The False Dichotomy of B2C and B2B

Ray Wang wrote a summary of CRM Evolution that I found particularly interesting, and one point in particular resonated with me because it aligns to something I have been talking about at Get Satisfaction for a while now… B2B and B2C distinctions are dead.

The segmentation of business (B2B) and consumer (B2C) behaviors is a false dichotomy to begin from, what really matters is the customer lifecycle and renew-ability of the relationship. Is a purchase cycle highly deliberative in nature, does the post transaction phase focus on repetition of purchase or a shift to services and add-ons, how does the retail experience inform purchases, and much more.

Cars and diapers… that’s what I keep thinking about.

A car is one of the major purchases a consumer will make and represents the pinnacle of brand-to-customer lifecycle in the b2c space. It involves peer review, needs assessment, technical evaluation, financing, service agreements… all like B2B as we know it today. Once the transaction is complete the relationship shifts to one of services between the dealer and the customer involving maintenance and accessories and the lifecycle repeats with a lower entry bar at each interaction.

Diapers are a situational purchase that is effectively commodity driven, in spite of diaper manufacturers touting specific feature benefits the fact is that buyers view diapers as fungible. As a result companies are now shifting to marketing the relationship they have with a customer around the journey of newborn to potty training. The entire point of the marketing strategy is to ensure that you reach for Pampers every time you are in the aisle for the 3+ years you will be buying diapers and that is because you trust the brand more than competitive offerings, and interacting with your customer community, wherever it is, is essential for sustaining the customer relationship.

B2B purchases also span the highly deliberative capital expenditure to the fungible commodity and the buying impulses for each map precisely to each end of the spectrum in the consumer space, yet because the person making the purchase has a business card and pays for it with company funds we call it B2B. It doesn’t make sense.

The marketing and sales tactics for B2B and B2C may be different but the point is that thanks to the Internet the differences are now outweighed by the similarities. For software companies the reality could not be more stark, in order to survive and prosper in future years the need to create multiple channels to market that address how SMB buyers are behaving is critical and that means delivering through an e-commerce channel, adopting marketing techniques that are common in the B2C space (ratings/reviews, SEO, promotions), deliver information products, and adopting pricing/packaging strategies that scale from the very small to the very large without becoming overwhelmed time/cost of sales on the very large end of the spectrum.

B2C and B2B is dead.

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Amazon World Domination Can Now Begin

AWS filled a major gap in their offering with the addition of SimpleDB. Two things jumped out at me, the first being that it’s optimized for very large datasets and the second, more important as well, observation is that it’s designed around search indexes instead of schemas.

There’s a lot more to be said about SimpleDB, most of it beyond my technical capabilities but it is safe to say that just as was the case when AWS first launched, the impact it would have was underestimated at the time.

Well after being under NDA for so long, I’m glad to be able to say that Amazon SimpleDB has gone into limited beta. Congratulations to everyone on the SDS / SimpleDB team; their several years of work on SimpleDB (formerly called SDS) is a brilliant piece of engineering. [From inside looking out » What You Need To Know About Amazon SimpleDB]

Did CrispyNews Get Acquired By Salesforce.com?

Crispynews is a great “create your own Digg” service that I tried to use for the Irregulars a while back. I gave it up because I just didn’t get enough traffic to make it work like I wanted (you need *a lot* of visitors and contributors to make these things work) but I still love the concept.

The guys behind CrispyNews created a sister service called CrispyIdeas. The concept was to leverage the wisdom of crowds concept for new product ideas and enhancement requests that software companies sort through while developing their product roadmaps.

Salesforce.com was the most prominent customer for CrispyIdeas, the service powered IdeaExchange. Not to be overlooked is the Dell IdeaStorm site, which generated more traffic than the Salesforce service even if being less well known.

It appears that Salesforce quietly acquired CrispyNews and has rebranded their offering as Salesforce.com Ideas. All of the crispynews.com urls now point to Salesforce…

UPDATE: okay, just got backchannel confirmation that they did get acquired, no additional details to report.

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The Pull Factor in SaaS

My good friend Charles Zedlewski put together a great analysis of SG&A costs at the four major SaaS business application companies that are either public or have filed to go public.

"The true factor driving SG&A for these SaaS companies is growth, not scale. This is logically consistent as the economics of most any subscription business is based on the cost to acquire a customer versus the future returns of that customer relationship. I took the financials for all four companies and lined them up not based on year but based on when they are at a comparable size (comparable stage in their evolution)."

Charles is an excellent analyst (perhaps he missed his calling as the next Chuck Phillips!) with an ability to quickly get to the essence of the issue at hand. More significantly, he has the rare ability to abstract observations into "what it means" statements that can be applied across an entire industry segment.

The points that Charles makes about SG&A being a pull factor for growth in these companies is irrefutable. Having said that, I’m tempted to say "of course sales expenses drive growth!" but that misses a larger point. Since the inception of SaaS we have been told that it’s a more efficient business model yet the numbers don’t lie, SaaS is dependent on disproportionate investment in sales at the expense of R&D.

You really see this played out to it’s extreme with Salesforce.com, where SG&A is 67% of the P&L, versus 24% for SAP, and R&D is 8.8% and 14% respectively. Perhaps it apples to oranges given the legacy code that SAP has to support, so substitute your own favorite software company and compare the numbers.

The minute any of these companies turn back the dial on sales and marketing the growth falls almost immediately. This is important because in the public markets these companies are valued not on current cash flow but on growth as a proxy for future cash flow.

In the final analysis I would suggest that R&D investment is a form of long term savings for companies, as opposed to sales expenses which are, for lack of a better term, unlevered in the larger business model.

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Salesforce.com Acquires Koral

Salesforce.com acquired Koral last month and is launching a new business around content management. This acquisition makes a lot of sense and it is a good fit because not only does it plug-and-play already as an Appexchange offering, but given their market focus it’s a no-brainer in terms of build-out. I am curious to see what people think about the attractiveness of Apex with a robust content management system as part of the offering.

No word on the valuation of the deal.

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Cloud 9 Analytics

I think we’re gonna see a flood of these companies, and it goes without saying that not that all of them will succeed, but I think this could be an interesting one to watch. Cloud 9 Analytics is apparently is the rebirth of Certive, which should squash any critics who would suggest that a startup can’t possibly have much substance when it comes to doing the degree of analytics that they promise.

This is a next generation BI deal, it’s up in the cloud and rides on an ecosystem that offers a low cost product delivery channel, meaning they can sell it cheaply and at the same time bypass IT and go directly to users.

The question that I will be anxious to see answered is how non-SFdC apps that are offered through Appexchange can take advantage of analytics engines like this one.

200702281300

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Vista marks end of an era for Microsoft

Waters is right to point to the sea shift that is underway at these large software technology companies, a shift away from big traumatic software upgrades to more frequent component bumps. The points that are often missed in these debates is that the focus on the customer obscures the fact that the companies themselves don’t want to continue to deliver software this way anymore, and equally important is that this is not simply a shift in how you develop and ship it, but how you price, support, promote, and build a partner program around these platforms.

For many of these companies the phrase “end of an era” may have deeper consequences as for some of them they will never again see the glory and success they once enjoyed. Microsoft will come out not just okay, I think they will come out of this a much stronger company.

FT.com / Technology – Vista marks end of an era for Microsoft:
That is partly because of what Mr Cusumano calls the internal “trauma” caused by its struggles with Vista. Never again: in future, he says, Microsoft will release less ambitious, and more frequent, updates to Windows.

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Regressive Complexity in SaaS Pricing

Props to Jason for coining a very cool new term – regressive complexity. He is absolutely correct, SaaS pricing is getting too complex which means the title of his post could easily have been “the more things change, the more they stay the same”. SaaS’ early popularity was a function of 1) it’s dramatically lower barrier to entry, and 2) pricing simplification. That’s right, you pay for 5 users and that’s what you got, 5 user ids, but lately it seems that SaaS vendors have grown nostalgic for the days when there was the price you thought you were paying and then what you were actually on the hook when all the extras are added in.

This pricing issue is going to get a lot more uncomfortable for users when they start getting 18 different bills for the variety of services they subscribe to. It would be analogous to cell phones where when I signed up for my Blackberry service I got one bill from T-Mobile and a completely different one from Blackberry even though T-Mobile carries my service. Billing aggregation is a great opportunity for some enterprising young startup to pursue… oh wait a minute… never mind.

What’s Wrong with SaaS?:
Today, that SaaS pricing model is under threat of regressive complexity (I’m coining a new term). Here are two recent examples of that pricing complexity (the respective vendor names have been concealed to protect the innocent).

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