Selling on the news

The old Wall Street saw, “Buy on the rumor, sell on the news” was on full display as the Dow dropped 268 points on Thursday.  The economy has provided us with some pleasant up side news lately and yesterday was the end of that season.

The news had been great so far in 2010.  The fourth quarter showed companies doing robust business and the economy growing more at more than a five percent annual rate.  But once companies like Google started reporting hefty year over year advances you knew the air was coming out of the balloon.

To me sure, year over year growth wasn’t hard to come by given how battered the economy was in the forth quarter of 2008, but a win is a win and we all needed to good news.

But now our sights have to be set on another milestone and that would be getting the great American jobs machine cranking again.  This, according to the experts will be harder to do because newly profitable companies will want to savor the black ink and ramp up productivity as much as possible before adding jobs.  That savoring contributes to the latency we often see at this stage of a recovery.  In news just in the government says we lost 20,000 jobs in January.

Right now, the unemployment rate is at 9.7 percent nationally and it is expected to stay there for most of the year.  But that could change — we need something, a new rumor, to gain back yesterday’s losses and to add to the growth that started in Q4.

Cyber dilettantes

New research from Harvard Business School and the Pew Research Center’s Internet & American Life Project give new perspective to the social media and social CRM phenomenon and raise a yellow flag for all those people proclaiming social media the second coming.  First Harvard.

The Economist ran one of its special report sections this week (the issue with Steven Jobs dressed as Moses on the cover) on social networking.  While generally laudatory of the technology’s promise — headlines include “Profiting from friendship” and “A peach of an opportunity” — the report also delivered the unvarnished and synamic truth about adoption.

A section titled “Twitter’s transmitters, The magic of 140 characters” quoted the work of Mikolaj Jan Piskorski, a Harvard Business School professor, and one of his MBA students Bill Heil.  According to The Economist, the researchers surveyed more than 300,000 Twitter users in May 2009 and reported results that include:

• More than half said they tweeted less than once every 74 days (not quite twice per quarter).
• The most active 10% of twitter users published 90% of all Tweets.

By comparison, the article says that on other social networks, “the most active users typically produce 30% of all content.”  Holy #$%^ Batman!

So who are these people?  According to Pew, they’re the kind of people you might want to have a beer with — when they’re older.  As reported in “Fast Company” Ninety-three percent of teens between 12 and 17 go online, 66% say they text.  The 18 to 29 group also has a 93 percent rank of online users and though the numbers slip for real adults — 81% of those 30 to 49 and 70% of those 50 to 64 — the numbers are very healthy.

Get more numbers here: http://www.fastcompany.com/blog/zachary-wilson/and-how/pew-survey-finds-increase-social-media-internet-time-decrese-blogging-te

The question though is what are these people doing when they are online?  Teens are giving up on blogging, their numbers are about half what they were a few years ago.  Facebook is the big winner for kids and time-starved parents like Twitter.  Only 15% of young adults bother to blog, down nine points over two years.

What’s it all mean?

The Fast Company article ends with this, “Meanwhile, blogging is on the rise for adults over 30, who increased to 11% from 7% in 2007.  And 47% of adults now use social networking sites, up 10% from a year ago.”

It seems the most economically viable demographic is getting its act together but there are caveats.  There are many more readers than writers — that’s not surprising, it’s human nature.  But I think you need to be wary here.  Diane Hessan, CEO of Communispace, likes to remind me that in social networking, participation is very important and knowing the demographics of participation is vital.

The ten percent of Twitter users contributing ninety percent of tweets with more than half logging on very occasionally is a red flag for anyone contemplating social media marketing because it exposes an important truth that membership is not participation.  There is no t enough data on the Twitter users who tweet once per quarter.  Do they go to Twitter daily to read stuff?  I am sure some do, but I wouldn’t want to base a marketing campaign on it.

The decline in blogging is a clear indication that there is, or soon will be, less to read on blogs and less to comment on, though there will be more personal stuff to see on Facebook, if you have a lot of friends.

I have recently seen a number of CRM products that capture such valuable information as a person’s Twitter, Facebook and Blog account information.  The vendors are certain that this information is the source of new insight and business opportunity, even in the B2B space.  I am not.  This data suggests that just as vendors are ramping up, the raw material that they expect to mine may be drying up.  Notwithstanding the 11% of adults over 30 who are blogging more, it seems to me that people are moving to personal expression that may not have a great deal of business utility.

Some of the explanation for this may be the rotten economy but we’re about four months into a turnaround, and numbers complied last May are already becoming obsolete.  Business activity is picking up but it is unclear if people are turning to social media to do their business networking.

The lesson from this, for me, hews close to Hessan’s advice.  You need to understand who is participating — not their names and other identifying data but participation per person or organization, demographic data and the like.  A lot of 17 year old boys might be attracted to the new models on an exotic car site for instance, but you wouldn’t want to develop a marketing campaign for them.

What is Cloud Computing? (v. 2010)

What exactly is Cloud Computing?  The question just doesn’t go away and as the year starts SugarCRM has just released a white paper — “The Sugar Open Cloud” —offering its definition and its argument for why its vision is superior.  I am not sure about either.

Full disclosure: I like SugarCRM and have a lot of respect for what they are trying to do.  The idea of open-source CRM is very appealing and can be very successful — like open-source operating systems (think Linux), open encyclopedias (like Wikipedia) and open source web servers like Apache.  All of these open source products are very good in their own right and highly sought after.  Let me give just one example of open-source success — Apache has 52% of the market for web server software.

In his new book, “Drive: The Surprising Truth About What Motivates Us,” Daniel Pink says that one of the key values to those who contribute to open-source technology is the sense of accomplishment that goes with participating in a project whose goal is the greater good, to solving a really tough problem.  To this idea, I would also add customers leveraging products like Salesforce’s Service Cloud to provide accurate support aid to their fellows using social media, search, email and other modern technologies.  They get no pay other than to stamp their name on a solution and that’s a surprisingly effective motivator.

The only issue I have with open source is the business model and how you make money with it.  Well, how do you make money with it?  It’s a question that has vexed me and probably a lot of B-school kids, professors and practitioners for a long time.  The psychic rewards are good but they just aren’t enough.

It is with this frame of mind that I read the Sugar white paper.  The paper says that we have entered the third phase of the evolution of whatever you wish to call SaaS.  First there was the ASP model that crashed and burned for economic reasons — you couldn’t get enough client-server users onto a server to be cost effective.  Then there was multi-tenant SaaS, which has had our attention for the first decade of the century.  Now, according to Sugar, there’s “multi-instance distributed SaaS”.

According to the paper the multi-instance version is superior for many of the reasons we heard when multi-instance went by the name of “hybrid” such as you could deploy it in an on-demand way (single or multi-tenant) or in a traditional premise-based configuration.  What’s different with multi-instance is the freedom to pick your infrastructure provider, and here the waters get murky.

Sugar claims its solution is superior because it enables users to choose which servers the applications run on such as Microsoft Azure or Amazon EC2.  This is superior to vendor lock-in according to the paper which makes the incredible and self-contradicting claim, “In the first phases of SaaS (ASP and multi-tenant SaaS models) customers had no options around who hosted their business applications as the software vendor was the only service provider.”

Really?  Two pages earlier the paper displays a table of data titled “The ASP Model” the bottom row lists Key Providers as Corio and USi.  I was a CRM analyst (still am) when those companies roamed the earth and neither one was a software house.  The big dog in that period was Siebel and they didn’t care who hosted their product.

Sugar makes the point that Cloud Computing is becoming an indeterminate term, meaning that the definition is set in Jell-o.  That’s fair.  The Cloud needs to have three parts — infrastructure as a service (IaaS), software (SaaS) and, now, a development platform (PaaS).  Companies that want to offer infrastructure or software only or to cobble together best of breed Clouds are free to do so and I am sure you can get a lot of value that way, though you will need to invest more effort and cash to accomplish your own integration.  But don’t worry, there’s an (Sugar Cloud Console) app. for that.

What concerns me about all this is what manages to not be said.  Cloud Computing is largely an economic issue and a necessity at that.  It’s about a great deal more than lowering the cost of computing so that a larger audience in emerging markets can access technology.  And it is certainly about more than where data is stored.  From what I have seen about hackers stealing sensitive data, corporate IT departments are the last place I feel comfortable storing my personal information.

Cloud Computing is not about the tired arguments about where data is stored or the “freedom” to move it from one vendor to another — that base has been covered.  The Cloud is about ubiquity of computing access and that’s an economic driver.  Historically, when computing power has become abundant and cheap innovations such as relational databases, the graphical user interface and the Internet have swallowed it up.

The new ubiquity spawned by Cloud Computing — all three components — is spawning new, fast and, above all, mobile business processes, not just applications.  This may not seem like much but in a world that is growing increasingly “Hot, Flat, and Crowded” as Thomas Friedman would say, this is the bedrock of sustainability.  In this context arguments about where data is stored and vendor lock-in seem trivial.

IP, an unintended consequence of Cloud Computing

I was talking to Jason Lemkin, CEO of EchoSign the other day when something he said gave me an idea.  EchoSign is a cool bit of SaaSware that manages the document signing process across the Web eliminating the need for sending copies of contracts overnight to complete deals.

There is a niche for this because no company that sells an on-demand product, for instance, can afford to overnight the volume of contracts needed to support the business.  There simply isn’t enough margin in selling ten seats of your software and most SaaS deals are still of the small seat number variety.  So along comes EchoSign and the problem becomes very cost effective to manage.

On top of the signing process, a product like EchoSign also provides long-term benefit by becoming the archive for the contract.  If you’ve ever found yourself wondering what the terms of a deal actually were, you know that can be very helpful.

But the point of this story is the C: Drive and all that it has come to mean.  Everyone has a C: Drive, it’s where your stuff lives whether we’re talking about your PC at work or at home.  I have an iMac and Apple calls the drive something else and I don’t remember what it is because I just turn the thing on and it works and I don’t mess with operating system stuff any more.  It’s very liberating.

At any rate, Lemkin’s point is that the C: Drive has become a black hole because we don’t know what’s on it — you might know what’s on your C: Drive but you don’t know what’s on your office mates’ drives and they don’t know about yours.  All this got me thinking that there is a heck of a lot of potential intellectual property hidden on the C: Drives of the world.

You could have a contract or a thousand on your C: Drive but your company might not know how to access them on the day you call in sick.  Surely the networked Q: Drive would be better but many companies grow their computing infrastructure organically and you see where this is going.  Yes, the intellectual property goes into a black hole.

Now, IP isn’t something that any of us has given a lot of thought to with regard to the operation of our work PC’s but maybe we should.  Maybe the C: Drive and harvesting intellectual property are ideas whose time has come.  There are companies already harvesting IP but maybe they don’t know it.

Companies like Kadient, Oracle and Salesforce.com all have facilities for capturing the IP generated by sales people in the sales process.  Think about it, whenever you develop a presentation, a proposal or respond to an RFI or RFP, you are creating IP that is unique to your company.  The IP is valuable only if it can be reused.  Sales people do an OK job of reuse by trading things in email.  But that’s one step removed from sneaker net.  Imagine how much more effective they’d be if they stored things on a network drive and if there was functionality to also capture metadata (this presentation helped win three big deals)?

I am beginning to see the same kind of IP potential in service systems.  Salesforce’s Service Cloud is a big IP generator and it has the cataloging and analytics you need to support reuse.

Of course, none of these ideas is going to change the world, but in an environment where we routinely seek to maximize value and utility, it strikes me that advanced systems based on cloud computing concepts and social media offer more than simply the usual litany of better, faster, cheaper.  They expose value where there was none in the form of IP.

None of this says that cloud computing is the only way to derive this new value, as I said a network drive might work well in some instances.  But cloud computing improves not just the storage of the IP but its re-use and it is in re-using what was done before that you derive additional value.

As I am looking at it, the ability to harvest IP from materials that were once stored in — oh, let’s call it the Chaos Drive — is a major unintended consequence and benefit found at the intersection of cloud computing social media and multi-tenancy.

Final thought, last week Apple introduced the iPad and immediately, wags started asking the inevitable pointless question — What’s it good for?  I don’t know.  But I do know that new products like that get the creative juices going in right brained people and it wouldn’t surprise me if, like cloud computing, iPad develops some unintended consequences/benefits.  Can’t wait to see what they’ll be.

Economy rising

This just in, the New York Times is reporting that the economy grew at an annual rate of 5.7% in the forth quarter, the fastest pace in over six years.  This would indicate positive results for the economic stimulus set in motion a year ago.  Certainly, anecdotal evidence from our briefings with software companies confirms this trend.

Apple Software, Inc.

When Apple changed its name by dropping the “Computer” word we all thought that the reason was the phenomenal success it has had in consumer electronics.  Sure, the company kicks booty with its computers thanks to great design and a stable operating system, but the success of the iPod seemed to point the company in a new direction.

Apple’s success has been three fold — near flawless manufacturing, customer service and software.  More than anything it has been the software that seems to make you almost forget there’s a device involved as some of those who played with the iPad yesterday seemed to indicate.

Yes, Apple unveiled its long rumored slate computer, the iPad, yesterday but what I saw was release three or four of the software that runs the modern iPod and iPhone.  Apple’s success comes from being able to repurpose and add on to a core piece of software that runs its consumer devices.

For example, start with the iPod Touch and you have, an iPod with applications and a nice user interface.  If you add a camera for stills and video plus phone capability you get the iPhone.  That was a nice trick but not so revolutionary as it was evolutionary — at least from that angle.  But now take the iPod software and put it on a bigger device and then plug that device into your HD TV — in the presence of a high speed wireless network — and that device is called Apple TV.  In that vein, yesterday’s iPad announcement is really not much more than iPod in a different form factor and with some tweaks to the software including more applications.

Ok, now there are some significant differences in look, feel, purpose — what is iPad’s purpose? — and the applications that run on each gizmo but the fundamental software appears to be common to all these devices.  And it needs to be said that all of these devices also have in common the ability to connect with the mother ship (not you, Apple!) to download content for a price.

One of yesterday’s announced uses of the iPad will be for downloading and reading newspapers, starting with the New York Times, and books.  In fact a whole new (?) store format for book content will feed the iPad, but let’s face it, that sounds like a repurposing and modification of iTunes.

Now, I am not complaining about any of this.  Downloading digital content — especially the kind that you read and that has heavy-duty information — has been a missing factor in our digital lives and I, for one, am glad to see this evolution.  If iPad can help to save the newspaper industry, I am all for it.  But I am most impressed with the vision and the execution on that vision.  Apple built sophisticated software for iTunes and the iPod and then contemplated the number of ways they could leverage it to invent not only a number of useful devices, but also categories.  That’s genius, if you ask me.

Perhaps the next game we all play on the web will be asking and answering the question, What will Apple do next with its software?  I think it’s worth pondering.

Flash analysis

Just about every vendor that briefs me these days makes a point of telling me how robust business was in the forth quarter.  They usually go on to say how good business still is.  The obvious conclusion is that going back to October 2009, which is nearly four months ago, business began a noticeable pick up.

Certainly Google’s Q4 earnings last week at just under two billion dollars on revenue of $6.6 billion confirm this.  Many companies that buy Google Adwords are the same companies that brief me and presumably some of them read this.  This would all seem to mean that recovery is underway.

I still worry about structural economic problems — there aren’t enough jobs and we don’t make enough of the things that we buy, for instance.  I also know that a sample of people who call me up to say they’re doing well is not necessarily representative of the whole market.  But at this point, I’ll be happy to take half a loaf as long as I know the other half is coming.

Marketing and research

One of the reasons that sustainability is such a big issue for all of us is the way the marketplace has shaped up in the last few years.  A telltale sign is the initial public offering (IPO) market.  The once vibrant activity of bringing new companies to the stock markets has shriveled up and with it you have a graphic description of a relative lack of innovation in the economy.

I say relative because there is plenty of innovation going on within established companies; it’s just that new company formation is down and that’s important.  Innovation by new companies defines new category formation while innovation within established companies is mostly about product line extension and improving existing products while lowering their production costs.  While each is important, even vital, the innovation patterns are predictive, to a degree, of demand in the marketplace.

The demand in this market is for incremental improvements in products that companies and individuals already have.  For example, while new cell phone users enter the market each year, the business opportunity is more targeted at existing users coming off contracts and looking for the next gadget.  But what should that gadget have?

Unfortunately, existing customers can be a notoriously fickle bunch.  Existing customers can upgrade, and vendors hope they will, but the urgency of upgrading is much less than what’s found in first time buyers.  Then there’s the attrition issue.  There’s no reason why a customer has to remain loyal at the end of a contract.  Customers can and do take their business and their phone numbers to the next company with a better offer, a nicer gizmo.

The process goes in both directions and that is the reason we call it a zero-sum market.  It can be encapsulated in the old phrase, “win some, lose some” except that modern companies and their shareholders understand the former and block out the latter, which brings up the central point of this piece.

To be successful in a zero-sum marketplace, a company has to exist on a sustainable footing.  One of the pillars of sustainability in this situation is marketing research.  For a long time marketing has been seen as a one way street focused on blasting messages that we all hope stick enough to generate leads that sales people can pursue and close.

This type of marketing works very well in emerging markets with new categories being formed for the simple reason that nearly everyone — or at least a big population — needs the new category product.  Every warm body is a lead and everything that comes into marketing gets shoved at sales where the sorting happens.

Things are very different in a zero sum market for the above reasons and many others.  For one thing, sales has to do a better job of qualifying, of understanding which customers really will buy the upgrade and which will sit on the fence.  If that’s true, then marketing’s job has to change too.  Marketing still needs to be that part of the business that gets the message out, but increasingly, marketing has to develop a serious research function too.

Research in this case means gathering unique data about customers’ attitudes and behaviors, which it can use in crafting messages and helping sales to qualify.  The marketing research function has been around for a long time but it is something that larger firms would engage in.  Research is time consuming and can be expensive to conduct.

Fortunately, social media has come along and some of it is quite good at helping with the research function.  But we’re far from the point where social media is highly effective in the research effort for two reasons.  First, too often we think of social media and social CRM as essentially outbound tools — things that we use for messaging.  In this effort there is no difference between a zero sum market and an emerging market.  The tool is used to get a low cost message out to a large population of friends in the hope that a small percentage of them will buy something.

The second reason is that we haven’t fully embraced the idea of researching before messaging.  This is ironic and not universally true, but true enough.  Community-based social tools pre-date the outbound variety by several years and there have been some great success stories of companies reaching out to customers to mine their minds.

For the sake of sustainability in a zero-sum market, I think what’s needed is a synthesis of the outbound and the inbound, in a roughly 80/20 ratio.  Twenty percent research should be able to drive eighty percent messaging, but that’s not all.  The twenty percent research will do a lot to inform other parts of the business about what’s important to the increasingly fickle customer and enable product development, for instance, to better do its job.

Taking this approach marketing stands to gain status within an organization moving up from the perception that it only spends money on hard to quantify projects.  This could be marketing’s golden age.

Study in contrasts

Google announced earnings yesterday and the Fed informed us that unemployment is still rising.  What to make of this seemingly contradictory information?  Nothing much beyond the fact that we are still in the early days of a recovery.

Google’s announcement that it had earnings of $1.97 billion in Q4 on revenues of $6.67 billion is a strong indicator that business is beginning to do the work of marketing its wares, which eventually results in revenue, new jobs and all the rest that goes with a recovery.  Google’s numbers were 17% higher year over year.

The Fed, meanwhile, released disappointing news that initial joblessness claims increased to the tune of 482,000 new claims last week.  That number was up from the 440,000 expected and while there were technical reasons for the increase, it didn’t feel good.  The U.S. unemployment rate is stubbornly stuck in the ten percent range and you can expect it to stay there until demand improves across the board.  Complicating the task of growing jobs is the dismal fact that in the last decade American manufacturing has been hollowed out.

According to The American Prospect, 42,400 factories decamped these shores for dim sum in the last decade.  If you have read this space before you know this statistic because I used it recently.  Nonetheless, it bears repeating and repeating.  The Prospect article argues that among all the industrialized nations of the planet, ours is the one without an industrial policy.

Other countries have well defined industrial policies and they execute on them which is why we import so much (check out our trade balance) of what they export.  I suppose some enterprising new-classical economist will someday try to argue that we lead the world in exporting whole businesses rather than mere products but even then one would have to ask what we got for these exports and why our trade balance looks like a bad cholesterol report.

So there is good news in the economy but unemployment might stay high for a long time as we look for ways to reabsorb the predominantly blue-collar workers who lost out in globalization.

Sage evolves on-demand services

A long time ago I wrote a white paper about how on-demand technology would change business.  The paper covered all of the ideas you’d expect including lowering costs and improving access to on-demand applications.  But there was another part of the paper that speculated that if technology was that easy to come by then the next thing to look for was enhanced service based on the technology.

In other words, technology access would cease being a gating factor in executing business processes.  Replacing technology as a gating factor would be having the smarts to use it optimally.  I envisioned that service companies that had operated more or less locally would, or at least could, become national or global by selling their expertise based on the on-demand technology.  The computer and telephone enabled public relations firms to become national in scope, but a bit more is required for a marketing services company or a design company for example.

It has taken a long time and it seems what happened first and what I had not fully foreseen was the globalization of applications based on platform technologies.  Right now, Salesforce appears to be the most successful practitioner of that art.  But now we appear to be at the beginning of an era when business services will become global or at least national based on the consolidated expertise of some organizations.

Judging by some of Sage Software’s recent actions, that globalization might be taking off at the SMB end of the spectrum.  Recently, Sage announced new marketing services for its ACT! customers.  The first service will be email marketing available on-demand.  Now this may not seem to be a very big move since there are many independent email marketing providers already on the market like Constant Contact, ExactTarget, VerticalResponse and many others (you get 36 million hits on Google).

But don’t lose sight of the bigger picture.  With a three million user installed base in North America that has many marketing needs beyond email, Sage is poised to build a services engine that could eventually rival its software business.  This would be a very smart end run around the company’s own business model limitations.  To be precise, Sage sells its products exclusively through a reseller channel.  The resellers deliver product, customization and advice leaving slim pickings for Sage beyond the license revenue.

The primary way Sage grows in this model is through product sales and by recruiting new partners.  But no market is infinite and the market of resellers is relatively small compared to the market of end users.  You see where I am going.  There is nothing prohibiting Sage from offering services based on the products it makes and the installations that its partners effect.  As a matter of fact, offering this kind of service, which only makes the end customer more productive, should drive demand for the products themselves.  Looks like a smart and virtuous circle to me as well as a new kind of on-demand service.

I believe the era we are entering will be constraining for many companies in several ways, not the least of which is transportation.  As fuel prices resume their rise with the recovery, companies will need to find ways to take travel costs out of their value propositions.  That should mean a need to enhanced marketing as in, how can we use marketing rather than face time to close more deals?

The answer to that question goes beyond email marketing and probably beyond the meager efforts that so many SMB companies now use to sell their products.  Centralizing key services that can be delivered at scale via the Internet will enable SMB’s to continue to compete in select markets against larger competitors.  It is also a growth market and who doesn’t like that?