Chaotic Flow

Streamlined angles on turbulent technologies

In an earlier post, I listed my top three sure-fire marketing tactics that work for on demand software.
Here are my top three that don’t…

1. Extensive offline marketing
2. Chasing elephants
3. Premature channel development

Offline marketing is almost always expensive, and as an on-demand service your revenue/user is usually far  too low to cover it.  Second, if a prospect is not online, he or she is missing a very fundamental qualification criterion for signing up for a Web application—they aren’t online!  I say extensive, because sometimes there are focused events or offline promotions that can provide a real return, or have ancillary benefits such as showing industry presence and credibility.  It really depends on your industry, product and target prospects.  But, they are few and far between.

Chasing elephants is by far the biggest mistake an on-demand business can make.  You find a prospect that has cash. But there are missing features, a long sales cycle and special legal requirements, etc.  When you need cash this direction is tempting.  But, one too many stumbles away from your core strategy and you wake up to find that you are a ten customer consulting business constrained by the special needs of a few powerful customers—not a rapidly growing web application.

Finally, no one wants to resell your product or service either as an affiliate or a full scale VAR, unless they can make money at it.  Until YOU are making money at it, you will have a hard time convincing a channel partner to invest precious time and resources building specific capacity to do so.  It may be that your ultimate distribution model is fundamentally channel-based, by you almost always need to kick-start revenue yourself to prove your potential.  And, you will need to share the unique aspects of marketing and selling your product with your channel partners—which you can’t do if you haven’t been through it yourself.

If there are two areas of cross-disciplinary study I would recommend for every Web PR and Marketing professional it would be linguistics and postmodernism.   The reason is that Internet marketing (and branding/marketing in general) is driven by forces described by these disciplines…and the ideas have been around for 50 years, so there is no need to reinvent the wheel by figuring it out for yourself.  I’ve seen a number of blog posts triumphantly delcaring that The Medium is the Message, and while true, I personally didn’t learn much from them that I didn’t already know from postmodern theory.

I’d like to try and clarify an idea that I think is creating great turmoil for most PR firms and media outlets in general, from blogs to wikipedia to cnet.  The difference in Web 2.0 is not that the medium has suddenly become the message, the medium and the message have and always will be fundamentally inseparable, the difference now is that a) anybody can create a message and b) anybody can modify the media.  This change is blurring the lines between PR and marketing, and IMHO to be successful in PR 2.0 and Marketing 2.0 you have to get these two fundamental shifts.

Old school PR adhered to a certain set of ethical rules designed around a certain media structure.  News was FILTERED by experts in the form of reporters and editors who controlled access to FIXED media channels, e.g., a magazine, a newspaper, a TV show, etc.  This was the world of broadcast media.  The ethical PR person followed this model by making sure the message being offered was newsworthy and by pitching this newsworthy story to these ordained few.  While this paradigm still exists, it is being rapidly eroded by user generated content and the Web’s inherent fugibility.   Now there is a spectrum of credibility caused by variable filtering that extends from MySpace to Wikipedia to the New York Times.  And, the medium itself changes every nanosecond with each new link that is created.

Depending on your product or service, your news credibility requirements take on different flavors.  For B2C, sufficient credibility may simply be what everyone else is doing…a trend.  For B2B, it is more likely to come from the more traditional experts or perhaps some of the newer ones like popular blogs.  The pressure on PR firms and marketers alike to adapt and take advantage of this new paradigm is strong.  Many will not survive the transition.  The two most important ideas that must be relearned are that a) your communication channels are radically expanded by social media and user generated content…you must have a solid understanding of your potential online media outlets and the right message for each and b) it no longer stops there, you must learn to modify the medium to your advantage.  More concretely, don’t just go to the NY Times and pitch your case study, consider what your presence should be on social networks, blogs, etc that are relevant to your customers…ask yourself:  Where do my prospects congregate on line?  Can I create my own community around my brand?  Then, create your own content and adapt the message to both the audience and the medium: don’t just make a viral video, because they are hot…you might be as well served simply by posting insightful comments to the right blogs.  And finally, focus on the medium itself to accelerate distribution and build a trail that leads back to your own website.  Link, link, link. Syndicate, syndicate, syndicate. Everywhere, all the time.  A news story in the print version of the NY Times lasts a day and then goes into library archives.  A blog post or a gadget can be redistributed across the Web, and a link from your story back to your website on a page rank 9 site has a much longer lifetime in cyberspace than the print equivalent in physical space.

Viral and loyalty are two words you don’t often see right next to each other as a single unified marketing concept.  Viral marketing is almost exclusively associated with acquisition and loyalty as closely tied to retention, so they are natural opposites…right?  Wrong!  If you read my previous post on the syndication revolution being driven by the natural response of Web businesses to users spreading their time and attention all over the Web with the help of search, the inherent value of the web syndication model begins to emerge.  What if you could virally attract users to your content and then hold them there?  This IS syndication, whether it is RSS, podcasts, gadgets, toolbars, etc.  Syndication at its heart is two simple concepts:  distribution and subscription.  It allows you to follow your audience to the farthest reaches of the Web by virally distributing your content, and then it allows your potential audience to sign up for ongoing, deeper engagement through subscription.  How cool is that!

What works?  Here are my top three…

1. Search (SEO and SEM)
2. Public relations
3. Easy, online trial

IMHO, these three are the proven blocking and tackling marketing activities to get an on demand business off the ground.  These three are fundamental and should be done first, because they all have marketing leverage beyond the individual activity.  SEO/SEM works because your customers are already looking for you–online.  You are just facilitating the buying process.

PR works, because it is fundamentally viral and cheap.  And, I don’t mean just doing press releases or press relations, because the traditional online media world has blurred to such a degree with bloggers, social networks, etc.  I define PR as simply having a strong story to tell, and finding viral free ways to tell it.  Also, credibility is critical.  In the end, most marketers don’t really do most of the marketing of their products.  Ecstatic customers do it for them.  And, opinion leaders reinforce your trend to put you over the top.

Finally, there is trial.   Even if you don’t a have complete self-service on-demand offering up and running, trial will allow you to apply resources at the highest value stage of the purchase process—right before close.  If you get them to trial, don’t let them get away.  Then, use your experiences to learn what you need to do to automate the trial to close to deployment process.

In my next post on the topic, I’ll give my top three that don’t work.

I am seeing this phrase, syndication revolution, more and more lately–largely related to the growth of Blogs and RSS.  However, I believe that this event will wash over the Web in a way that is much bigger than what have seen so far.  In a recent meeting with Michael Eisenberg of Benchmark Capital last week, he expressed an idea he had been encountering/formulating with other Benchmark portfolio companies that I thought was so powerful it was worth trying to encapsulate.

Simply put, the so-called syndication revolution can be viewed as a natural response of web-based businesses to the rise of search.  While the historical web monetization model has been to try and capture users within the confines of your website, search (Google in particular) makes its money by spraying users all over the Web.  Dave Winer’s earliest (pre-Google) posts on syndication characterize search engines as concentrators,  but in hindsight, the effect has been the exact opposite.  It is now easy to find zillions of small, low-traffic websites (like this blog) simply by typing in the right keywords.  Taken in this light, the coming syndication revolution (and it IS coming, it is just beginning) is really just about following your audience by pushing your content out to the rest of the Web and engaging them offsite, because despite how compelling your service might be, that is where they are going to be spending the bulk of their time online.

I recently did an interview on vator.tv for ivybrain.com that focused on marketing tips for entrepreneurs in on-demand software (soon to be posted). This is the first in a series of posts that summarize the ideas covered….enjoy!

1. Create and deliver a focused, high value product. Don’t try to solve every problem; keep the value proposition simple.
2. Choose a big market, so you can choose your customers. Don’t chase customers that need features you don’t have or would naturally sign up later in the adoption cycle. Ultimately, your value proposition has to draw customers to you…and the integrated product has to allow them to sign up and get going on their own.
3. Strive for 100% self service acquisition/deployment/maintenance and work rigorously to eliminate obstacles that require and hand-holding. Put people in place initially to do the hand-holding, e.g., education, sales, service, support…but recognize that while their tactical function may be to close a sale, the more important strategic function is learning. These folks are a direct line to your prospects that provide critical feedback to get the product just right and understand the details of what is stalling growth. Then, make it your company’s habit to use this knowledge to eliminate these obstacles through automation.
4. Develop online marketing prowess and creative PR. SEO, SEM, email marketing, and affiliate marketing are commodity skills; you must be a master at these (or outsource to a master) just to be competitive, and then you should be good and creative at more cutting edge marketing vehicles like blogging, social media, viral media and syndication. Plus, don’t underestimate that one incredibly great marketing or PR idea while mastering the basics…often that one creative blockbuster, viral marketing or PR idea can generate 10X demand. But, you can’t count on that long shot…so mastering the basics is a given.
5. Flexibility. You won’t get it right out the gate…so all of the above should be designed to create a flexible, rapid response to quickly zero in on your sweet spot, accelerate adoption, and grow rapidly. Expect failure. Learn from it. Move on.

It’s been a while since I have written a blog entry, but I am happy to say that it is for a good reason. I recently joined Conduit, an exciting B2B2C Internet startup as VP Marketing. The company has some incredibly cool things going on grounded in cutting edge, on-demand website syndication technology, so I have no doubt my experiences here will provide great inspiration for future blogging. We just closed a round of financing with Benchmark Capital, led by Michael Eisenberg and we are ramping up for some serious growth, marquee customer deals, and new product introductions (read: I am hiring in marketing…resume’s welcome) Our website has just been updated with the next-level of evolution in the company’s positioning (not the least of why I have been on a blogging hiatus). Finally, I am personally enjoying working with a fantastic, talented team and working at Conduit’s dual-country headquarters in Silicon Valley and Tel Aviv which keeps me commuting between two of the most beautiful cities in the world.

What’s not to like. Sababa!

Here is a picture I find myself drawing often. It is closely related my last B2B SaaS post regarding old enterprise habits, but it is actually much more general. Most Web application / Software-as-a-Service companies will find themselves spending up to 50% of revenue on sales and marketing. But, how much should you spend on sales vs. marketing. And, how tightly integrated do these two functions need to be? Of course it is common wisdom that sales and marketing need to work together, but this need is acute for most Software-as-a-Service companies. In enterprise software, where the price point is $100-500K per transaction, the marketing organization is only loosely coupled to revenue through lead generation, messaging /collateral / website, and generating awareness through events and PR. Contrast this with a consumer application, where the tables are turned completely and what sales does exist typically takes the form of partnering and business development—which may be revenue generating, but is not aimed at closing revenue directly, i.e., getting more users.

Most B2B SaaS offerings and B2B2C Web applications (e.g., email marketing, Gadget platforms, online survey research, customer and channel support, etc.) tend to fall right in the middle of this graph. One reason for this is subscription/transaction- based pricing (as opposed to a three year, 1000 user enterprise agreement), as well as the general expectation of a Web or SaaS application to cost significantly less than software. The result is that SaaS companies must continually strive for reduced selling costs, increased marketing efficiency and tighter sales-marketing integration to create a revenue-generating machine—often by leveraging technology to automate as much of the sales cycle as possible from awareness to trial to acquisition and even through to support and add-on selling.

The Internet sector is rife with companies that seem to have great product ideas, but can’t seem to monetize their offering. Strategically, this is almost embarrassing. I honestly can’t think of another industry that has this issue (feel free to clue me in if you know of one). While most small businesses and startups fail to ultimately turn a profit, Internet startups seem to stand alone in not having a clue as to what they intend to sell in the first place. It seems the only exit strategy for these startups is to be bought by a larger, cash rich company that offers something others are actually willing to pay for, like Microsoft, Google or Amazon, where they become a permanently free service or are absorbed into some larger tech stack as simply another feature. At any rate, because this blog is about strategy, many of the posts can be very critical. So, in the interest of balancing things out with a little optimism, I’ve decided to start a series called “Joel’s Picks” The companies I plan to highlight in this series are those that IMHO have real substance (read not hype) to their business model and exemplify sound business strategy and execution (and only time will tell if my judgment is sound).

LinkedIn recently announced it’s first baby step into the open social network platform game, and received no end of criticismin and around the social network futurist blogosphere. So, I’d like to go on the record as saying that while this criticism may be accurate from a technology evolution viewpoint, it is absolutely wrong from a business strategy point of view. LinkedIn is right to move slowly, because, a) their target audience is not using it for entertainment and doesn’t need all the newest gadgets now, b) isn’t on the bleeding edge of Web tech sophistication, and c) will not be as forgiving as Facebook’s if they screw up (and they could still screw up…social networking trust and privacy are risky business.)

So, why LinkedIn? Find me another social network that has a real chance right now of becoming huge based on subscription revenue alone. When I think of the recent trials and tribulations of Facebook, my first reaction is that “you get what you pay for.” While I know that most users do not pay the subscription fee on LinkedIn, this does not damper my optimism. The fact that some do exemplifies the value of the service. I can remember when Salesforce.com was free for licenses of 5 users or less; it isn’t anymore, in fact the license price is higher across the board. Too many social networks are going after target markets that simply don’t pay. Or at least they think they won’t. Haven’t these guys ever heard of market segmentation??!! I am talking to you Facebook.. My main point here is that it is strategically important to put a pricing structure in place that maintains a very low barrier to adoption, but does not preclude future revenue, i.e., users expect that once Facebook is free, it should always be free.

Rather than go on and on…here is a list of some of the things I really like about LinkedIn.

• A HUGE target market that truly leverages the inherent global reach of SaaS.
• A segmented, balanced revenue portfolio based on recruiter posting, limited advertising, and user subscriptions.
• Solves a problem for users, and it not simply entertainment that is used to capture users to solve the problems of marketers (like me).
• 2 and 3 imply that LinkedIn has all of its stakeholders coming and going and they LIKE it.
• Balanced revenue, plus a professional target audience encourages a proactive approach to privacy and trust, limited risk and liability.
• Social relationships/processes mirror their real-world counterparts, i.e., recruiting, networking, getting and giving advice, etc. These processes are enabled, not distorted by the technology or the business model.
• SIMPLICITY in design ala Google

So, please LinkedIn, don’t prove me wrong.

The software/Web/Internet industry is a tight community and SaaS vendors routinely recruit sales, marketing and engineering executives because they possess unique experience, knowledge and relationships within an industry sector, e.g., ERP, CRM, BI, retail, supply chain, etc. While this may often be a valid decision, every SaaS CEO should be aware of its pitfalls: old enterprise habits die hard. Knowledge and experience with the high volume, low cost approaches required to build a successful SaaS business, e.g., telesales, Web marketing and multi-tenant architecture, often hold greater importance, depending on the skills and experiences of the overall management team.

The wildly successful revenue model of enterprise software was built on solution selling, feature dominance, customization, and proprietary IP—all of which were expensive, because they were expected to delivery competitive advantage to the customer. Whether or not this was always the case may be debatable, but it is clearly not the case in B2B SaaS. The value proposition of SaaS is the exact opposite, which is why it poses a threat to enterprise companies. SaaS delivered under the value proposition of outsourcing non-strategic, commodity capabilities at the lowest possible cost. This is the essential conflict of the innovators dilemma in SaaS, and why you don’t see a lot of enterprise software companies jumping on the SaaS bandwagon.

When breakeven looks like it is years away, it can become incredibly difficult for managers to exercise the required discipline to avoid undermining the company’s long term strategy and inherent cost advantage. In the short run, it can quite sensible to pursue that six figure deal with unique functional requirements (after all the customer only needs this one thing!) , even if the sales cycle will take a little longer and the roadmap needs to be adjusted for this one customer. The enticement of this low hanging fruit can be further complicated by the strategic needs of the company. But, if these activities undermine the company’s attention and effort in building a low cost, high volume customer acquisition and product delivery machine, that million dollars in revenue will soon be overshadowed by multiple millions of dollars squandered in wasted effort.