Tuesday, July 29, 2014

Messaging Ripple: A Salesforce Price Increase

Pricing strategy is a deep and complicated topic. You can find volumes of information on the web about pricing strategy. One interesting breakdown that I came across was in a white paper from Bessemer Venture Partners that's available for download from this page. One thing that I found particularly on point was this quote in the preview text:
Although the “flinch test” (keep raising the price and constraining the terms until the customer flinches) may have been an effective pricing art in the era of enterprise software, much more thoughtful strategies are needed for the modern models.
The flinch test. It has an uncomfortably familiar feel to it.

Upsetting the Status Quo
Imagine that pricing is a balance, a point of equilibrium between what the vendor would like to take from the relationship and a contrasting force of what the customer would like to spend in the relationship and how much they need in terms of service. In this model, a sales contract is reached based on a balancing of those two interests in at a point where both parties are satisfied. However, what constitutes a balance is never fixed, it's usually more of a range -- sort of like being on a see-saw and staying in balance as long as neither end touches the ground. With flinch test pricing, there is that idea of attempting to adjust pricing in favor of the vendor who, as an incumbent, maintains some entrenched leverage as it's hard to disconnect from the see-saw.

But with Salesforce, there's another aspect to their pricing model. Salesforce prices on a tiered pricing model. Here's an interesting excerpt from the Bessemer white paper:
The mindset of maintaining a long relationship with the customer supports having a tiered model. As the customer grows, its needs evolve. Part of the sales process is demonstrating that the customer’s needs can be met both in the present and in the future through higher tiers that it can “graduate into” over time. This also implies that sales cycles may be longer in order to prove out this value proposition over time...
The perception of growth on the part of customers is an important part of psychological pricing that compares favorably to the perception of “being charged more for a service level that I barely need.”
A fundamental component of Salesforce.com's tiered pricing structure is that you are "paying for things that you don't need." Some of these functional elements may be capabilities that you hope to "grow" into, while others may be things that simply don't fit your business process. Either way, there is a wealth of functionality that most likely sits idle, regardless of your business.

For customers, unless you've defined some specific measurable metrics, ROI can be seen as a Glass Half Empty / Glass Half Full sort of thing. Am I experiencing Value? Do I see the utility? Do I think we're taking advantage of all of the capabilities that the software offers? Half empty or half full is an easy state to remain in when everything is at equilibrium. But changing the cost equation can reactivate a need to scrutinize and measure -- and if there is not objective metric, it's easy to harmonize with the unused utility aspects.

The Uneasy Influence of Power in the SaaS Relationship
One of the things that makes a price increase so much more uncomfortable when you're dealing with a company like Salesforce.com is that, if you've deployed, the software has probably become entrenched in your business processes. This means that, if you are unhappy with the change in the vendor-customer relationship, you don't have many avenues for change. In this paper that I came across on Price Fairness, that kind of power magnifies the negative impact of a price increase.
Power affects the impact of different industries on price fairness judgments. When an industry is more powerful, as in the case of healthcare insurance, consumers are sensitized to fairness concerns. They are, however, reluctant to react because the alternatives are not good. The result may be capitulation: purchasing the product despite being angry as indicated by the dotted arrow. The result however, may also be explosive anger.
As with healthcare insurance, some may claim that there are many alternatives, but the reality is that that there aren't really that many viable ones.

In that context, even the threat of a price increase for a SaaS product like Salesforce.com can seem more like extortion than an acceptable business practice. The implication of the message is, "how entrenched is this software in your business processes?" And, as customers, your take-away understanding is more likely to be, "let me think twice about how I leverage this software in my organization. Is this new feature worth enabling another hook into my business or should I instead be looking at disconnecting dependencies?"

Personally, I would consider it an epic messaging blunder.

To end on a positive note, here's a little something in honor of the arrogance of the message and crazy seat licensing, here's a Bob Dylan song being performed by Tom Petty.

Monday, July 28, 2014

More Interesting Reading for Monday

Here are a few more interesting things that I've been thinking about this Monday morning. The first is courtesy of a link I came across on the PandoDaily site today. The link is actually to Lifehacker -- it's an interview with Ira Glass from This American Life. Here's the link. It's a really interesting breakdown of some of the editing and audio processing that they use. Cool stuff.

Another interesting one is something that I came across in the Pando Ticker last week. This is an interesting blog post about gender from a female presenter talking about how people seemed to think it was okay to provide unsolicited criticism of her presentation. Meanwhile, none of the male presenters experienced any presentation criticism. It's a good read; however, depending upon your gender and your experiences, you may find it unsurprising. Here's Lara Swanson's blog post.

Secrets of the Creative Brain

During the Friday commute home, I caught parts of this a story about creativity on NPR. Intrigued, I tracked down the article online and read through it on Saturday. It's quite interesting and definitely worth a read.

The piece is Secrets of the Creative Brain, A leading neuroscientist who has spent decades studying creativity shares her research on where genius comes from, whether it is dependent on high IQ -- and why it is so often accompanied by mental illness, by Nancy Andreasen. It's not a short read, but it is a pretty easy read nonetheless. And if you're into creativity -- understanding it, leveraging it, or just being around it -- I think it's a helpful read as well.

It reminded me a lot of Juice: The Creative Fuel That Drives World-Class Inventors, a book that I really enjoyed and would recommend. In her study, Andreasen dives into the associative part of the brain and it's relation to creativity. This harmonizes well with many of the ideas presented by Evan Schwartz in Juice. 

At the same time, one aspect of Andreasen's piece that I found amusing from the creative perspective is the idea that, within the mind of the creative person, the unusual (creative) associations seem so obvious that they tend to take them for granted. Put a different way, while some may see an unusual or creative idea, that creative person probably considers the association as normal. This can create a disconnect between a creative person and an audience that "just doesn't get it". And that can be a good thing to keep in mind when you're dealing with creatives -- or as a creative person looking out.

Friday, July 25, 2014

Lessons from Streaming TV

Since moving from Mountain View last year, I have joined the cut-the-cord crowd. It wasn't just that I couldn't see giving Comcast $100 a month for hundreds of channels of crappy content. The worst part of having access to all of that crappy content is that it's easy to get sucked into watching it.

While I've maintained a relationship with Comcast for Internet, I have no TV. No TV as is, not just no cable TV box, but no TV. Since that time, most of my video experiences have been things that I found online or streamed through online services. If found a number of take-aways from the experience, so I thought I would share a few of them.

Netflix Streaming is Not Equal to Their Traditional Media Business
Netflix may offer one of the best streaming media experiences, but their service rides on an illusion that their library of streaming content is equivalent to their DVD media library. For a business that epitomized the Long Tail, Netflix vast library of DVDs available for rent was unparalleled. From new releases to virtually anything in the vault, if it is on DVD, Netflix rents it. But they don't necessarily stream it.

The library of what content is available for streaming is governed by different licensing rules. As a result, the content oligarchs still seem to be of the mind that if they just limit the availability of certain content -- say The Good Wife Season 5, that you'll run out and buy a DVD because unlimited free streaming is unavailable. And while all of the new release movies come out on DVD or Blue Ray -- even with the 'negotiated' delay between sales and rental -- you may never see some of them as a subscription streaming offering. And yes, you can 'rent' a streamed version of the movie from iTunes or Amazon, but don't expect all of the content that you want to watch to appear in the "all you can eat" streaming packages.

My Number One Complaint Against Amazon Prime
One of the things that I liked the most about when I had a Netflix subscription was that you could actually stream content over the cellular network to your phone. This meant that I could watch streaming content during lunch or if I found myself eating alone. While the phone isn't an ideal platform for watching TV and movies, sometimes it was better than no dining companion. 

Amazon Prime's streaming client seems similar to Netflix, but they've built a hard block against using the app on the cellular network. While that won't cause you any issues at home, it makes it unusable for my primary phone-based streaming video use case. As a result, I went for seven or eight months without watching any Amazon Prime streaming content.

Content Differences Between Netflix and Amazon Prime
As you would probably imagine, there is a lot of content available that overlaps across the two services. The same movies, the same TV shows. But there are differences. Netflix seems to have a larger library of streaming content available, so you might be more likely to find something there than on Amazon. At the same time, Amazon recently obtained an exclusive license to stream many HBO series. This means access to old seasons of True Blood, The Wire, Band of Brothers, the Sopranos, and more.

iTunes Outdated Content Licensing Approach
There is no unlimited video content streaming available in iTunes. Instead, when it comes to video content, iTunes operates more like Blockbuster than Netflix -- happy to rent or sell content on a per piece basis. While that matches the rest of the market for new release content, it leaves a gaping hole when it comes to the rest of the content library. This means that, even though we use Apple devices like the iPhone, iPad, Macbook and Apple TV, we seldom watch video using iTunes. It's kind of funny when you think about it.

In fact, over the past couple of years, the only time that Apple got money from me for streaming video content was when I bought seasons of Misfits and, even then, it was because the DVDs were unavailable here in the states. And then, as the last season of Misfits was airing, Apple applied geographic restrictions to the show so that it was only available in the UK version of iTunes. No content for me, no money for them. 

Thursday, July 24, 2014

The History Lesson that Foursquare Missed

Remember back when the next big thing was check-ins? It was back around 2010, there were multiple applications for checking in, and there was so much imagined potential for space. Even Facebook and Yelp decided to try and scoop up some of the action. And one-by-one, from the Foursquare competitors to Facebook places, they've disappeared.

For whatever reason, be it user interface, brand loyalty, or just the way things go, Foursqure held out. They held out as people tried other platforms but didn't switch. They held out through the time when the big dog, the 800lb gorilla of Facebook tried to use its giant user base to muscle them out of the space. They held out as location and recommendation engine Yelp parroted their concepts of Mayor with Duke and Duchess of check-ins.

Through it all, Foursquare was still "the Check-in app".

Until Foursquare decided to do what none of their competitors could do -- move check-ins into a competitive app (Swarm) and get Foursquare out of the check-in business.

It's so mind blowing, it almost seems comic, like a scene from a Marx Brothers movie. "The plane is carrying too much weight, we're going to crash. Find something to throw overboard... How about this engine? Too much weight, get rid of it." Of course, that whole scene would still resolve with a happy, funny ending.

The Alliance: The Best Business Book I've Read in Several Years

On Tuesday, KQED's Forum program featured LinkedIn founder Reid Hoffman talking about his new book, The Alliance: Managing Talent in the Networked Age. After listening to part of the program -- I had to get into a meeting -- I found that I was interested enough to head straight to Amazon to find out more about the book. One Prime membership and two days later, the book arrived this morning. I finished it by lunchtime.

Without a doubt, this is one of the best business books that I've come across in a long time. I highly recommend it.

The basic premise of the book is a redefining of the employer-employee relationship, designed to address the modern business environment. Gone are the days of lifetime employment, but we still carry residual assumptions that corrupt aspects of the employer-employee relationship. The Alliance provides for a better social contract, defining a framework for dealing with employment periods as tours of duty with goals for advancing both the company and the employee's interests.

The Problem with Most Business Books
It's not unusual to come across a business book that catches my attention. An interesting idea or an insightful look into a technology or trend -- if it's wrapped in a good story -- can usually spark my thinking, sometimes enough to buy the book. At the same time, for as many books as I've bought in the past couple of years, I've actually finished few of them. Mostly, that's because, once you work your way through the core premise and you understand the framework, the other content is typically provided as supporting information and it's rather tedious to work through. Usually, after a couple of days of hacking through a few pages here and there, I find myself drawn into other projects, then I stop carrying the book, and soon it's collecting dust on the cabinet.

The Alliance was far more successful. It's well documented, with anecdotes and examples from a variety of businesses. The examples used are typically brief, not more than a page or two, sometimes as short as a casual reference. The flow is fast, the chapters are short and it moves with the pace of a tight presentation deck. But it gets better:
  • More than just presenting a concept, the book provides a rough framework for implementing an approach. It's like reading a manual with exercises and example. There is some good take-away material here.
  • While it maps out the framework, it doesn't get bogged down in process details. It's almost more of an executive overview of a policy handbook, rather than a tedious policy handbook.
  • At the end of each chapter, the book provides links to a web site where you can get more content online. This is the way modern book publishing should be.
  • Even the appendices include example documents that help provide inside into the process and the strategy. 
In the end, this is one you definitely should read. It even provides a great context for how the social network should fit into the culture of the business -- but you could probably see that coming from the Linked In folks.

Not that they're reading my blog, but a hat tip to Reid Hoffman, Ben Casnocha and Chris Yeh. This is an exceptional book you've put together here.

Wednesday, July 23, 2014

The Fundamental Foursquare Rebranding Question

The strategy behind this whole Foursquare shift just keeps buzzing around in my head. I was reading Sarah Lacy's Pando post on Foursquare after I published the previous one and I came across this quote from Foursquare CEO Dennis Crowley in a previous Pando piece (emphasis added by me).
The press, God bless you guys, puts successful tech companies through a hazing period,” he said. He had to learn to ignore the haters because he believed that his vision — to turn check-in data into world’s best local search engine — would have value beyond check-ins and badges.
So here's the fundamental question:
You really believe in this idea of a local search engine and have all of this brand equity in your check-in app that drives the data for your search engine. Why would break the brand and identity connection between your check-in app and check-ins and replace it with your location discovery/search functionality that wasn't identified with your brand?

Why wouldn't you make the discovery/search functionality the second app?

Because two dead ducks are better than one dead one and one very strong one that doesn't know where to go?