register and I have no doubt that the other modes will be similarly limited.  However, the really interesting part of the Zuora story for me is that we really don’t know where the upper limit is. 

It strikes me that at the heart of this introduction is a core ability for vendors to make their companies easier to do business with.  As markets age and multiple vendors become capable of delivering more or less the same product or service, the competition moves from features and functions and toward secondary attributes such as the convenience of the customer facing business processes.  Zuora gives its subscription company customers the ability to better tailor their offerings and that in itself should be a major differentiator.

Up to this moment subscription companies have been rather limited by their billing systems and this introduction could spawn a whole new round of innovation in software as a service once companies have the ability to tinker more with their delivery models.  Who knows where this will lead.

Insights on insights

I sometimes forget about the fact that people are trying to do business and that their business is top of mind -- not CRM. That point was brought home to me last week when I was on-site with a client.

I won't give too many details, but the company has no CRM per se, just some spreadsheets they use for forecasting, a customer database shared with ERP (enterprise resource planning) and a few other databases written in a PC programming tool. The company is growing like a weed, and though CRM once looked out of sight for them, it now looks like a necessity.

The users told me how their business processes worked and all the manual effort required for doing things that CRM addressed a long time ago. There's no doubt that the users would be more productive if they had sales force automation, analytics, marketing automation and more. The company could get closer to its customers and perhaps even shave some positions or at least reassign people to more rewarding jobs.

The amazing thing to me is that despite all this, the company is making a fair amount of money -- so much so that they will not be categorized in the small- to medium-sized business space forever. So, that's all good, and it got me thinking about some things. First, it's inevitable that this company will implement some CRM applications in the not too distant future, if for no other reason than because their competition is doing the same thing. Having CRM when your competition does not is like going to the proverbial knife fight with a gun, so no one wants to be the last adopter.

The second thing it made me think about is the importance of the adoption curve. We've been focused on every new nuance of our technology and early adopters for a long time, and for good reasons. Early uptake is fun to watch -- there's a bit of risk inherent in it because we don't know if it will actually work. Early adopters keep us interested in the hunt. What happens after the early adopters have their fun is worth pondering, too.

Some of that thinking came with me to Insights, the Sage Software partner meeting being held this week in suburban Washington, D.C. Sage has taken a few shots in the last year from a variety of sources for the performance of its stock, and the company recently brought in a new CEO, Sue Swenson.

Swenson is from the telco space and is very smart. It is also important to note that she is not a software person, but she has great instincts; I would even say CRM instincts. To her credit, Swenson has not done anything rash. She has refused to make change for the sake of change and instead has embarked on a long-term outreach effort. Her schedule has been full of travel to meet Sage people and, importantly, to listen to what they can teach her about the company, its products and customers.

In my mind, Swenson is just doing what any CRM-oriented person ought to do, and what's interesting is that she said it was a habit she first got in wireless. At T-Mobile , the executive team she was part of made a religion out of traveling and visiting with the troops on a quarterly basis. The purpose was to listen, not preach, and then to come back to the office and analyze the data before instituting any improvements. That's what she's doing at Sage, and one can hope it will have a positive effect on Sage and Sage's customers.

I expect that Swenson will discover a few things about her company and its people in her travels. One thing that should bubble right to the top is that Sage and its customers are a different group -- not good or bad but really different. Sage has made a science out of selling accounting and front-office products to small and emerging enterprises -- the kinds of companies we might also call "later adopters."

To be sure, all of Sage's customers are not late adopters, but many are. Late adopters, like my client mentioned above, are used to doing things without a great deal of automation support, and it sometimes takes a while for an innovation to get to them. There are many reasons for this, including cost, experience and risk.

Small companies have small budgets and don't buy early in a cycle when technology is expensive and unproven. They wait until technology becomes a whole solution at a lower price point with lower risk. Sage has traditionally relied on a strong partner program to gather up the knowledge and experience needed to deliver automation that works for these customers. Lots of vendors see the opportunity inherent in the late adopter market, but many seem to miss the optimal packaging. If their products meet the right price point, they may be too complex, or if they are easy to use, maybe they are under powered or there's no one to provide service.

At Insights this week, we were all introduced to a number of new initiatives, including integration and interoperability strategies and streamlined partner programs. I would bet that virtually all of this was in the works prior to Swenson's arrival, but I also believe that it would not have gone forward if she had not approved the general direction. After several years in which Sage introduced only cautious changes in its products and its business, this appears to be a year when they are stepping out, and Swenson appears to have arrived at a good time.

Swenson has embarked on a big balancing act, trying to improve Sage without breaking anything. It's a tough job, but her first moves are on target, and they are being deftly executed. I look forward to her keynote next year when she can tell us how it's all working out.

SocialNetworking 2.0

May 2, 2008 -- I have been investigating the possibility that social networking is something that can be used inside an organization (intra-organizationally as my bureaucratic friends might say).  That should really be no surprise — the entire employee base is a natural community, though in many companies the group is small enough that good old face-to-face communication works pretty well.  But there’s at least one place where community oriented techniques not only work but they can have a lot to do with profit and loss.

I am referring to the forecast, not just the revenue forecast but the business forecast.  What’s the difference?  Glad you asked?

In CRM we’ve become accustomed to thinking about the revenue forecast as the only thing that matters but it turns out that may be a rather provincial way of looking at the world.  The revenue forecast is a dandy way for a software company to figure out how it will make money but it doesn’t serve the rest of the world as well.

A software company, a telecommunications, provider and many other high tech businesses basically have one product to sell — maybe the product is SaaS or a box with a CD and a manual or time.  In any case there is no real supply chain to worry about and the revenue forecast is the forecast.  But!

Consider the situation where a company actually makes things and there is a supply chain.  For such companies, the revenue forecast is nice to have but the operations people sweat about a whole different set of issues. 

For example, if a company can make three different products and knows what its capacity is for making each, then that company also knows that it can’t make its numbers if it sells 300 percent of its capacity to make just one product.  In that scenario, a sales team is selling things that operations cannot deliver (I know that’s highly speculative and has never happened, but bear with me).  That’s not a happy problem because it leaves customers unhappy which is nothing compared to the tough love that the executive team get from the board. 

A couple of weeks ago American Airlines had such an unhappy problem when it found that it couldn’t fly because its planes were receiving mandated maintenance — it had customers but no product.  What I am about to say next won’t help American or any other airline because airlines seem to be refractory to help, but I digress.

I’ve recently been watching a company — Right90 — that helps companies manage the business forecast.  By that term, they mean all the things that can and should be forecasted in addition to revenue so that a company can keep its supply chain informed of changes to the forecast.  Think about it, if you want to optimize just in time inventory, then you have to be very good at knowing what to deliver just in time.

What’s interesting about Right90 is that they capture and track changes to the forecast in real time.  If a sales person reports that a customer is doubling an order for 32-inch HDTVs, managers in sales and operations get alerted and the full implications of the change on the forecast get thoroughly reviewed.

This kind of attention to detail gives every relevant person and department a seat at the table and makes them accountable for bringing in the forecasted revenue in the forecasted product lines. More importantly, companies that make the stuff that makes our lives run, make so much of what they make that it’s almost impossible to do a good job of managing the forecast.  And to make matters worse, they try to do it in spreadsheets.  (The only winners here are the people who make Prilosec because they just make all they can all the time.)

At the end of the day, this looks an awful lot like a community working for the co-creation of value but because all this work happens internally, it has been overlooked as a good example of how communities and social networking techniques in general can be applied to business.  What’s fascinating to me is that for a long time we have been thinking about social networking in the context of vendor-customer interactions without really considering the possibility that the same techniques could work inside the enterprise too. 

This is a long way from Facebook or YouTube or any other first generation social networking site (did I say first generation?) which brings me to the question of the week — have we already crossed into, gulp, social Networking 2.0? 

In a way this should not surprise anyone.  It’s the normal evolution of an idea.  First a product comes to market and then the early adopters figure out its real best application.  For a long time we’ve used social networking as a toy but Right90 just might be giving us a glimpse of how this powerful interpersonal communication tool can be used as a powerful inter-personnel communication tool. 

I just love it when things come together like this.

Boycot American Airlines

Boycott American Airlines.  I usually don't write on topics unrelated to CRM but this is different.  Again I say boycott American Airlines.

It won't inconvenience you much and it might do some good for a whole lot of people.

In the country at large American is still having to deal with the SNAFU a couple of weeks ago related to grounding a large portion of their fleet for repairs that had not been performed in a timely manner.  In Boston there are labor issues as well.  The company recently lost a suit by its skycaps over lost tips.

Apparently when American went to charging $2 to check bag at the curb, customers complied but were then reluctant to tip the skycaps for the service.  In effect the airline was horning in on the skycaps earnings.  The sky caps sued and a federal court in Boston agreed and American was ordered to repay the skycaps for the lost wages. 

At the time these hard working people were being paid only $5.15 per hour so tips were an important and necessary part of their income.  Undeterred by the courts, the corporation just put up signs at its Boston airport location informing customers that they were restricted from giving tips -- read the news story here.  The airline also boosted the wages of the skycaps to the $12 to $15 range but according to sources, that doesn't make up for the lost income. 

I think it's entirely reasonable to tip skycaps and, at all other airports I have ever been, it is an accepted custom, like tipping a waiter (but not the counter help at McDonalds, for example).  Skycaps handle a lot of jobs at curbside -- checking bags, issuing borading passes and performing the first line security check.  True counter agents inside the terminal don't receive tips but they don't help you with your bags or stand out in the heat and cold all year either.

All this is happening only in Boston, by the way, so the intent of punishing the skycaps by the airline could not be more obvious.  So my response to this to boycott the airline.  There are enough alternatives that it won't inconvenience people and it might teach the airline how to deal with a very important constituency -- its employees.  As a wise man once told me, the inconvenience would be like being deprived of rutabagas.

Safe flying.