I was in Chicago for a few days of R&R when Steve Balmer, CEO of Microsoft, spoke to the Microsoft partner meeting in Boston. As a result, I got news of the company’s latest projected delivery dates for its on-demand CRM not from Microsoft, but from Paul Greenberg’s blog: “On Demand Means Right This Second, Even for Microsoft”. Greenberg makes some good points and I completely agree with him that the second quarter of 2007 is a long time to wait given the speed of evolution we have been seeing in the on-demand market.
I might even add another reason to Paul’s list and it’s this: Microsoft needs to deliver something to create some separation between itself and the competition before it has a viable on-demand product or strategy. In years past, the conventional wisdom was that the 800 pound gorilla could hang out and let the market develop a bit before swooping in and taking all the bananas off the table, but that was when markets were new and there was a need for the leadership that standardization provides, that’s not the case today.
Take the early PC industry for example. When IBM launched the IBM PC there were competing architectures and operating systems (DEC alone had three—think about that!) and it was hard to get software that ran on more than one vendor’s products. IBM set the standard and instantly you could write simple equations like ‘operating system equals MS-DOS’ and the rest, as they say, is history.
That’s not the case this time. The CRM market is already rather full of companies offering on-demand solutions from Salesforce.com, which says it has fifty percent of the market, to players like RightNow, Sage, and Oracle/Siebel (pick a name all ready!), as well as Entellium and a bunch in the third tier.
That’s why I say Microsoft needs to find a way to create some separation between itself and the competition. Unfortunately, though, the R&D that Microsoft is pouring into on-demand CRM will most likely be only enough to get it close to the leaders but not to surpass them. Conventional CRM is, after all, a fairly well worn path at this point.
When that happens, the investment in development rarely pays for itself. As Geoffrey Moore has pointed out, the challenging product might be good enough to cause the leaders to modify their prices downward but insufficient for the challenger to charge a premium and thus cover the R&D cost.
Add to that the fact that Microsoft has new competition from on-demand office applications like word processing and spreadsheets and more coming from advertising funded competitors and you can imagine a scenario in which the company looks more like Gulliver pinned down by a lot of Lilliputians than a market bestriding colossus. Keep this in mind: Microsoft won’t fail in its CRM rollout; there will be many customers for these products. However, failure to achieve separation will not provide the revenue boost that a company this size requires to fuel growth and that could be troubling.
Expanding product definition creates separation
Creating separation is something that other established companies need to deal with as well and last week provided an example of a company going in the opposite direction in my humble opinion. The company is Oracle and the event was selling off the OnTarget Sales Methodology Division to Select Selling, which is combining the two companies to form The TAS Group. According to the press release, “OnTarget, the creator of Target Account Selling®, was one of the largest and most recognized sales methodology providers.” Many companies today are increasingly relying on formal methodologies to boost sales performance. This might only be a yellow flag but it raises my concerns and serves to illustrate another point.
The technology market in general, is reaching something of an apogee; hardware commoditized a while ago and software is in the early stages of the same inevitable market phenomenon. With few, if any, new market niches for software companies to conquer, vendors seeking growth are compelled to find new strategies to drive revenue growth such as product line extension, customer directed product enhancement, and improved processes. One of the better strategies for increasing top line revenue in a situation like this is to find ways to add related products and services to the core product offering as it commoditizes. If you are talking about SFA or CRM then one natural conclusion is improving sales processes through sales methodology, which is why I find Oracle’s move so questionable.
At the same time that Oracle was announcing this sale, Harvard Business Review was announcing its double summer issue. Ironically, the issue is dedicated to selling and covers such topics as how we sell today, getting sales and marketing to work better together, and most importantly, a discussion of how customers and markets have changed and how vendors must catch up. Sounds like a good time for methodology to me.
One of the benefits of being an analyst or a pundit is that you get to have opinions that sometimes disagree with the people in the trenches, like now. I am sure the deal made sense to some people at Oracle but I suspect that sometime down the road Oracle might want to ask for a Mulligan to try a different outcome for its methodology division.