Posts Tagged ‘Gartner’

Get a Horse

Posted: December 12, 2013 in CRM
Tags: , , , , ,

ImageI was literally gobsmacked and I had to re-read the post several times.  Gartner analyst Robert Desisto—who I don’t know at all—wrote a short post last week saying that today’s SaaS vendors, “will resist to the move to ‘pay as you go’ because it will have a very big impact on their business model predictability” and become “legacy dinosaurs” as his headline said.

But, but, but! I stammered to myself.  How can that be?  I have been researching and writing about this space for fourteen years.  I was the first analyst to cover Salesforce and a bunch of other early entrants, and one of the first people to have a practice dedicated to SaaS.  They all had pay as you go models, at least back then.  Did I miss something?

One of the real challenges of running a subscription business, and this includes SaaS companies as well as the Dollar Shave Club, ZipCar, and all the other companies that jumped on the bandwagon, is that you have very different revenue flows that must be accounted for.  Companies like Zuora have built big businesses and attracted hundreds of millions of dollars in venture funding to build billing, payment, finance and accounting systems that cater to this massive industry.  Now along comes Gartner with the clear implication that the pay as you go model is not in fact alive and well?  I didn’t get it.  Still don’t.

As a sanity check I contacted Tien Tzuo, CEO of Zuora, a subscription billing, payments and finance provider.  In his previous life Tzuo was CMO of Salesforce and at one point had the job of inventing a billing system for Salesforce that operated the way subscriptions run.  Here are some points from Tien.

  • Just because some SaaS companies do three-year contracts that doesn’t make them enterprise software dinosaurs.  Every successful SaaS company realizes that keeping churn low is a core part of the model, and every successful SaaS company realizes that long term contracts do not equate to low churn—the only thing that truly reduces churn is to have strong adoption and customer success.  That’s why SaaS vendors invest in customer success while on premise software companies do not
  • Many SaaS companies actually don’t offer three-year contracts.  At Zuora, we see lots of companies with month-to-month models.  CDNs, cloud companies, API companies, point-of-sale systems—these industries all skew towards month-to-month.  Radian6 also had a month-to-month model.  The post also says doing three-year contracts makes SaaS companies vulnerable to other startups who choose to offer month-to-month … but there’s nothing to stop the SaaS vendor from changing their billing policy whenever they want. (my note: provided they have a product like Zuora that makes this easy to do the billing and accounting).
  • Customers don’t have to accept three-year contracts.  It’s naive to say that it’s the SaaS vendor that forces it on them—many companies actually prefer long term contracts once they are committed to the SaaS vendor, as this gets them the best price as well as longer-term price protection.  This can be a win-win scenario.
  • This does create havoc on revenue recognition.  Monthly billing makes billing messy but revenue recognition easier.  Annual or multi-year billing makes billing easy but revenue recognition very hard.  There’s no free lunch.

It was such an odd thing to read.  It reminds me of some other chestnuts like, “If god wanted man to fly he would have given us wings,” or “We will never need telephones in England because we have such an abundant supply of messenger boys,” or “Someday every town will have a computer,” or my favorite, “640 KB is all the memory your computer will ever need.”  These are all such Luddite comments you just knew upon hearing them that they won’t stand the test of time.  Heck, this one didn’t survive a day before people started scratching their heads. 

Perhaps the last word on this comes from the most authoritative source—the marketplace.  On December 10, BrainSell, a Boston-based technology company announced it would offer an integrated solution of Intuit’s QuickBooks with bi-directional synch to Salesforce.  According to the press release, “What’s really great is that customers can get a Salesforce subscription from BrainSell with no contract, and the ability to pay month to month!”

http://www.itbusinessnet.com/article/Salesforcecom-Month-to-Month-Subscriptions-Now-Available-through-BrainSell-Boston-Based-Technology-Firm-2963070

 

 


Everybody has a year-end synopsis these days and it’s fun to see what each person deemed important.  Sometimes you wonder if you lived through the same experiences but it’s a good thing to recall everything one more time and maybe reconsider how you’ll remember each.  Here’s my synopsis which is no more or less valid than anyone else’s.

Marketing’s resurgence might be the most interesting development of ‘12 for several reasons.  First, the switch to marketing from other areas of emphasis (like service) shows that many people in the CRM universe feel that the economy is not only healing but returning to form.  In the last few years, social and service, and often the two together, were the CRM market drivers but with marketing showing new vigor, it suggests to me that next year will see business accelerate.  Maybe that won’t take us all the way back to 2008 but what it will be an improvement.

Also, marketing’s renaissance comes via a social salient, especially in using analytics to better understand and segment markets.  Analytics tells me that vendors need ultra low cost ways to get to their customers because the economy is still weak and no one wants to hire people so they’re going for automation and software.  That’s just the new reality and I hate to be bringing the news.  Many markets are price driven — as opposed to quality or service driven — and companies are trying to give customers what they want.

And speaking of price driven and automation, there’s been a nice uptick in the number of vendors offering software robots that can at least triage a service call.  That includes VirtuOz, a CRM Idol finalist and personal favorite.

Big Data hit CRM through the link to analytics and marketing and companies like Dun and Bradstreet, Lattice Engines and InsideView are all taking a cut at this important space.  Another one worth checking out is Awareness, another CRM Idol finalist.  They do cool stuff in applying analytics to the big data pile captured with social media.  In all, social and analytics have shown us that there’s more to social marketing than sentiment analysis which can only be good for the future of the market.

If marketing is becoming automated and socialized, a similar thing is happening in human resources.  Many an HR software vendor has made the leap to the cloud and also to social.  The two will radically transform HR from a back office preserve to something much more front office in its orientation.  HR is rapidly becoming a specialized case of social front office application with important contributions from Work.com, Jobscience, Vana and lots more.

Also, despite what Gartner said in its recent gamification report, I think the future is largely positive in that market.  The major analyst firms put out reports that spell doom when it becomes clear that an early market has gotten frothy and no one in their right minds can reasonably expect the new thing to live up to all the, well, hype.

But the good news about gamification is that it is reaching its adolescence, a time when some of its early adopters will harness it and make it successful.  So the good news I see is that the vendors and customers who do it right will be fine and it will be clear who has the goods next year.

Then there’s mobile, mobile, mobile or browser apps, native apps and always connected native apps.  Making mobile work this year was the result of a collaboration of infrastructure vendors and people who make the applications.  I have noticed recently that wireless vendors are getting aggressive about offering tablet packages for only ten bucks a month to users who subscribe for other devices.  Ten bucks is important as it represents a manageable fee so I look for mobile adoption to accelerate now that all the pieces seem to be in place.

Mobile infrastructure comes at the right time also because numerous vendors have put significant development resources into moving their applications to the tablet.  HTML5 is robust and popular but so are new CRM applications that run natively adopting all of the pinches and swipes that people like about tablets.  Salesforce has a decent solution in Touch and I think we’ll see more vendors produce “develop once, deploy on many devices” solution sets in the year ahead.  Over the last couple of years we’ve watched the early stages of PC and Laptop sales tanking and the hockey stickomatic rise of the tablet and the handheld and next year will be the time when mobile puts its foot down on the accelerator.

With mobile’s arrival as a more or less equal in the platform wars we will be witnessing the first true global platform that I have been talking about.  A global platform means adding millions of new users and customers to the ranks all at once—ok not ALL, all at once but enough to make you notice.  I have a feeling that while a significant portion of those new users will have a good grasp of English, companies that offer bi-lingual interfaces will be the early leaders.  The first step will, of course, be to analyze where your traffic comes from and then maybe to pilot a few pages.  All this may suggest an opportunity for translation services short term.

But that’s next year.  For now, thanks for continuing to read this space and please come back in 2013.


I have been an analyst for ten years and during that time I have witnessed economic rises and falls.  As the economy goes so goes the software industry analyst world.  Yesterday Gartner announced that it was buying AMR Research for $64 million — a nice payday for the founders, I guess, and a reminder that the economy is fragile.

The last recession saw several analyst firms run out of gas.  I was working at Aberdeen Group in the early part of this decade when the owners and the venture capitalists tried to decide if it was worthwhile to keep the lights on.  The ultimate decision was maybe.  The VC’s bought out the founders and sent them packing while they brought in a new CEO with a new direction.

The new guy was not so much successful as he was timely.  He had the good fortune of running the ship during the beginning of the recession’s recovery phase.  Even so, the VC’s had limited patience and limited cash and as soon as they could Aberdeen was sold off.

At $40 million in projected revenues, AMR is a small company when you compare it with Gartner’s billion dollar plus revenues.  But AMR and other smaller analyst firms provide a valuable service simply by having an independent voice that I don’t think Gartner can match.  As a public company Gartner must be all about volume.  They need to sell many subscriptions to the same research and entice many people to their conferences to make money.

But the analyst business is not about volume; it’s about one on one, roll up your sleeves and consult with a customer about that customer’s unique business needs and position in a market.  Not to denigrate Gartner, they have good people doing good things.  However, the business model of publishing analysis in volume seems outdated.

Ten years ago most analyst firms tried to sell subscriptions and several were successful but when the economic tide went out many customers decided they could do without the mass produced information and they haven’t come back.  Individual analysts became stars in lieu of firms.  Paul Greenberg, Brent Leary, Jeff Kaplan, myself and a host of emerging boutique analyst firms with a small hand full of people are all making a living in markets where subscription services once ruled.

We often publish our insights free in the blogosphere and if you need more than that you can call us.  That’s the ailment afflicting the analyst world and the big subscription model today.  Customers don’t want to pay for insights and they don’t have to.

So when I look at the Gartner-AMR deal I see an old and increasingly out of date business model but what I don’t see is the company or the industry becoming more stable or secure.  Less competition means fewer voices and fewer ideas, a mono-culture precariously positioned to address the markets in an era of great change.