Archive for the ‘Economics’ Category

What’s the world coming to?  Microsoft lost money in the software business last quarter, the first loss in a decades long string of positive earnings from the world’s biggest software company.  Sheesh!  Yes, there were extenuating circumstances that you can read about here, but the loss signals the breadth and depth of the impact that the tablet is having on the hardware market.  The iPad tablet to be precise and its economy size, iOS sharing little brother, the iPhone.  For a quick slide show on iPad’s penetration and adoption check out this presentation from Business Insider.

Last time I asked if hardware was becoming sexy again and why.  The answers seem to be “Yes” and “Because tablets have reached a new price point that opens up more emerging global markets to computing.” Tablets and their near kin, smartphones, are defining a global computing platformfor the next decade and beyond promising first world information access to many people formerly left in the dust.

The writing was already on the wall when analyst firms IDC and Gartner recently documented a stall in the PC/laptop forward momentum.  Lower PC sales means fewer operating system sales and all that goes with it.  To be sure, tens of millions of units are still being sold this year along with operating systems and productivity software often bundled in.  But growth has stalled as new customers in emerging markets are voting to type on Gorilla Glass over keyboards.

Every paradigm goes through a predictable lifecycle and the computer operating system dependent on hardware sales is another example, not an exception.  Microsoft, Intel and others invested heavily in thin, ultra-light laptop machines as the next thing that would protect the franchise and compete with tablets, but they were still too expensive and ultimately not cool enough.  If Microsoft expects to get its OS mojo back it will need to cajole its hardware partners into really being competitive with tablets.

Right now, everything is going the way of the tablet and Apple can almost do no wrong.  Even when a European judge made a finding in favor of Samsung in a patent dispute with Apple recently, he declared the Samsung gear “not as cool” as Apple’s and therefore not infringing on Apple patents.  That’s just amazing.

Windows 8 comes out later this year and Microsoft has introduced a tablet of its own, the Surface.  The game is far form over but the latest brush with reality suggests Microsoft might have been prescient in going “all in” as Steve Ballmer said of the company’s approach to cloud computing some time ago.  Microsoft is at some intermediate point in its journey from vendor of licensed software to ringmaster of a giant subscription economy.  Like many companies in similar transitions, the going isn’t always smooth but if anyone can pull this off it ought to be the guys in Redmond.

When I’ve spent time with the Redmond gang over the last couple of years I’ve been impressed with how much they get it, not just at a high level but throughout the organization.  All in, Azure, and retail stores suggest a company thinking its way through the changes.  And analytics and social networks suggest they really get it.  Maybe all in should be replaced by we get it or better, we get you, but not quite yet.

But on a cautionary note getting to the cloud or to tablets won’t be enough; this is a business model change that every company has to deal with and Microsoft has done more than many already.  Now, Microsoft’s partners have to pick up the gauntlet and evangelize more than ever.

This week (on July 25) Zuora will release a Fireside Chat video discussion that I am participating in.  It will be all about the cloud and subscriptions and I expect an important theme will be the attention that subscription companies need to pay not to selling but to service and ensuring customer happiness.  And, oh, heck, while I am talking about myself I might as well mention that my new book is coming out around the same time — “The Subscription Economy — How Subscriptions Improve Business.”

While the changes in the industry might be painful for some, they also represent innovation and creative destruction which is the hallmark of a vibrant economy.  The issue for us is not how to slow down change but how to embrace and leverage it.  Once the election clears out I think Q4 could be an important turning point as winners and losers get back to the work of inventing the future and making money.


A few years ago, Harvard Business School professor, John Quelch penned a post in which he invented the term, “middle aged simplifier” which is a person of middle age in the process of breaking down the household that raised and launched children.  This simplifier was, according to Quelch, mostly female and mostly interested in acquiring services and experiences of all types, rather than buying more products.

Quelch’s metaphor is of selling the house in the ‘burbs and migrating to a city for its cultural attractions, restaurants and quality of life that does not include mowing the lawn or renovating the kitchen.  Now a new study from sociologists at UCLA documents the pathology behind the catharsis of simplifying.

Researchers from UCLA’s Center for/on Everyday Lives of Families (CELF) studied 32 families and their possessions and wrote “Life at Home in the Twenty-First Century: 32 Families Open Their Doors,” complete with pictures of over stuffed rooms and the obligatory garage that no longer accommodates a car.  The research team included archaeologists, anthropologists and other social scientists.

Among their findings which I am quoting from UCLA Newsroom:

  • Managing the volume of possessions was such a crushing problem in many homes that it actually elevated levels of stress hormones for mothers.
  • Only 25 percent of garages could be used to store cars because they were so packed with stuff.
  • The rise of big-box stores such as Costco and Sam’s Club has increased the tendency to stockpile food and cleaning supplies, making clutter that much harder to contain.
  • The addition of costly “master suites” for parents proved the most common renovation in the homes that were studied, yet the spaces were hardly used.
  • Consistent and troublesome bottlenecks emerged in the homes, yet families rarely devoted renovation dollars to remedying these obvious problems.
  • Even in a region with clement year-round weather, the families hardly used their yards, and this was the case even among those who had invested in outdoor improvements and furnishings.
  • Most of the families relied heavily on convenience foods like frozen meals and par-baked bread, yet they saved an average of only 10 to 12 minutes per meal in doing so.
  • Fragmented dinners — those in which family members eat sequentially or in different rooms — threaten to undermine a sacrosanct American tradition: the family dinner.

So what’s the CRM angle on all this?  In the interest of brevity, I thought I would bullet some ideas.

  • Clearly, with or without CRM, consumer society has reached a zenith and the limit to acquisition of even more stuff may just be the lack of space to store it.  The joke about expanding to fill the available space is coming home to roost (if it can find a toehold).
  • As an economic reality, if current households are literally full AND new household formation is below what would normally be forecasted AND wages are stagnant AND the consumer makes up two-thirds of consumption in America, it is hard to see how growth resumes.
  • I think you need to tease apart the ideas of hanging onto children’s toys and clothes for the “grand kids” from getting a deal on paper towels at Sam’s or Costco.  At least the towels get used up; the toys are waiting for toy Godot.
  • Our eating habits drive the obesity epidemic.

No wonder the simplifiers were documented by Quelch; they were the leading edge of the wave.  But they were coming out just as the recession hit and now with house prices depressed the whole process might be in semi-permanent arrest.  People with big suburban homes have found it hard to get their price, which backs up the process of deleveraging the garage, which might add to the stress.

What to do?

Regardless of one’s ability to move house, with fewer spaces to park additional acquisitions, it would make sense that more vendors will focus on services and experiences.  Hence the software, especially the social software that helps us discover attitude and sentiment.

Perhaps there is a silver lining and some future entrepreneurs will make money by returning usable square footage to the homestead (clutter busters?).  People armed with a dumpster and trained in the hard science of evaluating and tossing the unwanted and the exhausted or broken might become the new go-to professionals.  I can just hear Steely Dan singing “Kid Charlemagne” — “…just get it all outta here…”

Jeff Foxworthy made many jokes and dollars defining rednecks as people with aging and non-running cars in the front yard. Turns out they were not unusual among humankind; they simply had bigger yards. There is a suburban equivalent and they need a name.  Please help!

This bookends yesterday’s piece about economics.

I have always been interested in the similarities between biology and economics and ultimately business. In the last few years we’ve adopted some of the parlance of biology when we talk about business, especially social business. Perhaps the best example is the analogy we freely make between a vendor and its partners and supply chain, i.e. “the ecosystem.” But itdoesn’t stop there; it extends to the customer as well.

We use “ecosystem” in a truncated form, assuming all relationships are good or beneficial, but that doesn’t have to be the case, and reality does not support this sanguine view. After all, there is a relationship between the gazelle and the lion, though it only seems to benefit one side. But even here, the lion provides a valuable service — if not to individual gazelles, at least to the species — by weeding out the least well-adapted and the plain unlucky.

If you study an ecosystem, there are at least four kinds of relationships, and one defines each species’ place in it. You can even represent these relationships in a two-by-two chart that describes these symbiotic relationships. Let’s take a quick look at them and then make the CRM point of this piece.

The four symbiotic relationships that define life in an ecosystem are:

  • Mutualism, a relationship between two species of organisms in which both benefit from the association.
  • Commensalism, a type of relationship between two species (plant, animal, fungus, etc.) in which one lives with, on, or in another without damage to either.

The next two are tricky because they seem rather similar.

  • Amensalism is a symbiotic relationship in which one organism is harmed or inhibited and the other is unaffected.
  • Parasitism is a relationship between organisms in which one lives as a parasite on another.

We well understand parasites, but the relationship does not have to be destructive. The big difference between the last two is that parasites may harm their hosts but the best parasites derive all their needs from the host without harm. There can be parasites that are amensalists, but that’s getting rather technical. How would you describe the relationship between the dairy farmer and his herd?

I sometimes think that one of the big tests of CRM and especially our socialized version is that much of business has evolved along the lines of the last two — parasitism and amensalism. If the last decade of CRM has taught us anything, it is that business needs to get to commensalism or mutualism. Customers are demanding it, and even our language about business suggests this.

Do we have customers or consumers? In my mind, customer describes a more mutualistic relationship, while consumer suggests a relationship that is at best parasitic, and maybe not in a neutral way. Our software necessarily reflects our take on the relationship. For instance, is our sales software designed to accelerate deals or to help us do good, mutually beneficial business?

You can’t let customers off the hook, either. How many of us seek only the best deal regardless of whether that deal leaves the vendor without sufficient margin to provide decent support? In these Occupy Wall Street Days, it might not be fashionable to feel for the vendor, but you can’t have a relationship with only one party, so the condition of the opposite member is always a concern. Note that our four definitions make that implicit point.

Social technology is what enables mutualism; it is a necessary but far from sufficient condition of the relationship that social technologies exist. Interestingly, without it we are all independent actors interfacing with a sometimes impossibly large vendor. Without social we are all nothing more than consumers, and that’s the point of business today.

Economics may need to be reconsidered in light of social media. Think about it: One of the bedrock assumptions of economics is the rational actor theory. We’re all rational actors who make decisions and take actions based on our analysis of available information. So how is this affected when information is so much more available through social media? Does having more knowledge — including knowing that others know more or ought to — reduce our options in the market? I think it does, and it means relationships need to be more equal — commensalism or mutualism.

It’s my observation that companies that have yet to adopt social approaches and technologies have consumers. But as time goes on and those same people interact in different ways with each other and with other vendors, the differences between being a consumer and a customer become glaringly apparent.

Companies can adopt social technologies and techniques in an attempt to “speed up” conventional relationships. But the more successful companies already show that social moves the needle in the direction of mutualism.

Like a Virgin

Posted: July 11, 2012 in CRM, Economics
Tags: , ,

It’s a slow week with lots of people on vacation.  I am on a plane heading to San Francisco to shoot a video with Zuora but judging by the number of screaming children under five on the plane I would say that I am in the minority on this one.  No matter, they’re cute and well behaved and remind me of a time when I burned a bunch of miles taking the family on a cross-country trip.  As I recall, we sat in first class and one of my boys who was in the process of toilet training liked to stand on his head in his seat.  Takeoffs and landings were an especially challenging part of the trip.  I’ll spare you the fond memories of the other thing.

But I am flying and writing today and wondering about inflation of all things.  You might find that odd given the state of the economy and the official numbers coming out of Washington and other world capitals but maybe it isn’t.

Inflation is measured as the cost of a market basket of goods and services measured and recorded on a monthly basis.  Naturally, there are numerous games we can play with inflation by simply manipulating the market basket.  One of the favorite tricks of pundits and prognosticators is the exclusion.  That’s where someone says that for instance, energy and food are so volatile that we shouldn’t count them because their volatility skews the numbers.

But what’s the point of having the market basket if you aren’t going to compare apples?  When they take the volatiles out they skew the picture just as sure as they do when they leave them in but with one critical difference.  If energy prices rise or if food does the same, it does me no good to know that inflation is somehow supposedly under control if I don’t have any money left at the end of the month because I spent more on the staples of life than I did the month before.

A few years ago one administration, I forget who was president, started substituting things in the market basket a construct (and a data record) that went back to the New Deal.  Here’s how they worked it.  Say beef prices went up because Argentina was suddenly exporting less and the American beef industry moved to sell more product internationally leaving less for domestic demand.  The inflation watchdogs would substitute chicken in the market basket thinking that this is what savvy consumers might do if beef prices rose too much too fast.  The result was stable inflation rather than the reality that higher beef prices contributed to that penniless feeling you came home from the grocery store with.

Finally, the market basket is far from all encompassing so there are plenty of places where prices rise but their rise does not register.  I remember reading about a guy who kept his own version of the market basket and based it on the things that were most important to him.  One of those things was the cost of a milkshake at the local dairy bar.  I don’t recall all the details but his results were at variance, as they say in economic speak, to the “real” inflation numbers.

In that spirit I would like to offer an item for the basket and, who knows, I may be starting my own basket.  It’s the price of wireless internet service on a Virgin flight, which uses the go-go service.  Thanks to go-go’s record keeping, I am able to access mu account history.  It seems in 2010, the first time I bought the service I paid $12.95.  The cost actually went down for several flights after that either because they were running a special to get people hooked or, and this is a dim memory, someone was giving free or discounted service to all passengers during the holidays.

At any rate, my point is that the price of WiFi has gone up dramatically over less than two years.  Today I paid $17.95 for the same service I once paid $9.95 for.  Off the base of $9.95 we’re looking at an 80% increase and divided over two years that produces a 40% inflation rate.  Yikes!  Looks like the increasing cost of internet is tracking the plane’s altitude.

Economists would probably just call this pricing the asset to its utility.  You pay a small-ish price for connectivity and you get to have the illusion of being productive while flying 500 mph across the continent.  But even as the price of connecting has increased, the service has deteriorated.  More people on the router means slower connections and increasing frustration.

But more to the point there is the issue of the customer.  Am I simply a consumer who the airline seeks to extract money from as quickly as possible or am I a customer with whom they expect to develop and nurture a long-term relationship?

To be fair much of Virgin’s messaging to me by the way they treat me suggests they think of me as a customer but that’s just the business model showing.  The corporate urge to promote consumerism is strong and I would say not fully domesticated.  So we have the market basket of services and they we have those special things they wouldn’t dream of including in the base package.  Perhaps it’s my age and experience showing but I don’t trust corporations much any more.

In a blow to the software licensing paradigm and intellectual property rights everywhere, the European Court of Justice said that it was OK to resell a software license once you are done with it.  The case involved Oracle and a European company UsedSoft, which had made a nice business of reselling the licenses.  The story is reported here at Dow Jones by Vanessa Mock.

It really boggles the mind that such a court could redefine intellectual property rights in such a fundamental way.  Furthermore, I could understand, though not accept, it if this action came from North Korea or China where pirating is an open secret.  But to have the European Court of Justice come up with such a boner leaves me just shaking my head.

It’s almost as if medieval law was resurrected and rather than indenturing people to the land, it now indentures technology companies, and probably many others who provide licenses rather than products, to slavery.

This might be a boon to the subscription economy.  In that model there is no doubt about who owns the software and the terms of use.

So, does Oracle in this case have an obligation to continue providing updates to the new owner of record?  This is a story that will continue to evolve.

Microsoft buys Yammer is either the worst kept secret in the Valley in some time or the slowest simmering headline waiting for life to come out of tech.  Rumors of the deal as well as escalating estimates of its cost have been rampant for weeks so I am glad to put this one to bed.

In light of this deal and of Oracle’s first broadside in the customer experience wars, I think it’s safe to call an inflection point.  Why not?  We don’t call enough inflection points in my humble opinion.  We simply sit back and say remember when…? long after all the shooting is done.

So here are several inflection points I see.  We have crossed from a monolithic “social is everything” era into an era where social is applied to various solutions in the front and even back office.  This is a good thing because it also signals at least the winding down of the social hype cycle and the beginning of the social is the new way of life cycle which will be much more productive.

Yammer and Jive and Chatter signal the nucleus of a market in corporate collaboration, an inherently social effort within the enterprise and especially outside of the four walls.  This is goodness.  Yammer plus Microsoft yields a solution with a bank account big enough to do battle with Salesforce’s Chatter.  But product and bank account might not be enough if, for instance, Microsoft decides to keep Yammer and SharePoint separate for the simple reason that social is a network not a hierarchy.

So that’s enterprise collaboration but there’s also customer experience that Oracle made a big deal about claiming for its own this week.  Where we had a more or less homogeneous social concept of capturing social data, analyzing it and using the resulting information, we now have all that with separate foci on customer experience (selling and marketing), product development (or product marketing) and service (sentiment).  This is all good in that it sharpens focus and makes more niches.

At the same time, cloud technologies have about reached the end of their hype cycles too.  No one, even Larry Ellison, disputes the utility or inevitability of cloud computing any longer.  There are now simply solutions that make inevitability more or less proximate in time.

So, for example, if you need to replace an aging COBOL CICS application (yes, there are still such things in the wild) your first step might be moving it to a Unix emulator in a cloud, a perfect example of infrastructure as a service (IaaS).  On the other hand, if you’re interested in deploying business applications, a website and mobile applications all running off the same data and business rules without having to develop everything three or four times, platform as a service (PaaS) is your game.

And even all this is not the full extent of the inflection points we’re seeing.  In ERP the emerging consensus is that old ERP is still under amortized, too entrenched and vital to replace so we’re seeing a variety of two tier strategies promoted by the leading ERP vendors as well as by emerging cloud ERP guys like FinancialForce and NetSuite.

All this results in market fracturing and meta-stability.  I say we’re in meta-stable states in numerous markets because each point represents a situation that could be better, faster and cheaper but each also represents the reality that customers are only going to go so far in chasing nirvana.

I was just a little boy ten years ago when the paradigm shifted this dramatically but today I can see it all with fresh eyes.

ORCL Launches CEM

Posted: June 27, 2012 in CRM, Economics
Tags: , , , , , ,

Oracle launched its customer experience push this week with an announcement by co-president Mark Hurd.  The new direction begins to pull together the results of Oracle’s latest buying spree in which it purchased ATG for e-commerce, RightNow Technologies for customer service and other technologies for analytics in cyberspace.

While Oracle will always draw skeptics the way a dog finds fleas, I think at least some of the new direction makes good sense but not necessarily for the reasons stated.

The big push into customer experience leaves much unsaid, especially the idea that customers are increasingly turning off vendors and their messages and seeking out indirect approaches to getting the information and products or services that they need.

The push into social media and especially analytics for gauging customer sentiment is a case in point.  People have a natural reticence about revealing too much to a vendor correctly assuming that anything they say in a sales conversation might be later used against them.  Fair enough.  But people are still remarkably unguarded about what they reveal to their peers and hence the boom in all things social.

However, if you look at the quotes recently put out by Oracle executives they’re really still selling old style CRM with the new label of customer experience.  They’re still talking about costs saved and calls avoided because those are the things that make vendors buy and it’s the vendors who are Oracle’s customers — end users not so much.

The strategy is smart because we are in an era of severe cost cutting and not simply for the usual economic reasons.  First off, and I have been saying this since 2007, companies like Oracle have to deal with the fact that energy and transportation costs are escalating making it harder for vendors to visit customers at a profit as well as more difficult for consumers to visit the mall.  This is the age of indirect selling for both these reasons.

But add on the idea that the economy has not grown in real GDP terms since 2008 and you see another dynamic.  A whole generation of people is trying to launch into life and finding it very difficult to form households.  Without household formation things like carpets, refrigerators, sofas and maybe even cars are not being bought in the numbers they would be under other circumstances.

In this age of austerity and stagnation, increasing profits to produce the illusion of growth comes from reducing overhead and avoiding margin gobbling expenses like conventional selling.  So you get things like this strategy of customer experience.  It makes sense to me and positions Oracle and a few other companies in a leadership position so good for them on that.

I also noticed though this curious line in a fine article by Chris Kanarkus of IDG News discussing the Oracle announcement; “Larger companies such as IBM, Adobe and are also building out CEM portfolios.  None of them can compete with Oracle’s breadth of technologies, [Anthony] Lye maintained.”  Of course, Anthony Lye is senior vice president of CRM at Oracle and the architect of the CEM or CXM strategy.  He was the guy buying up the CEM companies last year.

I found it interesting that Salesforce was lumped into the “larger companies” rubric with IBM and Adobe.  Oracle and Salesforce sometimes act like two Tomcats in a cage but keep in mind that Salesforce has yet to crack the Fortune 500 though it is making strides.  At any rate, this looks to me like an attempt by Oracle to set up some competitors for easy knockdown rather than something more substantial on the product front.  I don’t really understand the Adobe reference and while IBM has lately made strides in CRM and analytics the efforts seem directed elsewhere.

As for Salesforce, their efforts are in the enterprise with collaboration and highly socialized applications that are increasingly penetrating new niches.  The Salesforce strategy resembles Apple’s and both riff off the idea of a “Blue Ocean Strategy” that was subject of a book by the same name.

If I had to sum it up, and I do, I’d say we’re at a point in time when the market is splitting up and rather than the monolithic approach to social that we’re seen since the middle of the last decade, companies are developing specialization.  So we see Salesforce focusing on enterprise IT in the true cloud, and Oracle focusing on the vendor-customer transaction while others are carving out their own niches.  Yes, Oracle has a cloud strategy too as well as a hardware division.

So it’s the age of austerity, of reduced personal outreach and increasing relationships with and through machines and we now have the technologies to support the zeitgeist   Eventually, growth will be back on the menu.  Even Lent only lasts a short time.