JCL Blog

Market Like an Engineer

It seems that every time I attend a presentation, usually at a conference, given by a Googler, it starts with the disclaimer "I am not a marketing person...". The narrative from there can devolve into a rif against the evils of sales and marketing people and the comparative virtues of engineers. Despite the hyperbole, they do have a point. Marketing without good engineering is just snake oil sales.

Here are three virtues of engineering that I appreciate the most:


  1. Desire to build a better mouse trap: Good engineers want to be useful and solve problems. Engineers don't want to work on something that is not really a problem, or that is invented just to serve some other purpose.

  2. Disdain for waste or duplication of effort: Engineers want to share their work so those that come after them can build on top of their efforts instead of wasting effort relearning what has already been learned by someone else. While this does not always result in good documentation, it does produce a collaborative atmosphere with vibrant knowledge sharing.

  3. Thirst for customer feedback: Engineers want to know as much as possible about the customer experience using their product. If you give engineers a choice between the good news (compliments) and the bad news (criticisms) they will take the bad news because it will help make the product better.


These traits are encouraged in engineering departments because most engineering departments are set up like academic institutions where sharing knowledge is rewarded and failures are celebrated as long as there is strong thinking behind them.

Marketing people that think like engineers apply these same virtues to their objectives. They want to get their product into the hands of people that can use it, they don't hoard data, and they want to know the real numbers.

The people running marketing departments need to think about how to create an environment that encourages marketers to market like engineers.

The Fremium Highway Is Changing Your Town

When I started my company in the mid 90s one of the big consulting firms wanted to charge me $83,000 to design a process for selecting a PBX/ACD for the call center.  They seemed to think it was business as usual, so I guess some companies actually paid them to do things like that.  The implication was that the cost to run the selection process would be an even bigger number, but I never learned the details because I was already out the door.

Now I can just go to RingCentral.com and sign up for a free trial and be on my way.  No money to the consultants, no million dollar hardware purchase, no multi year maintenance contacts, no waiting six months through an expensive implementation process to see if it will work at all.  We have come a long way in 15 years.

It seems that just about everyone is offering a free service as an enticement to check out their stuff.  In some cases it is for a limited time and others limited functionality, but getting the technology needed to start a new company or start a new project is cheaper and easier than ever.

So now what is that channel partner's (the consultant) role in the marketplace? They probably still get big companies to pay big money to design processes and implement them, but it is clear that they are not as essential to the selling process.  The new Fremium model is an interstate highway right past their town.  Cars may can get off and buy stuff, but they don't have to slow down.

Companies are finding expense reports showing purchases at amazon.com that are not books.  Their employees found the line at the IT department for a new server to be too long, so they just went to AWS and rented one.  Where is the channel in that purchase?  The cars on that highway didn't even need to stop for gas.

The Cloud is Out of Our Control

Anyone familiar with network diagrams knows that the cloud symbol is used to refer to the things outside of the control of the network owner. In the old days it meant our network connects to the Internet here, or connects to the telephone network here.

Wait, that is still what it means!  By this definition we have had cloud computing since the 50s. What is the big deal about all of this “Cloud Computing” then?

True to the definition, we are shifting more computing from inside our networks to the part of the diagram depicted by the cloud – the part out of our control.

Web email (gMail, Hotmail…) was the first mainstream application of this, but network administrators know that the migration to the cloud started well before that with security services, enhanced phone services, distributed computing grids.  And everyone else is watching as we are now getting cool cloud apps like Dropbox, Evernote, Google Docs, and Office 365.

So are we just back to timesharing the VAX? Well, no.

Yes MS Azure, AWS, Google App Engine, OpenStack, and the dozens of other offerings do look a lot like mainframe timesharing with one big exception – the new cloud services talk to things inside your network, and talk to each other.

All of this talking is done with Application Programming Interfaces (“APIs”).  These are instruction sets that enable people or computers to interact with systems, without being in the system. 

We will all be hearing a lot about APIs in the weeks ahead because how they are used and who owns them is the center of the currently front page lawsuit between Google and Oracle

 

Did You Know that Netflix Runs on AWS?

CloudFair 2012 ended yesterday and I was lucky enough to see about a dozen of the presentations.  It was a good show with many well thought out pitches. Some were more educational, some more evangelical, some fell flat. 

I find it interesting to find the theme in any convention.  Here is what emerged for me during CloudFair 2012:

  1. The Cloud is Real:  It scales, it is cheaper, it slices, it dices.
  2. IT Departments are Dinosaurs:  Some presenters tried to defend IT departments by explaining why they are in a tough spot. But everyone agreed that IT departments are in the way.
  3. Some Cool App Runs on our Stuff:  Google had the royal wedding, AWS has Netflix, Everybody has a validating customer.  If you doubt it, here is a juicy chart about traffic or here is a customer quote about how we saved the day.

Who attends these conferences?  The premise is that the audience is the potential customer.   Which could be either the IT Department or the end user inside a business.  If not that maybe channel partners that already work with the potential customer.   The potential customer is the IT department.  How it got to be cool to blast the customer is beyond me.  Last I checked, the IT department still had the budget.

Selling to Enterprise; or the Shadow Enterprise

Everyone agrees that IT at the enterprise level is messed up.  Here at CloudFair it is just an excepted fact.  The are those that think the Cloud will save us and we just don't have to think about the Enterprise anymore.  That would be nice, but most people realize that Enterprise IT will be here next year, and some of them realize that it will probably not be much different than it was last year.  

This thought tracks along with a post from famed VC Ben Horowitz:  Meet the New Enterprise, Same as the Old Enterprise. So what should channel partners do today to span the widening gap between new technologies and Enterprise IT.

  1. Skip the hyperbole: talking about the end of the world as we know it is tiresome
  2. Realize your value: wide gap = big opportunity, where do you fit?
  3. Find your voice: the new entrants have done a great job at this, so can channel partners
  4. Find like minded clients:  there are so many potential clients that qualifying becomes the key.  

As an industry, we need to think differently about channel partner attributes.  The badges of yesterday (gold status; certifications) will fade and new  badges (success cases and competencies) will rise.  Newer still will be complete end runs around old thinking. When the environment gets confused and uncertain, decisions slow down (or stop).  

The enterprise sales landscape is littered with stalled sales cycles that can be tracked back to the uncertainty associate with the changing IT environment.  Salesforce.com has benefited from the stalled CRM environment.  Salesforece.com may soon become a casualty of this very phenomenon.  Most companies buy Salesforece.com because they just cannot bring themselves to buy a big CRM ($ millions, years...) projects, but must do something, so they buy salesforce.com by the seat by the month.  Then Twitter comes along and enterprise IT really does not like it, so it they buy Chatter.

By some measures, half of all big IT initiatives (and that is big in terms of dollars and time) never even make it to launch. 

Add to all of this the growing trend of shadow IT in big enterprises and it is clear that we live in interesting times.  

Tale of Two Conferences

I was fortunate enough to attend two Cloud Computing conferences today.  They were right next door to each other in Seattle, one at the Sheraton (CloudFair2012) and the other at the Convention Center (Cloud Intelligence Conference).  It was an interesting study in the current state of tech marketing because the CloudFair was dominated by Google and the Could Intelligence Conference by Microsoft.  While it is not really fair to make a full comparison because I could only attend part of each (the CloudFair is in the workshop day of a three day conference and the Cloud Intelligence Conference was only a one day thing), it was a great way to see the contrast between how Google and Microsoft reach out to their markets differently.

The experience reminded me of the great exchange between Bill Gates and Steve Jobs at the All Things D conference in 2007 where Walt Mossberg asked them what they appreciated most about each other and Steve said that he admired Bills ability to partner, and Bill said he wished he had Steve’s sense of style.  Two great companies, two completely different approaches.  The same can be said for Google and Microsoft.  Microsoft still knows partners and Google’s “style” is to turn as many of its engineers into marketers as possible.

Microsoft Knows Partners

At the Cloud Intelligence Conference, the speakers were mostly talking about Microsoft Azure and Office 365, and most of the speakers were not from Microsoft, but partners of Microsoft that help Microsoft customers run their Microsoft products.  These partners are formidable companies in themselves, and some have products that integrate closely with Microsoft’s offerings.  The speakers were talented, had a great deal to contribute and were not just pitching their own services.  Since just about every company has Microsoft in its IT infrastructure somewhere, it is a given that the audience were already Microsoft customers.  The presenters took advantage of this fact and were helping Microsoft customers see what was on the way to them from the mothership.  The negative of this approach was that the audience did not feel that they were getting the inside view into Microsoft, and there was a bit of a theme of ‘yes we are keeping up with the cool kids’.  Neither of these is going to push customers off of a platform already through their organizations.

Google Is Not Evil and Engineers are Not Marketers

Google as a company defines itself by declaring what it is not (evil) and continues that method with Google engineers declaring they are engineers and not marketers.  These guys were great speakers, very knowledgeable, easy to listen to, and clearly passionate about Google products.  In addition, and in contrast to Microsoft, they did a good job of letting the audience get a sense for the inside Google perspective.  Developers do like that kind of thing a lot.  The talks were clearly aimed right at the users with no reference to partners or how a partner could use this technology to take better care of its clients.  It is very possible that there were partners in the audience that were going to do just that.  It was interesting that the Google guys were both published authors and took the opportunity to plug their books.  I suppose this could be a result of Google’s culture of academia (where college professors are always writing and plugging their books).  It was a bit ironic however, because they did say they were not going to try to sell the audience anything, well except their books.

Great change only happens when innovation makes things 10 times better.  Clearly the tools available to businesses through the cloud are at least 10 times better, so this is going to be a time of great change and it is hard not to be excited about it.  It will be interesting to continue to observe these two great companies build their tools and their markets.  Along the way Microsoft will surprise everyone and innovate, and Google may even surprise themselves and do some marketing.

One HP is a lofty goal for the new CEO

From one end of the financial spectrum to another... HP had its annual meeting last week where Meg Whitman introduced her plan to combine the PC and Imaging divisions.  HP has been through a great deal in the past 10 years and getting back to stable ground is not going to be quick or easy.  And it does not seem like the press is going to give the new CEO much latitude.  Here are a few of the headlines:

MarketWatch:  H-P’s latest move draws skepticism

WSJ:  CEO Whitman Tells H-P’s Workers ‘Everything Is on Table’ in Overhaul

Reuters:  HP creates PC-printing power, Wall St waits and sees

This is in the context of their ongoing "One HP" initiative, which strives to unify a company that has been operating as fragments for decades.  In recent years growth by acquisition is one of the few things that the many HP CEOs have agreed on.  The HP acquisitions page on Wikipedia tells the whole story.  The revenue and head count growth is dramatic.

Whitman is right to identify the disparate nature of the company as a big problem.  Employees that joined the company over a decade and three CEOs ago still refer to themselves as Compaq people.  Same with employees from 3 Com, 3 Par, Mercury Interactive, EDS, and most recently the employees from the $11 billion acquisition of Autonomy last year.

The list has so many multi billion dollar deals on it that it seems unlikely that one company could be made of the resulting tangled mess. The aim behind combining the PC and Imaging divisions is more likely to convince the employees in the PC division that the persisting story about a spin off is not going to happen and that they should get back to work.

We all remember how big the Compaq deal was when it was announced.  I had forgotten that there were 53 other deals in that decade!  The company grew from 100,000 employees to over 300,000.  Nothing is impossible, but making One HP out of this will be quite a challenge. 

Apple Gets 100% of its Profits from Channel Partners

Yesterday I proposed that some higher than expected percentage of Apple’s sales came from channel partners.  Today I propose that it is possible that 100% of Apple’s profit was actually paid by the resellers.  Here is my math based on Apple’s 2011 annual report:

 

Looking at iPhone sales alone – event though this under appreciates iPad sales through the carriers, and sales of other products through BestBuy and Walmart.  Apple sold 72 million iPhones in 2011 for total revenue of $47 Billion – 43% of all Apple revenue.  Last month the Wall Street Journal reported that US Carriers pay Apple an average subsidy of $400 per iPhone. 

Apple generated an average of $650 in revenue per iPhone – the channel partner is paying 61% of the purchase price of the device!  If this is true, Apple received $28 billion from its channel partners in iPhone subsidies – more than all of Apple’s profits for the year.

True, Apple can and does in some cases sell the iPhone without any subsidy.  But sales would be much less (like the WSJ reported in countries where the subsidy is not customary), and pricing would be under much more pressure.

Apple should be commended here – taking an industry where it is common to pay partners to sell for you and turn it into a situation where partners are paying more than half of the cost of product.

Can you imagine going into a car dealer and only paying 39% of the cost of the car, because the car dealer paid the rest to the manufacturer – all for a two year service contact! 

Every computer / phone / tablet maker out there wants a deal like this.  The question is, are the carriers going to keep doing it?

 

Apple Crushes It With Help from the Channel

Apple has widely been perceived as a company that operates outside of the reseller channel.  Its stores and web site sell directly to their customers and they have achieved meteoric growth without the help of the third parties that make the rest of the technology industry function.  The prevailing belief in the industry is that there is no way to get to such a large market without the aid of channel partners -- that number in the hundreds of thousands. 

The launch of the iPad gives us a good backdrop to examine if this is really true.  Does Apple sell directly to customers or through the channel?  Is there anything to learn from the recent success of Apple?  I propose that Apple sells through the channel and there are some specific things that can be learned.

First, Apple has an awesome web site and some 300 or so stores that generate an average of $50 million in revenue per store.  Apple generates more revenue per square foot than any other retailer – actually twice that of Tiffanies - the next most productive retailer.  Despite this incredible performance, in 2011 Apple generated 15% of its revenue through its stores, it pales in comparison to revenue generated by iPhone sales of 45% -- three times that of its stores.

iPhones are sold by Apples new channel partners – the wireless carriers.  If you add this to the sales by Apple’s other partners:  BestBuy (1,000 stores) and Walmart (2,500 stores) and it is starting to look like a significant portion of Apple’s incredible growth is fueled by its channel partners.

Apple 2011 Annual Report

Apple Wins Again as the World Moves to Tablets

Last week Apple championed the post PC era with the launch of the iPad Third Generation.  HP shot back that the PC is not dead.  I think both views can exist at the same time.  

Anyone who has found themselves in the role of family tech support person has been wishing for the post PC era for a long time.  In fact, most PC users have used remarkably few features of the PC.  Word processing, email, the web, and maybe a spreadsheet.  They don't care about where their files are located, how the machine works or stays healthy, have never installed anything, or backed anything up.  They are just not interested in the PC at all.  As soon as these people got smart phones their PCs go days or weeks without being touched.  Some overwhelmingly large percentage are these non PC users -- and for them the PC was a necessary evil -- they just wanted to send the email.  So Apple is right.

Anyone needing to connect to a corporate network, or that uses databases, or that builds things (web pages, databases, programs), is going to need a PC and because they are the type of person that loves new technoligy they are probably going to want a tablet too.  So HP is right.

According to Gartner, there were 93 million PCs shipped in Q4 of 2011.  According to Apple, they shipped 15 million iPads in Q4 of 2011.  They were just shy of HPs share (17 million) of the PC market.

Up until now, the iPad has been an extension of the users technology portfolio.  From now on, the number of users with just an iPad (or other tablet) is going to go up fast.  So Apple is going to win big and if Microsoft can get to the party with Windows 8, Microsoft will win big too.  The people selling PCs like HP and Dell are going to see their marketplace rotate significantly -- and probably decline.  All HP and Dell need to do is come to market with amazing Windows 8 tablets later this year.

It is going to be interesting.

Doctors Paid to Make You Sick

The 800,000 physicians in the US comprise a large and intensely managed partner program for the drug companies.  We are about to find out how intensely managed as the Affordable Health Care Act (AHCA aka Obamacare) now requires the drug companies to disclose how much they pay your doctor to prescribe drugs to you.  It should not be a surprise that the drug companies pay doctors quite a bit, and those payments change doctor behavior.  So it should be no surprise to find that some people may be diagnosed with ailments they don’t actually have -- so the doctor can prescribe the pills and get the money.

Sales managers know that salespeople are “coin operated”.  Better performance from salespeople is purchased with commission plans that compensate for more sales, more upsells, more referrals, more attached sales, more anything.  Since our business is technology sales, and specifically channel partner programs, we think a lot about how to properly incent our client’s partners to sell more.  We have seen this produce intended (improved sales) and unintended (systemic cheating) outcomes.  Broadly speaking, generalized incentives are better than highly specific incentives when it comes to getting a constructive result.  Sure if you have to move one product by the end of the quarter and you don’t care about the long term effects – a specific incentive will do the job.  But if you want customers satisfied and loyal for the long term, working with partners to grow their business for the long term is better than quick hits.

Over incenting salespeople in technology might result in a consumer or company with an overly large hard disk or a bigger video card or a router with enough capacity for 10 years of growth.  Over incenting doctors might result in a generation of kids on Ritalin, parents on anti depressants, and in the worst case, deaths.  Here is more reading on the subject should you be interested:

 

 

Update one week later:  Great article in the NY Times today about the 3 million children on Ritalin -- and how there is not evidence that it helps!

Golden Opportunity for Microsoft

Microsoft recently reported that the Defense Department repels 250,000 attacks on its networks – every hour.  I suspect that Microsoft has more experience with hostilities in cyberspace than any other company.  I do not know of a published list of the biggest targets for hackers, but the US Government has got to be close to the top of the list, financial institutions are probably next, big companies like GE and P&G and GM have got to be up there too.  Literally every enterprise customer of Microsoft spends a great deal of time and money dealing with these attacks.  I also do not know how much of their budget is actually paid to Microsoft, but with the cloud offerings MSFT is now selling to big enterprises – the number must be growing.

It does seem like Microsoft badly wants to be a consumer focused company.  There is a security need at the consumer level too.  Our citizens may not have the designs of weapons, or the controls to the predator drones behind their personal firewalls, but knowing that half of all credit cards have been compromised by cyber attacks is enough to make the point that consumers have things to protect too.  Once again, Microsoft has more technical expertise and experience data on the consumer attacks than any other company. 

But… Does anyone really want to talk about security?  It does sound a lot like that annual call from the insurance agent who wants to talk about how to increase, well, his commission. 

The changes that Google made last week to further personalize search could be the opening that Microsoft needs to get the conversation going.  Google is increasingly showing you just you want to see – even if some of what you get in your search results comes from things you own – like pictures on Picasa web.  Desktop search never worked for Google or for Microsoft, but as more content migrates to the cloud, we can expect to see our personal, not public, items mixed in with public search results.  We cannot expect Google to be so foolish as to put Gmail into the personal search results, but Google+ posts are sometimes public and sometimes personal.  If these latest changes are meant to push Facebook and Twitter to make their content available for searching, and Google is successful, the line will go too far towards the personal end and consumers will be more than a little upset when their private Facebook posts are next to Wikipedia entries in the search results.

Microsoft could be the safe place to get search of private emails, documents, and photos.  I have Copernic Desktop Search installed on my Windows 7 machine and it is amazingly good.  And I am quite sure that neither Google or Microsoft or anyone else is building an index of my stuff on their servers.  I would trust Microsoft to do this work and the only reason I have a non-Microsoft product doing this is because even after hours of trying, I could never get the desktop search index to work on Windows 7.

My dream, and I suspect the dream of many other consumers, would be to have a company I trust, deploy a capable private search tool, and do it in a way that protects me from the outside (desktop search and security) and then take it to the next level – making all of my private stuff available across all of my devices, all while maintaining my security.

Tracking Every Pitch

There were many great parts to the book and movie Moneyball.  If you have not either read it or seen it – you should.  In addition to the great storytelling by Michael Lewis, the main theme resonates in our business and just about everywhere:  we now have the capability to track everything.  This may not seem like a big jump from the prior method of measurement by sampling, but it is a big big deal.  Sampling is the Nielsen ratings: where a small population of representative viewers track their TV habits and the results are applied to the total population.  The tracking everything equivalent is having every single set top box send in data for every single viewer.  The story in Moneyball helps to demonstrate the difference.  To know from sampling that a pitcher behind in the count is 25% more likely to throw a fast ball than anything else – could help you.  If you know from measuring everything that this particular pitcher is more likely to throw a fastball on the next pitch because you have a complete database of every pitch he has thrown in the past 5 seasons – well, that is different.

For the past decade, businesses have been making this same transition.  From sampling data about their customers to tracking everything.  The leaders in this revolution will win.  The businesses that understand this will jump very far ahead of their competitors.  The businesses that do not understand this will say that a statistically significant sample is the same as a complete database and will not go to the effort to track everything.  They will lose.  Some businesses, like the grocery stores, are tracking our every purchase, but I just don’t think they know what they have in the data.  Here is my post from last year on that topic. 

Governments will be in a unique position to capitalize on the data they collect.  A dramatic example of that is happening right here in the Seattle area with the tolls starting on the 520 bridge.  I can go online and see a record of every time my car has gone across the bridge.  Imagine the possibilities here!  Not only could parents or insurance companies learn about driving patterns, but some super smart PHD is going to figure out how to match up drivers for ride sharing – by evaluating the driving patters in the data.  Or I could sign up for a service that sends my family a text when my car passes the tolling camera – that calculates what time I will be home based on the other traffic data.

In our marketing services business, we started tracking every single interaction about five years ago.  Before that, the proprietary closed databases in many of our systems aggregated data – because storage space in the database was more valuable than individual activity records.  Sounds hard to believe given the current environment, but these old databases actually wrote over themselves every night – just to save hard disk space.  As a result we have pretty good predictive data on what will happen if we email an email address, or call a phone number, based on our past experience.  Using that experience data, we direct resources to the highest value activities first.  It is a game changing practice. 

Privacy experts say that this kind of customer data collection is an invasion and should be made illegal.  There definitely are steps that should be taken to protect the consumer and protect the data.  Increasingly however, customers are demanding that the businesses that serve them know their stuff.  Today there are many simple requests that I want in this area.  I want Amazon to tell me if I am buying a book for the second time.  I want the credit card department at my bank to realize that I already have a credit card and to stop calling me with new credit card offers.  I want Starbucks to know my order before I order it.  I want Delta airlines to know what seats l have sat in.  This is just the beginning.

Free HP OfficeJet Pro L7580 – slightly used, may not work

I have had this printer for a few years and it has worked pretty well.  Some time ago I stopped using the scanner because it was quite slow and I could not stand to have the bloated HP software on my pc.  Nevertheless, the machine has continued to print with only the driver installed on my PC – so it has been good enough.

Today however the device reached the end of its time with me.  Despite the fact that I use it quite regularly and replace ink cartridges a few times a year, today the printer informed me that my ink cartridges had expired.  Clearly this is a ploy to sell more ink cartridges.  The printer gave me the option to print anyway, but I had to agree that it would void my warranty.  So it is either an attempt by HP to sell more ink, or lower its warranty exposure, or both.  Either way, as a customer I really don’t like being treated this way.  I went ahead and pushed OK, but the printer still would not connect back to my PC.

I do have a second printer in the house, an Epson, that all of the sudden I like a lot more than the HP.  So the HP is out.  I probably won’t buy another HP product.  I will definitely never call HP to tell them.  Customer lost for life. 

It happens that today a friend asked me what type of computer to buy.  I did not recommend HP.  I also related this story, probably another customer lost – maybe also for life.

Increasingly customers expect the products they buy to work.  If a replacement can be had for a few hundred dollars it just does not make sense to spend the time and effort required to get support and repair it.  If HP is monitoring complaint calls, or unresolved support incidents as a way to measure its customer satisfaction, I will not show up on any of those measures.  Silently and precipitously however, the company is losing customers.  Some may never return.

The first US based person to put their shipping information in the comments section of this blog post will get the printer.  I will pay the shipping to anywhere in the US.  I would also gladly send it back to HP – so if you are listening HP – just let me know.

Be Insanely Great -- or Go Home

Steve Jobs was widely considered one of the best salespeople ever.  Who else could have sold the music industry on iTunes?  However, he also recognized the downside of too much dependence on salespeople: Here he describes it to Walter Isaacson:

…The company does a great job, innovates and becomes a monopoly or close to it in some field, and then the quality of the product becomes less important. The company starts valuing the great salesmen, because they’re the ones who can move the needle on revenues, not the product engineers and designers. So the salespeople end up running the company. John Akers at IBM was a smart, eloquent, fantastic salesperson, but he didn’t know anything about product. The same thing happened at Xerox. When the sales guys run the company, the product guys don’t matter so much, and a lot of them just turn off.

Google also does salespeople differently. Here is a great post from Charlie Warner describing the differences.    Like Apple, Google seems to recognize that salespeople are important, but all companies have to work to ensure that the salespeople do not steal all of the oxygen at the company.

Salesforce.com spends half of its revenue on sales and marketing.  They also spend very little on R&D.  Here is a post I did comparing sales to R&D spending at the leading technology firms.

I think all customers are in one of two states.  They either believe that the product or service they are getting is unbelievably great, or they believe there must be something better out there.  Every company should employ this measure of customer satisfaction.  The danger is to think that the customer is happy because they are still paying the invoice.  There are many customers who do not complain, but are still looking for an insanely great solution.  When they find it, they will not go to their current vendor and say:  do you want to compete to keep my business?  They just leave.  

Products must be insanely great to compete in the marketplace. 

Last Mile to the Channel Partner

Just like with other networks, the Last Mile connecting a Partner Network to its Partners is expensive and complicated.

All channel partner programs have infrastructure designed to manage the relationship with partners.  From the simple to the sophisticated, this infrastructure accomplishes a variety of critical tasks including registering partners, enabling them with sales materials and support, delivering leads, tracking performance, managing certifications, and many other functions.  These processes and systems are in effect a network of sales and marketing people and PRM/SFA databases and applications.

To function, all networks must reach their customers and a partner program network is no different.  The link between the network and the customer is called the last mile, and just like with a phone network, the last mile is the most challenging because the investment required to reach a new partner is uneven, and in many cases will never pay off.  Extending the phone network to the last farm on the road will never make financial sense – that is why the FCC has made the phone company provide service to everyone.

Companies have tackled the last mile problem with their channel partners in three distinct ways:       

  • Invest everywhere and dominate the market (Microsoft)
  • Invest heavily in obviously high value partners (HP)
  • Make the partner come to the network (Google, Amazon)

These differences are logical when taken in the context of gross margins.  Microsoft and other software companies have the highest gross margins, so they can spend much more than everyone else.  HP and the hardware companies have much lower margins, so they have to be more careful to invest only where they know it will generate additional sales.  Google and Amazon and other similar businesses have many more partners, and their transaction size is much smaller – making anything other than a fully automated approach hard to justify.  It is just not possible to cater to the individual needs of partners if there are millions of them.

As the technology industry evolves and these companies move into new markets, they will have to adapt to new margins and transaction sizes.  This will be much easier for companies working up the list, than those working down the list.  Those with skills developed in low margin and small transaction sized businesses will have to learn to invest more in the last mile – learning to spend more is enviable compared to those who have to learn to spend less.

To Correlate

cor·re·late:  (verb) to have a mutual relationship or connection, in which one thing affects or depends on another.

We live in a time when the relationship between cause and effect in sales and marketing is known more than ever.  We measure the actions, we count the reactions, and we try to do more of the things that get us the biggest reaction.  In sales and marketing, the reaction we want is revenue.  It sounds easy, but the fact is, even with all of this progress, we still waste half of all spending on sales and marketing and we still do not know which half is wasted.

This is the kind of thing I write about from time to time, and in looking back I found this piece about measuring that shares some ideas about targeting, landing, and measuring effectiveness in marketing campaigns.  Many other people write about measuring the effectiveness of sales and marketing so if you are intrigued by this kind of thing, you will have no shortage of material to read.  The balanced scorecard has been around since the 90s and is likely one of the best methodologies for making measurements central to performance management.  With all of these measures, why has the relationship between sales and marketing spending and revenue growth not changed?  

Some would say that the recession has reduced revenues.  I think it is that our capacity to measure has for some time exceeded our interest in measuring.  Finding the truth is hard when one is not looking for it. 

Here are some reasons this may be happening:

 

  • The Rise of Integrated Marketing: There are many ways to reach customers and marketers are employing them in overlapping ways.  The overlap fogs the cause and effect.
  • Carrot and the Stick:  An increased emphasis on pay for performance compensation structures, and an increased focus on cutting headcount has made the very people measuring effectiveness unwilling participants.  Everyone wants to be part of the good story, and everyone runs from the bad story.
  • Grab and Go Mentality:  Large company marketing departments move people around often, so people grab onto the best metrics, claim responsibility, get promoted and repeatability is never tracked.

 

Small companies that don’t know how to sell die – so evolution is alive and well in small companies. In large enterprises however, these behaviors are deeply ingrained and not likely to change.  

Two Great Presentations at SMB Nation

I am attending smb nation in las vegas this weekend and it has been a great show.  I will be presenting a little bit later today, and I will post my comments here with a link to the slide deck.  

Yesterday I was lucky enough to sit in on two great presentations that sparked an addition to my presentation.  Here are some notes:

Anurag Agrawal in his presentation about mobility and SMB:

Top three issues for SMB customers:

  1. Reduce Operating Costs
  2. Enter New Markets
  3. Improve the Effectiveness of Sales and Marketing

Dave Michels in his presentation about Voice:  Voice is an IT service now

I thought these points were notable because we are seeing the same thing in our business.  In IT it is easy to think we are all about the technology, but in fact, the customers don't care about technology, they care about the growing their businesses.  If we want to sell technology we have to answer the question:  "...yes but, what does that do to grow my business?"  
Some will say that this is solution selling and we have been doing that forever.  I agree, but sometimes the solutions we are selling take on a life of their own, and get too far away from growing our customer's businesses.
In the case of Dave Michels comment -- "Voice is an IT service now",  the point is again that the customer does not care that telephone systems used to be sold and supported by different people.  The customer just wants to grow their business.  There are many big things that phones can do now and someone needs to be bringing those things to the SMB market.

Lessons from Alaska Airlines

Recently I found myself in the common situation of wanting to adjust the time of a flight I was taking to the Bay Area.  Alaska Airlines makes this quite easy and I am willing to pay the $75 change fee for the flexibility.  Everyone wins.  I get just the flight time I want and Alaska gets a few more of my dollars.  This time however, the earlier / later flight buttons did not come up during the web check in process. 

I like Alaska Airlines.  I don't fly enough to get to their highest points status every year, but I am usually enough of an MVP to get a few perks.  I am also quite familiar with their web site, so when the option to go earlier or later was not presented I thought the web site must not be working right.  So I called customer service.

As I would expect from Alaska Air, I got right through to a customer service person who said that it would be more than the original cost of my ticket to change the time.  The person was friendly, but offered no explanation.  The message was:  The situations was what it was.  I was disappointed because my travel plans were not working out the way I wanted, and my favorite airline was falling a few notches.

Again, I do appreciate a good customer experience and Alaska Air usually delivers. They also make a good effort to run their airline the way I would run it, with a focus on the customer and on quality.  They also run it in a way that often is profitable, which is deserving of our respect in an age where the Wall Street types are sucking the life out of many of the airlines - ala Gordon Gekko.

So, disappointed, I went back to the web site to check in and fly the time that no longer fit my schedule.  Imagine my surprise when the web site was now asking for volunteers to fly at a later time – just what I wanted!  Well close.  I wanted to fly later, but I did not want to have to show up at the time of my scheduled flight and find out that I may have to wait around the airport for a few hours until a later time.  A quick check on the Alaska Air reservations page showed that there were seats available on the later flights.  OK.  I want to go later, Alaska wants me to go later, and there are seats on the later plane – a great opportunity for everyone to win.

Unfortunately for all of us, customer service, even though they were friendly and answered fast, still told me I would have to pay big bucks to change. 

For many years the airlines have been out front in the quest for both efficiency and customer loyalty.  They achieve efficiency by reducing the mechanics of consuming their service to policies that can be carried out by travel agents, call center agents, and increasingly the customers themselves.  They generate customer loyalty by offering benefits that are difficult to reproduce elsewhere (increasing the cost of switching), and just plain making their high value customers feel good.  The airlines understand that people do business with people they like.

My company manages relationships between large technology companies and their resellers.  Since there are hundreds of thousands of these resellers, we have become experts in making policies and carrying them out efficiently.  Our clients depend on their partners for most of their revenue, so we are quite sensitive to the traps that invariably arise when trying to be both efficient and build lasting relationships.

This background may make me more interested than the typical person in my experiences as a customer.  Every interaction with a vendor is an opportunity to discover things to do and unfortunately often not to do. 

My experience with Alaska Airlines was a good reminder that we have to be careful not to let our pursuit of efficiency degrade the customer’s experience, or even worse, prevent an outcome that even Alaska Airlines wanted.  Here is a quick list of three lessons we can learn from this episode:

  1. Use Available Information:  Each time I called into the call center, the customer service person should have seen my status level and other interesting things about me.  A world class company would know at that moment that I am using slightly less of their service this year than last, that I was recently on flights that had been delayed – where vouchers were given out – and maybe even that the voucher I had been given was not redeemed.  All of these indicators point to an opportunity for Alaska Air to regain ground recently lost in our customer relationship.
  2. Empower Humans to Intervene:  The fact that I was taking the time to call should have been a signal to Alaska Airlines.  The fact that I called twice in two days about the same issue should have been a trigger to the person handling the issue to make an extra effort.  These days, companies get very few opportunities to talk one on one with their customers.  The fact that the customer service people either did not know or did not care about this situation was a lost opportunity for a high quality interaction with what might even be a high value customer.  Once engaged, who knows what the outcome might have been?  My company does not have a company wide purchasing agreement with Alaska Air – I don’t know if they do that kind of thing, but it could be valuable to Alaska Air.  After all, many of my employees are more loyal to Southwest or Virgin than to Alaska Air.  Also, I have never really understood how the Alaska Air lounges work.  I know that I have to purchase a membership, but no one has ever asked me to do so, and every time I walk past the lounge I think I should figure that out one day. 
  3. When All Else Fails – Empathize:  In the end, there may not have been anything that could have been done to put me on a later flight and relieve the overbooked nature of the flight I was on.  Such “facts of life” are common in the real world.  A great deal of good will could have been gained if Alaska Air’s customer service people had just said they were sorry that a solution was not available.  Saying I had to buy the ticked all over again – take it or leave it – really benefited no one.

Of course I am grateful to Alaska Air for the many times they have provided me with safe, reliable, and friendly travel.  I also appreciate this reminder to check in and make sure our policies are not needlessly degrading our client relationships. 

It would be much more fun to have gained this insight without having to waste most of a day traveling at an inconvenient time. But hey, managing relationships at scale is a difficult business.

The Value of Second Level Assets

A smart Wall Street guy recently described to me a new way to think about the value of a stock in an overheated market.  He proposed that there were really two parts to value.  The first of course is the underlying value of the share.  And the second is the option the holder of the share holds implicitly to sell the share at a time of his choosing. This could be called the option to sell to the greater fool, but let's not start calling people names.

This second layer of value can be greater than the first.  In other words, particularly in a momentum market, the right to sell is worth more than the stock itself.  This is interesting because it is a good visualization of an emerging class of assets that derive their value entirely as a function of their relationship to an underlying asset. 

Some will say this is nothing new.  A steak at a steak house costs three times as much as a steak at home.  Such an item could be described in two parts as well: the steak and the experience of eating it at the steak house.  Again the second part is likely more valuable than the steak itself.  Milk at the Mini Mart has two parts, the milk, and the convenience of buying it quickly. 

In markets where innovation is changing the cost of producing and delivering things, the cost of the underlying asset is decreasing quite quickly.  Take ebooks for example, the cost to create and deliver the next copy of an ebook is essentially zero.  This creates an environment where it is easy to see how there is relatively more value in the second, derivative asset, than in the ebook itself.   The derivative asset to an ebook could be merely the recommendation of the right book, or who is reading what book, or comments about the book, or quotes from the book.  If you were about to pitch a big deal, how much would you pay to know what the person on the other side of the table was reading the day before your meeting?  At the risk of offending the authors who clearly invest themselves in their craft and create valuable work, we must ask: Is there more value in the marketplace to the second level information about the book than in the book itself? 

Apple, Google, Amazon and Facebook have been named as the new horsemen in technology.  These companies recognize the value of being one layer removed from the actual asset.  Google and Facebook both pay their customers (by offering free services) in exchange for this second level information – so clearly they assign value to it.  Apple exploits the second level information less than the others – mostly because it’s history is making money selling devices.  They are getting smarter about this all of the time and the Apple iCloud announcements last week betray their interest in being in the second level game.  Amazon is the one with the superior business model.  Not only does Amazon make money selling products, but they are expert at using the second level information to sell even more stuff.  Amazon has a much more concrete awareness of what you “like” and knows how to use that information to present you with other products to purchase.

More examples of this construct emerge every day, and many in places commonly thought of as confidential:

  • Banks:  I received an offer today from my bank to purchase access to their database of financial statements.  These are financial statements their customers have submitted as part of their traditional banking relationship.  Banks make money in many ways, and now they are making money selling access to the information they collect about their customers.
  • Phone Companies:  The contents of your phone call cannot be “tapped” without a search warrant, but law enforcement regularly pays the cellular companies for the second level information.  That data includes, who you called, how long you talked, and where you were (while talking or just while the phone was on).  Law enforcement does not need probable cause or a search warrant to get this information and the cellular providers have automated access to the database, so the fees they collect are pur profit.
  • Credit Card Companies:  Your credit card issuer makes 2 to 5% off of every transaction, plus they sell the information about how much you spend at what vendor.  Soon you will be seeing advertisements on your credit card bill.
Where could this go next?  Here are the services I would like to buy:

  • On the plane:  I would pay extra to sit next to a thin person or better yet a client or potential client.  In the case of the potential client, I would probably pay more than the cost of the ticket itself.  This could also go for any event.
  • Buying Things:  The next time I buy a house I would like to know which houses are going to come on the market next.  So information about people looking to move, getting transferred, or experiencing other life changes would be valuable to me.  Facebook could have this already, but other big databases will likely get mashed up to provide information like this.
  • Healthcare:  The next time I get a cold or the flu, or better yet, before I get a bug, I would like to go online and see what is happening in my area.  Who is suffering symptoms (Google has this because people do searches for their symptoms, the healthcare companies have it once people go to the doctor, and schools and employers have it once people call in sick) plotted on a map and compared to historical data.
  • The Government:  The government could become the biggest player in this area.  Think of the gold in the IRS’s databases.

Things are definitely getting interesting. Maybe my next post should be about privacy!