Appeasing Internal Silos Concerned About An Acquisition or a Decision to Enter New Markets can be Costly

It may just be too expensive to buy the support of internal silos for a planned acquisition of a direct competitor, or a decision to enter new markets. We recently wrote about a recent experience sourcing a hard cover copy of a best selling novel. We considered buying the book from Barnes & Noble, rather than our normal process of simply ordering the book from Amazon dot com. Amazon usually charges us a fee for shipping books. Barnes & Noble has a brick and mortar location within a 5 minute drive from our office. But when we priced the book for pickup at the local store, we decided to stick with Amazon. A $17.00 purchase became a $35.00 purchase should we pick up the book at the local Barnes & Noble.

So Barnes & Noble lost our order as the result on an inability to meet or exceed a competitor’s price advantage. The tariff required to appease an internal Line of Business (LoB), in this case the brick and mortar store, was too high for us to handle.

We think the activity inside Microsoft around its recent acquisition of Yammer might produce the same type of very dangerous handicap, should LoB silo warfare spill over into the public marketplace.

This same kind of occurrence arose in the late 1990s, when the Wall Street Journal entered the online market with the online edition of the daily paper. Ditto for Conde Nast when the decision was made to enter online markets with electronic versions of its set of print magazines. When business plans require controversial strategies capable of shocking otherwise powerful internal sales teams, plan on an expensive effort to buy their support. Quantifying this anticipated cost against the likely costs of either status quo, dismantling the competitor, or permitting public competition between two offers soon to be owned by the same parent must be an absolutely mandatory step in the process of deciding whether or not it makes sense to acquire a competitor.

If you could use some help working through a range of scenarios, any of which may be triggered by an acquisition you are considering, please contact us. We offer services you can use to formalize your planning while making a best effort to consider your notion from all angles before you take a step forward on it.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Manage Conflicts Between Line of Business Silos to Ensure a Successful Acquisition of a Competitor

In an article published on the TechCrunch site on May 9, 2013, titled Microsoft To Fold Yammer Sales Team Into Office 365, Identity Surfaces As A Core Focus, Alex Williams the author of the post notes “Microsoft also is making a point to focus on identity management and other issues as part of its road to full integration [of Yammer].” (quoted from Alex Williams’ article as published on TechCrunch. A link to the entire article has been provided here).

We’re not sure what Mr. Williams means by “identity management.” But we think it’s safe to assume he’s referring to “identity management” as the task of managing public perception of the product brand of the SharePoint component of Microsoft’s Office 365 offering as well as the same brand messaging for Yammer as the two products are integrated.

We’ll spend a couple of posts to this blog on the news Mr. Williams reports in his short post. A lot of tech businesses have attempted the same type of identity management in the past. This activity comes up as businesses are folded into one another as marketplaces consolidate. More often than not the efforts fail. As the emperor’s new clothes fall away, what looked to be a promising marriage of two organizations disintegrates into not much more than one business digesting another. It makes sense to eliminate competition, but buying them out is a comparatively costly method.

Most of the difficulties arise between line of business units (LoBs). Usually, as in this case, the recently acquired business is a direct competitor of an LoB with a lot of power in the acquiring business’ organization. Rather than fostering a healthy environment of contention, a decision is made to “fold” or “integrate” the acquired business into the new parent, as Mr. Williams has noted in his article.

Almost always this decision works to the detriment of the acquirer. More on this topic with the next post to this blog. If you’re grappling with a decision about whether or not it makes sense to buy out your competition, drop us a message. We would welcome an opportunity to learn more about your objectives.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Internet Acquisition Malaise: Bulking Up On Eyeballs But Going Easy on Compelling Revenue Models

On May 24, 2013, the Online edition of the Wall Street Journal published an article by Jessica E. Lessin, Why Tumblr Won’t Move Yahoo’s Needle. As Ms. Lessin points out “Tumblr isn’t going to earn Yahoo orders of magnitude more revenue—or even a new revenue stream.” (quoted from Ms. Lessin’s article, a link to which has been provided here).

We think Ms. Lessin’s comments make for extreme understatement. She notes the disparity between a purchase price of $1.1 billion and Tumblr revenue for 2012 at an approximate $13 million, but claims “Yahoo’s sales team will likely be able juice that number” (ibid). We don’t think so. We don’t see the rationale for the purchase. Here’s why:

Tumblr is not a new Internet property. There isn’t anything technically earth shaking about it. The editorial and visual content maybe appealing to an affluent audience, but there are some other similar enclaves online. So why spend so much to acquire Tumblr? Ms. Lessin postulates it all came down to “users” (we put this in quotes. We’re dubious on the claim. Are all these visits from humans, or are some large proportion generated by computers. We’d rather revert to the legacy phraseology — “pageviews”). With Tumblr rolled in, Yahoo gains ” . . . some 300 million monthly unique users, it claims” (ibid). We respectfully reply “big deal.” Facebook has even more “unique users” but we don’t see where they have an effective method of monetizing this traffic.

But what’s worse is the lack of pushback from the Yahoo board of directors on this purchase. The acquiescence of the board to this acquisition is disturbing. Perhaps they know something more than they have publicly disclosed. We certainly hope so.

We had first hand experience in 1999 when the Internet business bubble first burst. In Yahoo’s acquisition, Facebook’s grossly overpriced IPO, the poor performance of Zynga, Pandora and Groupon, we see a repeat.

We’re much more optimistic about online business models built on SaaS Cloud offers for businesses and enterprise class organizations. If you’re thinking about where you’d like to go with an online business idea, please don’t hesitate to contact us. We’d be happy to share more of our thoughts on this topic with you.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Pricing Pressures Constrain Options for ISVs for Customer Service Programs Designed to Support SaaS Offers

Designing a menu of low monthly subscription charges may make sense for Independent Software Vendors (ISVs) launching Software as a Service (SaaS) offers. But ISVs have to be very careful to include the cost of a satisfactory customer service operation in monthly charges if SaaS subscribers are to deliver the revenue ISVs require.

We see three reasons for ISVs to fail to understand this critically important point:

  1. An ISV brings to a SaaS offer a lot of experience with “freemium” Internet offers and thinks paying subscription customers will set the same expectations for the SaaS offer — in other words no customer service beyond forums, access to a support knowledgebase, etc
  2. Markets are highly competitive. Subscription customers expect very low monthly charges. An ISV decides customer service is expendable, but features are not.
  3. An ISV chooses to approach an SaaS market as roughly the same as an Infrastructure as a Service (IaaS) market. Highly technical customers do fine solving their own IaaS problems, why shouldn’t SaaS customers do the same?

Each of these reasons are incorrect. “Freemium” Internet offers are not the equivalent of paid SaaS offers. Paying customers require support. Poorly moderated customer forums are usually of little value to paid subscribers; therefore, forums can’t be trusted to provide the answers customers require. A voluminous knowledgebase without a robust search service is rather useless. So plan on offering some level of customer service. At a minimum, a commitment to reply by email to support requests within one business day makes sense.

If monthly subscription charges won’t cover the cost of a customer service program it makes sense to revise charges upward. The alternative is either too many low paying subscribers (and, thereby, a lot more requests for customer service), or too many dissatisfied customers. Either way you lose.

SaaS customers for Google Apps or Microsoft Office 365 are not the same group of highly technical people who sign up for IaaS. SaaS customers can include office workers who lack formal technical training, and do not want to get any. Failing to provide them with the level of customer service they expect is a mistake. The goal is to keep them subscribing. So take the steps required to keep them on the books as paying customers.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


As SaaS Offers Evolve Customer Service Features Will Likely Play a More Important Role

We expect SaaS offer to evolve in Darwinian fashion over time. The fittest offers will include a customer service system capable of satisfying the support requirements of average subscribers.

We don’t think SaaS offers lacking a customer service component will survive the first few years of the cloud computing era. To reiterate, the profitability of SaaS depends on an average subscription term, by customer, long enough to deliver return on the upfront investment an ISV makes to launch the service. The key method of engaging with subscribers over the term of subscription is through a successfully managed customer service operation. If customers either fail to obtain the support they require, or obtain ineffective support, or, even worse, receive ineptly managed support, they will stop subscribing.

SaaS makes sense for ISVs as well their customers. We don’t see the trend diminishing anytime soon. So it makes sense for ISVs to put together a pricing model capable of supporting the cost of maintaining a customer support effort staffed with well trained personnel who can be expected to correctly handle support requests.

Large ISVs can afford to provision the type of customer service operation required to support a large subscriber base. We think smaller ISVs will do well to plan on the same high quality support system, but at a higher price. So it makes sense for smaller ISVs to explore niche requirements where the number of competitors is fewer and the customer base more selective. With fewer options, these highly qualified prospects will simply have to pay higher monthly subscription costs to get the services they’re after. But the real driver for them, we think, will be the quality of support. SaaS simply doesn’t work where the customer has to spend a lot of time servicing reasonable requests for support.

If you can use some assistance identifying niches where your products and services can make for an attractive SaaS offer, please contact us.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Microsoft’s Office 365 Service Features a Highly Effective Customer Service Component

Microsoft’s Office 365 SaaS offer includes a highly effective customer service operation. Subscribers requiring support can contact the Office 365 team with a telephone call. Once a support call has been recorded and successfully completed, subscribers can contact the engineer assigned in the future, thereby saving a lot of time.

We’ve maintained an Office 365 E3 plan for more than a year. The primary driver for us for continuing our subscription has been the quality of customer service. The key customer service feature has been prompt trouble remediation on the part of the Office 365 support team. Microsoft has a policy of elevating currently assigned support engineers to the position of primary contact, for the subscriber, going forward, for related issues.

With a telephone contact number, and an email address readily available to us to reach someone with an understanding of our working environment as the result of a prior successful attempt to fix a problem for us, we’ve proceeded largely satisfied and trouble free through our subscription. Multiply our experience by some substantial portion of the subscriber base and one can readily see why Microsoft has likely begun to realize serious revenue from their SaaS offer.

While it will likely not be possible for smaller ISVs to offer the same level of customer service at a comparably low cost to SaaS subscribers, simply implementing a similar support method will almost certainly produce happier subscribers who keep on subscribing month after month. Where the SaaS offer is more specialized (Microsoft’s Dynamics CRM comes to mind as an example of a more specialized SaaS), the likelihood of charging higher monthly prices will be greater.

Our customers include several businesses using competitors to Microsoft’s Office 365 and Dynamics CRM offers. We haven’t found the customer service offers from either Google Apps, or Salesforce.com to be comparable to Microsoft’s offer.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Customer Service Operations for SaaS Cloud Offers Must Be Managed Successfully to Produce Positive Results

Simply providing a customer service operation for a SaaS offer doesn’t mean success. Customer service needs to be carefully managed if it is to produce intended results. Remember, intended results are satisfied customers who keep paying monthly subscription charges. The best customer service managers will have sales experience, a demonstrated ability to lead teams and, finally, an exceptional ability to listen to customers.

We recently observed an example of highly inept customer service. A colleague of ours subscribes to a popular freelance project auction SaaS. This colleague had paid the SaaS provider $30 per month for, perhaps, the last 14 months. He decided to terminate the service as the result of an ineptly handled customer service request.

Our colleague hadn’t gotten much lately from his paid subscription. So he decided to treat his subscription as he would any other purchase where his customer experience was less than satisfactory. He availed of the customer service feature offered by this project auction board (which, we should note, was hidden deep within an FAQ list and knowledgebase and only accessible after a customer answers a series of questions) and asked them how he might improve his use of the service to obtain better results.

The customer service representative responsible for answering his inquiry completely missed the opportunity he was offering the service. Even worse, the representative defended the poor performance of the subscription with reference to “yes, the market is very competitive, so it’s likely you won’t be winning as often as you would like”. Naturally this answer was the last nail in the “dead for now” coffin for this SaaS as far as our colleague was concerned. He promptly cancelled his subscription, which will result in $360.00 less revenue for the ISV over the next 12 months.

If you could use some help finding the type of talent you need to staff your customer service operation, please contact us. We have considerable experience identifying the type of talent required to build a successful customer service operation.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Successful Customer Service is Essential to Making Money with Software as a Service (SaaS) Offers

Software as a Service (SaaS) offers are the core of the cloud computing business. If they’re to deliver on their promise of profitability, Independent Software Vendors (ISVs) must implement and maintain successful customer service programs.

Most of the money to be made with SaaS offers occurs over time. Installation charges never accompany the SaaS monthly subscription charge. Neither are customers committed to a minimum SaaS subscription period. So the costs ISVs incur building SaaS offers, and finding customers willing to pay a subscription charge, must be recouped over the term of subscription.

The actual minimum length of a customer subscription required for an ISV to achieve profitability from a SaaS offer also depends on competition in the market. When Google Apps are available to small businesses from Verizon, a major telecommunications provider in the United States, at nearly no cost (we recently noted Verizon providing special offers to small business customers to entirely offset the monthly cost of the Google Apps plan), then Microsoft has to limit the monthly charges across the range of its Office 365 plans. Lower monthly prices for the small business customer make for a longer time to payback for Microsoft.

All of these factors make it critically important for ISVs to keep customers subscribing for at least the minimum subscription term. Successful subscriber retention programs need to complement an attractive set of SaaS features with a level of customer service high enough to satisfy subscriber needs, while protecting the bottom line of the ISV.

It’s surprising to us to note how few ISVs appear to understand this point. Customer service is the only tool ISVs can use to engage with subscribers over time, but either the cost of providing this feature is too high, or management just decides subscribers truly do not require it. Opting to leave out a customer service program from a SaaS offer can be a fatal mistake.

If you operate a SaaS business and have observed a high churn rate across your subscribers, you should carefully review your customer service program. IMB Enterprises, Inc. has a considerable amount of expertise and can help your efforts. Please contact us to learn more.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Distribution Channel Conflicts Can Substantially Diminish the Effectiveness of Product Marketing Strategies

Businesses with more than one product distribution channel need controls to insulate revenue plans from the negative impact of conflicts between distribution channels. Barnes & Noble is an example of a business in need of these controls. The company sells products through its website, and through an extensive network of retail locations. We found pricing on books through Barnes & Noble’s website to be a couple of dollars higher than the same item as priced on Amazon. The retail price for the same book, but purchased at one the company’s retail locations was substantially higher.

We think Barnes & Noble is missing a significant opportunity to take market share from Amazon as the result of the pricing difference between its online store and brick and mortar equivalents. If, for example, the couple of dollar difference between the cost of the same book on either Amazon or Barnes & Noble’s website is put together with a zero cost shipping option, then Barnes & Noble wins. The zero cost shipping option can be achieved by permitting the online purchaser to pick up her item at a Barnes & Noble retail location. But this option isn’t available.

In the interests of protecting the profitability of the retail sales operation, only, the option isn’t available. Retail booksellers have to operate under substantial pricing pressure on popular titles. Retail location operating costs are certainly much higher than the cost of operating the online store. But when protecting profits requires a 75% uplift against the online store price for the same item, then some sort of control is required, or else plan on losing market share.

We have a call into Barnes & Noble requesting a conversation with someone in their marketing team to learn more about the rationale for the pricing differences. Macy’s, BestBuy and others are all trying to match Amazon’s prices from the retail location. We think this is a much better approach.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved


Use Direct Marketing to Build Brand Awareness by Sending Press Releases to Website Visitors

Anonymous visitors to websites identified by VisualVisitor, or one of their competitors, can be successfully targeted to receive the type of promotional collateral proven to build brand awareness.

Press releases are an excellent choice for this type of activity. Here’s how to identify recipients:

  1. Select businesses to receive your press release information from the leads list provided by VisualVisitor for your website
  2. Check your internal CRM system for any identified contact from the businesses selected in 1)
  3. Use social media resources, including LinkedIn, Twitter, Facebook and Google + to add contacts who you can reach
  4. Add these contacts to your internal CRM system
  5. Where possible, send a link to your press release, along with a one paragraph précis of the release, directly to targeted recipients by email
  6. Where an email address is not available, make careful use of messaging features of social media to send the same message to targeted recipients
  7. After sending the press release, note the activity in your internal CRM and schedule another message three (3) months out

This system will help you build marketplace awareness for your brand. We write and publish press releases with PRweb We’ve seen a marked improvement in clicks to our client’s website since implementing VisualVisitor on a blog that we produce for the client.

You will note we recommend scheduling a second email, or social media message to targeted recipients ninety (90) days from your first direct marketing effort. We chose a date several months out to spare the contact from the type of excessive contact activity we’ve noted as the norm for drip email marketing campaigns. Keep in mind, your effort is meant to introduce your brand to the recipient, not to sell your product. Should the recipient have a need for a product in your market in the future, chances are he or she will look further into your offer once your brand has been introduced through this method.

IMB Enterprises, Inc. has considerable recent experience working with direct marketing programs for early stage businesses with technology products. If your business can use a more effective direct marketing program, please contact us to discuss what you need.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved