Niches

Posted: March 27, 2006 in CRM

I don’t do endorsements – that’s for ball players. For me to endorse a product would be the end of my credibility, all I look for is what works and, if it does, I’ll point it out. If something doesn’t live up to the hype, I follow my mother’s advice and say nothing. That’s why I was surprised when someone brought to my attention a borderline situation in which a vendor did its best to imply my endorsement against its rival, Salesforce.com.

Now, Salesforce.com is not a perfect company and now and then I point that out publicly, but I also advise them from time to time and I want that made clear too. The whole episode and what follows is my musing on why one company, like Salesforce.com, becomes enormously successful while others eat dust. This is not a definitive study, just my observation.

It seems like a lot of companies in the CRM space are now trying to use what they see as Salesforce.com’s tactics to get a leg up in the market, but, predictably, they are getting it wrong and this is important. There are more than a few companies that claim to do everything the Salesforce.com does but at a lower price point or with greater reliability or some other “differentiator”. I call this the classic takeaway because the competitor is simply trying to slip into a market niche established by its rival.

In the animal world there is a species of bird – I think it’s the cuckoo – that lays its eggs in another bird species’ nests. The unwitting bird hatches the cuckoo’s egg and raises it as if it were its own. Perhaps the word cuckold has roots in this piece of avian legerdemain. It’s a nice trick if you can get away with it and that’s what so many vendors try to do – lay their marketing eggs in a nest already built by someone else. In markets it rarely works.

Some of you will say that’s what Salesforce.com did with Siebel and turnabout is fair play, but on closer examination that’s not what I think they did. Siebel became the biggest CRM vendor (with $2 billion in annual revenues for a while) on the strength of its client-server based solution – think of that as the nest. Salesforce.com did not try to lay its eggs in that nest, in fact, Salesforce.com did everything it could to trash the existing nest and build another, better one, right next door. Salesforce.com turned Siebel’s primary strength into a liability effectively making Siebel unattractive for a growing part of the CRM market.

To succeed, Salesforce.com had to risk being different. They didn’t run around saying they were 10% better than Siebel, they invented their own niche and delivery model and sold that as a 100% superior solution and that’s my rather simple point. That’s why endorsements don’t mean much when they are used in a classic takeaway strategy but they are worth a boatload when a thought leader identifies something new and tells the world about it.

Just in case you might think this is all over, you should think again. Eventually, the hoard of competitors will wear down even the best new niche and the messages of “We’re cheaper” and “We’re more reliable” will have their effect. When the barbarians finally break through, though, there won’t be much left behind the wall. They will find they have been actors in a creative destruction play.
Smart companies don’t wait for the inevitable because they are always looking for new niches to build. You can see that happening right now. Although Salesforce.com makes virtually all of its revenue from CRM, the company is thinking ahead to the next wave in its evolution with its platform strategy. Other vendors are working away at platforms too and Salesforce.com will not be alone but as it did with on-demand computing, it will have the pole position based on its first move into the space.

I have written a lot about the disruptive innovation part of this tactic and thinking about disruption is another important way to arrive at the same point. It is the companies that change the rules and find a new way to do something by way of a process, product, or model, that have the best chance of succeeding.

As for the others, the ones that scream, “We’re just as good, but cheaper!” they never get it. Maybe one or two of them will survive for a while in a shrinking niche, but eventually they are irrelevant, Geoffrey Moore and Clayton Christensen each in their own ways wrote books that explored these inevitabilities and it amazes me how well their theories predict movements.

I am just the guy that gets to watch everything unfold. Some job, eh?

Comments
  1. Kingsley says:

    As I watch some of the Salesforce competitors copy us outright, I feel terrible – mainly because I think it’s criminal to stick smart people in a room and ask them to come up with a copy.

  2. Fred Munn says:

    I wish to posit that the CRM system should actually become the central platform for most businesses. As was pointed out in one of these columns, the entire enterprise is or should be focused on delivering superior products and services to their customers. What department is not concerned with this effort?
    My point is this platform should be delivered to all information workers in an enterprise. Why is this critical? The most popular costing methods today are either activity based costing, or time based costing. What do CRM systems excel at tracking? Activities and time! So, if you expand the CRM platform to all users in the organization, wouldn’t senior management have a truer picture of the costs in providing each step in providing the products and services that result in a satisfied customer base? Since CRM systems contain the necessary databases, BI tools, and reporting tools, why do we insist on deploying seperate costing systems?
    A properly constructed and deployed CRM system ( Maybe renamed a “What we do and how we do it system” ) can do it all, if built as a platform.

So, what did you think?

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