Wednesday, October 26, 2005

Open Source CRM, Siebel, SalesForce

One of the initial successes in web based software was in sales force automation software. SFA was long dominated by the Siebel Systems, founded by Tom Siebel, a former Oracle executive. SFA shares the same problems that traditional ERP software shares; it's expensive, it's slow and it's a pain in the ass to set up and install. On top of that, sales force automation isn't a particularly difficult thing to do. I mean managing contacts and appointments with reminder notices? Not too hard as the paper version of this software (ie the organizer & calendar have been around for years). So this particular piece of ERP software was ready for webifying almost immediately. So whenSalesforce.com launched it took a huge chunk of the "on demand CRM" marketshare closely followed Rightnow Rechnologies. I am not sure of the purpose of artificially segmenting the market in this way into software and on demand market segments. These two market segments are certainly collapsing into each other.

Salesforce started out like many web based application companies by going after the middle market (companies 50-500 million in annual sales). This market typically has been underserved in the ERP software market cause it's too damn expensive with the typical seven figure depolyment costs. Netledger did this same approach with accounting software. I used their software until they wanted to charge me $399 a month - at which point I thought I would buy a copy of Quickbooks. So going after the middle market is a pretty good strategy. Typically these guys have customers and money to spend but not enough to really justify the big boys selling their software in a more scaled down shrink wrapped version.

So entering an underserved market and getting some customer wins are good way to prepare yourself to move into the Fortune 2000 - which everyone's business plan in the ERP space calls for. (Why anyone would want to sell to the Fortune 2000 is beyond me. They are notoriously stingy, demanding and the sales cycle is roughly 2 years. I once read a business plan which called for selling to the middle market to build credibility to sell the Fortune 500 (please note I use Fortune 500 & Fortune 2000 interchangably. Fortune 500 is US companies only and Fortune 2000 is the same type of companies world wide.) After selling several Fortune 500 accounts, they would use this credibility to move down market to THE MIDDLE MARKET. I pointed out that they would have better luck building credibility in the middle market and selling there since they weren't asking for enough money to actually complete a Fortune 500 sales cycle.

The problem of course for these software vendors is as I see it two fold. First off many of the functions they are replicating aren't particularly hard to do in software (contact lists? calendaring? contact management?) Web enabling these in software isn't that hard at this point. I am sure when Tom Siebel founded Siebel in 1993, CEO thought it was a pretty cool idea. Apply the same business management processes to ERP to sales and you turn all your sales droids into copies of your top performing. Hey maybe you can convert anyone into a effective sale person, thus eliminating the incredibly expensive commissions that your very best performers earn. Well your top performers remained your top performers and you weren't able to commoditize the position of salesperson.

This brings me to the real crux of this post. SFA & CRM are relatively easy to do. There is very little in the way of barriers to entry. There are a number of open source software packages which capture about 80% of the functionality of the Salesforce.com. SugarCRM is well on the way to being Siebel killer as 80% of the functionality is about all most customers need. Sure it might cost about the same to customize but you avoid the dreaded vendor lockin and the vendor upgrade treadmill. Open source is well on it's way to commodizing yet another software market segment.

Of course what's bad for Siebel is also bad for salesforce.com. With commodity software kicking butt, it's just a matter of time before someone takes the SugarCRM code and ports it to a web application to compete with salesforce. In fact that's exactly what is happening

Articles to Read
eWEEK Labs Review: SugarCRM's Sugar Professional 3.0
Open-Source Building Blocks Available

Thursday, October 20, 2005

Marginal Competence - The unfortunate future of America

I have on the past occasion written about the pitfalls of outsourcing especially the particular exeperience I have had with Dell. Well after recent experience with another customer service snafu, it got me thinking about the outsourcing, the WalMart effect, under employment and the future of the American workers and American companies in general. The summary is simple, it's not a pretty happy future.

There are multiple trends vectoring toward a step decline in both the quality of the workforce in America and the product of that workforce, American goods. The first vector is the disalignment of the goals of the worker and the company he works for. Let's take an outsourcing example. Outsourcing 1st term customer service functions to firms in India and the Philippines creates a problem because the firms you are out sourcing to and your firm don't have the same economic interests. The outsource customer service firm has an interest in quickly completing calls so that their call numbers look good. They also have an interest in expanding their customer base of out sourced customer support firms.

Misalignment of goals is a common problem in customer support telecenters when they are run internally. Very often promoting people based on the number of calls they close, rather than a measure of customer satisfaction based on the call is always a bad idea. Yet this is a common practice in the industry. Outsourcing this function 1st tier customer support to another company in another country almost always decreases customer satisfaction. In fact I challenge anyone to provide one single example where customer satisfaction has improved as a result of outsourcing. Your goals as a company (satisfied customers) and their goals (high call answer count) are at odds. At best your outsourced firm is marginally competent at service.

Another vector contributing to decline of the American company that the goals of the worker and goals of the company are no longer as closely intertwined as they once where. Chronic underemployment is a problem throughout the economy. This leads to workers holding multiple jobs in order to make ends meet. Loyalty to the company and to the product that the company produces, is diminished. This means workers are increasing more loyal to themselves, or at least they must balance the multiple jobs pulling them in multiple directions. This most certainly has a negative effect on productivity.

Managers often tolerate the decreased quality because their management directive are to reduce costs. Hiring another worker who would work full time would incur costs. Replacing the under performing worker would also incur significant costs (training etc). Managers are often recognize that they cannot demand the same quality of a fully employed worker they can of a part time worker. They may think they might be able to but I would argue any worker worried about eating or making rent is going to be a lower quality worker.

This under employment is a corollary to the Wal Mart effect. Ruthlessly cutting costs means quality at some point begins to decline. Only so much inefficiency can be extracted from a supply chain before you begin skipping on quality of materials. When your only tool is a hammer, everything looks like a nail. Focusing only cost controls means that managers place less importance on other qualitative factors. Anyone that shopped at WalMart would concur, the quality of goods is simply lower. (We have a WalMart here in Las Vegas. I have stopped certain types of goods there such as electronics).

Living with marginal competence of work means that anyone who can beat your cost of goods and labor. This creates a race to the bottom for wages, and raw materials. One good test for this would be the mean failure rate for consumer electronics. Are electronics more or less reliable as a whole now or 10 years ago? I haven't done that research yet. I will do it and report back.

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Monday, October 10, 2005

Google & Sun - The Slow Bleed

A lot of bloggers have been writing about the implications of the recent Sun Microsystems and Google alliance. I believe this alliance is still the formative stages so it doesn't mean too much right now. I think Google's approach is going to be avoid going directly at Microsoft Office. Why? Because it's the previous generation of technology and not wholely appropriate for the web as it's so document/desktop focused.

As a recent article article in The Register quotes Brin as saying,

“I don’t really think that the thing is to take a previous generation of technology and port them directly,” said Brin. However distributed thin web applications allowed you to do “new and better things than the Office package and more.”


Well clearly Mr. Brin realizes the value of a web application is the fact it's on the web. This provides quite a bit of value by itself. As Office is so desktop centric and pretty document centric, porting Open Office to the web would be silly. Why? Because too much developer time would be spent web enabling the very boring and none too useful document centric features. The next generation of collaborative applications will be web focused and web centric which creates the value in and of itself.

Clearly Mr. Brin understands Google's place in the software universe. If Google suddenly buys Jotspot you will know they are quite serious about de-throning Office by changing the paradigm of collaborative work. I have long argued that the thing that is going to de-throne Office won't be a poorly made clone but rather a new way of working. Given Office's desktop/document production focus it's unlikely to make a radical shift. The MS Office product manager more than likely talks to MS Office customers about features. He doesn't talk to people who might be using an entirely different paradigm of work flow.

How does the slow bleed work? Well by capturing the customers of the neqw subversive work flow paradigm, they slowly over years bleed customers away from Office toward the new collaborative paradigm. This will take a few years (I would guess till 2018 or so) but eventually the Office market will evenutally come to resemble the mainframe market - slow, steady and a lot smaller.

Thursday, October 06, 2005

DMCA - A legal crutch to your competitive edge

One of the common tactics that has come since the passage of the Digital Millenium Copyright Act is to use it for customer lock in or ot lock out competitors. This has happened mostly in the consumer electronics sector but it happens in the software sector as well.

DMCA @ EFF is a good starting point for looking at some of the cases. I am most interested in the companies using copyright infringement to prevent companies from entering their market. What do these cases have in common? Well typically companies will encrypt a portion of their signal or communications and then claim that de-crypting is a violation of the DMCA. We have seen several companies take this approach.

  • Blizzard v. BNetD is the most dangerous to the software industry. Essentially three programmers. As it currently stands this makes reverse engineering of software largely illegal. Three programmers clean roomed the data stream the Warcraft Server and the Warcraft client. The traffic was encrypted so Blizzard envoked the DMCA. The current decision could have a chilling effect on people wanting to have compatible.
  • Lexmark vs. Static Control and Chamberlain vs. Skylink are two of the most egregious uses of the DMCA and they share the common approach of attempting to stifle competition. In the Lexmark case they wanted to quash competing after market toner and in the Chamberlain case it was a competing garage door opener.


The last two are great example of quashing a competitive threat. While the courts rejected both cases, they certainly saddled their competitors with some serious legal fees. Sadly this strategy is a relatively for a company to enact but it certainly is a bad idea for the company that decided to cloak a part of the software in encryption and cut the competitor off with a lawsuit. Relying on a lawsuit is a very dangerous as the company is no longer competing, it's litigating. Using litigation is a fine tactic for stifling a competitor but it's long term effects on a company culture of innovation is disastrous.

Why compete if you are in a dominant market position? You can just encrypt and litigate your competition seeking to interact with your software or hardware. I expect that litigation will become the favorite tactic of entrenched software vendors feeling the hot breath of their open source replacements. But litigation ignores a crucial aspect of competition. Your competition would not be gaining traction in the marketplace if some feature or functionality that they need. By suing your competition, you might make the mistake of not listening to your customers. By buying a competing product or service your customers are sending a very clear message. Listen to it.

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