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Archive for January, 2011

Muglia Left After a Dispute With Ballmer on Cloud Computing?

Posted by Bob Warfield on January 11, 2011

The WSJ just reported this fascinating story.  Apparently the two have had a rocky history. 

I wonder which way Ballmer wanted to go?  More or less investment in Cloud Computing?

If less, there will be more trouble ahead for Microsoft.  If more, it was probably the right thing to replace Muglia.


By all accounts it looks like Ballmer wanted more investment in the Cloud.  Good call!

Posted in saas | Leave a Comment »

Silly Rabbits: Google is for Spam not for Search

Posted by Bob Warfield on January 10, 2011

spamI’m watching with some interest the growing meme about Google passing on too much spam in the search results.

Mathew Ingram does a good overview while claiming Google is on a collision course with Demand Media.  He mentions:

–  Paul Kedrosky’s rant

–  Vivek Wadhwa, who says we desperately need a new and better Google

–  Marco Arment–“entire categories of searches swamped with spammy results”.  Marco mentions Jeff Atwood’s excellent Trouble in the House of Google where I first saw this meme, as well as Anil Dash’s roundup.

– My personal fave, Blekko’s spam clock (LOL!)

The most recent was Danny Sulllivan’s write up on the Blekko spam clock, which came to me via Techmeme.

Most of these peeps are whining that content farms and SEO mavens make it too hard for Google’s once-uber algorithms to figure out what not to show in search results.  Atwood quotes Google’s webmaster guidelines which say, “Google will take action against domains that try to rank more highly by just showing scraped or other auto-generated pages that don’t add any value to users.”

Here is the thing, folks: Google profits from at least some of these spammy sites.

I wonder whether any of the bloggers writing about this have actually bought Google AdWords and then sat down to read the reports.  As it happens, I use Google AdWords for my CNCCookbook hobby business.  I started doing it just so I could learn how a bootstrap company can market on the cheap (AdWords ain’t it, BTW, but you learn a lot of cool stuff playing with it) and a host of other things. 

One of the things you will notice is that there are several channels where AdWords come in to play.  One is those good ole search result ads we’re used to seeing.  Many likely see that as most of what Google is about, and something they should take care remains valuable through high quality search results.  Ahem!

The other two involve what are called “Display Networks”.  We have “Managed Placements” and “Automatic Placements”.  Do you ever wonder how a Content Farm makes money?  Through ads, of course.  Do you think Google will sell ads on their behalf?  Are you starting to get the picture?

On my AdWords report as I am writing this, 80% of my cost, and hence Google’s revenue, is via these Networks, not via Search.  It seems the esoteric world of CNC technology and manufacturing doesn’t have enough search to support the revenue aspirations of Google, so they turn to these other sources.  BTW, memo to would-be bootstrap and other marketers, while there is obviously click-through on these sites, and it is decent, the results at the other end in terms of people buying something on your site are terrible.  You’d really rather buy search ads and skip the network as much as you can.

But wait, aren’t at least some of the places Google advertises in the Network legitimate sites?  Sure.  I took the time to go through and visit every one of the ones on my report.  About 25% were sites with real content that was useful.  The rest were bogus, though often very creative:

What would you call a site that is nothing but tons of brief blurbs about free software you can download?  It’s definitely derived/scraped content of some sort.  There was no place on the site for me to submit my own software for download.  Screen scraper?  Content farm?  Seems like it.  That was #1 in cost on my report, and I have now shut it down.

How about a site that purports to sell a cool little piece of software?  Promising.  Click the download link.  Hmmm, I just downloaded a toolbar for my web browser and not the software promised.  Wanna bet that toolbar is more spam?  Back on the site, I did finally see a link that purports to download their software.  It was labeled in a smaller font and without the colorful Download! logo of the spambar.  Welcome to the #2 biggest cost on my report, also shut down.  Fortunately my budget is only a few dollars a day!

Wanna see a spammy site up close and personal that benefits Google?  Check this one out: a fake Mastercam (world’s most popular CNC software) blog.  Clearly they are re-purposing a customer forum of some kind from somewhere.  I get links to this site regularly from Google Alerts.  It’s filled with Google Ads, but you can’t find the original source by searching in Google.  I know, because I have wanted to respond to some of the threads from time to time.  The site is run out of China, according to Whois.  The next time you run into a bunch of spammy search results, take a minute and see whether their ads are all Google generated.  BTW, the colorful fake software download logo was served by Doubleclick–Google by another name.

Come on, guys: do you really think the brilliant minds at Google can’t cut out some of this spam if they really wanted to?  Are the algorithms so impossible to build?  Pssst, I got some excellent only slightly below sea level real estate I’d like to sell you!  Sites like the fake Mastercam blog couldn’t exist without Google.  Google brings them traffic and conveniently monetizes it while they’re at it.

Now here is a fascinating other observation I’ve made about my web marketing experiments.  Would you believe that Bing searchers are much more likely to buy my products than Google searchers?  On average they are about 1.6x as likely.  Heck, even AskJeeves converted better than Google.  Competition is a good thing! 

What a pity I only get 1/25th as much Bing traffic.

Getting back to Mathew Ingram’s post, how can you be sure there will be a showdown between Google and Content Farm Demand Media until you know how much revenue Google gets from such content farms?  Hey, don’t take my word for it off my AdWords reports, take a look at Google’s own numbers.  In 2007, about 65% of ad revenue was from ads on Google-owned sites like search.  That left 35% on non-Google sites.  In Q3, the most recent period they report, Google sites were down to 60% of the revenue.

Looks like the growth is not in search.  Wonder how long before the lines cross altogether?


Some discussions are suggestion that this is a “conspiracy theory”.  To be clear, I am not really trying to suggest an evil conspiracy, but there is definitely a conflict of interest, a lack of enforcement, and a need for the blogosphere to hold Google accountable.  Things need to be cleaned up from where they are and it’s possible for Google to improve the situation algorithmically.  If they don’t, they will make themselves more vulnerable to competitors.  If there is blame to be made, I would blame sloth more than conspiracy.  And yes, it will probably cost more to run the algorithms on the scales Google demands.  It’ll never be perfect, but Google has clearly lost ground from what it once was.

Posted in business, Marketing | 7 Comments »

Software Has Marginal Cost

Posted by Bob Warfield on January 9, 2011

marginal costEvery now and again I see the old chestnut trotted out that Software has no marginal cost.  It’s used for all sorts of reasons.  The gut feeling that it is true is probably at the heart of most people’s justification for why piracy is okay, for example, not that I’m saying most people think it’s okay.  This time around, I was surprised to see it brought up by fellow Enterprise Irregular Basab Pradhan.  Basab has a long history in the world of software, and so should know better.  Nevertheless, in talking about whether app stores are worth the 30% or more they take of the revenue, he remarks:

Is the 30% cut of revenues too much? It depends on how much you expect your revenues to go up by. After all, software has no marginal costs. Every dollar of incremental revenue is a dollar of incremental profit (before taxes).

There is, of course, software that behaves as Basab says, but it has certain distinctive qualities:

–  It is never updated, so there is no marginal cost to keep an engineering team running.  This of course is the problem with any big professional services investment–you’d better hope you don’t need to update whatever they built.  But it’s really a problem for all software that is not absolutely the most casual stuff you rarely use and then throw away.  Someone has to keep it secure, fix bugs, and hopefully continue to innovate.  One of Basab’s examples in his post is Evernote.  As an Evernote user, it isn’t the kind of software I would want to see go without an engineering team.  In general, if people didn’t care about this, they wouldn’t pay the ridiculous maintenance fees most big software vendors charge.

–  It is not SaaS.  Clearly SaaS as a service has some marginal costs.  While it is true that an app downloaded from an app store may not be SaaS, it is not true that it must not be SaaS.  My view is that all software benefits from having some SaaS component or other.  Even if all that component does is keep your software up to date, there will be marginal costs to keep that SaaS infrastructure running.  Of course if the software is never updated, this may not be an issue.

–  It is unsupported.  Support is one of the dirty little marginal costs of all software.  There is a reason it appears where it does on the financial statements of many companies, coming out as an immediate hit on the gross margin.  Ditto the remarks on ridiculous maintenance fees.

There are bound to be other marginal costs I can drudge up, but the point is made.  The question to ask yourself if you come across some software with no marginal cost is whether you want any part of it.  No support, no updates, no connection to any online service.  Some software is so far off my critical path, I figure, why not?  Most of it isn’t.  Have you been involved with much software that has been “sunset”, “coasted”, or any of a number of other euphemisms for abandoned?  It’s no fun unless said software is extremely simple and does what you need of it immediately.  If it doesn’t, don’t keep fiddling, go find yourself some real software.  If we had more people thinking of how to manage software’s marginal costs at a profit, we might have longer lived software companies and fewer examples of customer abuse like Dim Dim’s.

A more interesting thought on whether the app stores are worth it is to look at how much revenue these days is coming via in-app purchases, which are starting to overtake app store purchases.  Of course you’ll probably need some marginal software costs to be able to deliver anything of value via in-app purchase, but now you’ve got a better financial justification for it.

Basab Pradhan has responded

As you can see from the linkback above, Basab has responded.  He brings some new chestnuts to consider:

Engineering costs are fixed costs. They have no relationship to the units of software sold. Sure, if you sell more units you have more money to spend on engineering, but that is conflating cause with effect.

Basab, if your growing customer base makes new demands on the software, whether from a desire to see bugs fixed, or progress, and you accept those challenges to keep things growing, there is no conflation, it is a cause and there is an effect that has costs.  Simple example is deciding to do translations for new markets.  Oh, but wait, we have to have localizable software first.  Better hire some more engineers.  Or better take the same engineers and make them work on that instead of a new product.  Wait, you want interaction between users?  You want in-app sales?  Wow, how are we going to make that scale?  Oh no, users are reporting a bug on that new release of iOS.  Sales have stopped entirely until we get it fixed.  That list goes on and on.  I’ve run enough engineering organizations at companies large and small to tell you that is a fact.  Whether the bean counters choose to classify it as a marginal cost is irrelevant at best and distracting from the main business at hand at worst.  Organizations that think they can ignore it and reassign the engineers to the next project are called professional services organizations, not software companies.

…after a certain user base has been achieved, incremental (support, bw) costs are not material, in my opinion.

Basab’s argument is that by throwing all the support into forums and relying on superusers to take care of all but a few that are then handled by remaining support, we needn’t view support as a material.  If only it were so, Basab, if only it were so.  You probably are not aware, but my last gig was running a company that built support solutions exactly as you describe.  Our product derived real metrics on the ROI and effectiveness of Social CRM for customer service, and these results were covered by Forrester, Gardner, and others.  There is Good News and Bad News.  Under ideal conditions (and most do not achieve these for a variety of reasons), customer service costs can be reduced to about 1/3 of a pure ticketing and knowledge base system.  There are complex dynamics and the idea that superusers will do all the work is one of the flawed assumptions many make that leads to disappointing results.  In any event, even if you get to 1/3, you’re still going to have support costs that are quite material.  BTW, many do not restrict themselves to forums either.  Electronic Arts, for example, still does Trouble Tickets direct to support.  Others will decide they can get away with forums since they’re cheap, and that’s the name of the game for app stores, so fair game.  But lest someone reading all this think they can just toss their users into a forum, forget about Customer Service, and expect good results, beware.  That’s not a winning formula for customer satisfaction.

Is this particular cost (SaaS costs relating to a server-side component, bw) material compared to the revenue from the next user? I doubt that Angry Bird or Omnigraffle worry about it. Evernote perhaps does, but how many apps do you know that users regularly use to scan and upload documents to? 

How many apps result in uploads?  How many apps result in interaction of one kind or another between users?  How many stories have you read lately about scaling problems of one kind or another at small companies giving away their software for free?  Enough said.

I was pretty clear in my original article.  There is software that fits Pradhan’s criteria of low to no (certainly not-material) marginal cost per user.  There is a lot of it on app stores.  His arguments hew to the definition I gave of that kind of software which is software that you don’t bother updating much, that has poor (throw ’em into a forum and let them answer each other’s questions) customer service, and it has little or no SaaS component (no uploading data, no interaction with other users, and I already mentioned having to deal with in app purchases as a valuable SaaS component).  I don’t see much in the rebuttal that changes those conclusions, though it was a decent attempt at response.  The point of the post is that its silly to say Software (capital “S” by intention) has no marginal cost.  Of course a whole lot of software has marginal cost!  Since we’re now just arguing about degree, my work here is done.

Posted in business, cloud, service, venture | 7 Comments »

Dim Dim: The Risk of Being a Salesforce Customer

Posted by Bob Warfield on January 7, 2011

unhappy customersMy title is a bit of a play on ReadWriteWeb’s title about the Risk of a Free Service, but I raise the issue in all seriousness because I think we should be looking not at the seller (hey, at this price, this was not exactly a sale from strength) but at the buyer.  Dennis Howlett, in writing about the transaction, is doing a little bit of looking at the buyer, but I want to go further.

The way a company handles the customers of an acquisition is an indication of how they may someday feel about their own customers.  When you buy the company, you bought the customers too.  Sure, it’s all fine and well to argue that you bought the technology and not the customers and it’s not your fault that the customers don’t fit in with your plans and so won’t be treated well.  But when you hear that rationale, ask yourself,  “What happens if I’m a customer of such an organization and suddenly I don’t fit in with their plans either?”  There’s not really a difference, particularly not if you are a just one customer among many of a large company.  If Salesforce was going to do what I’d want it to do if I were a Dim Dim customer, they’d be grandfathering me in and extending me full benefits of being a Salesforce customer.  They’d be welcoming me to the family instead of disinheriting me.  I’d be 10x more likely to want to buy something from them if they did, and I’d be 10x more likely to sing their praises and those of Dim Dim going forward regardless.   Unless I miss my guess, Salesforce is going to be doing a lot more acquisitions, so take note of the tone they’re setting.

There are really two kinds of successful businesses out there:  There is the business that would do anything for its customers, and then there is the business run by the numbers that is without soul or pity for their customers.  I won’t be disingenuous by claiming the soulless kind doesn’t work, neither will I argue that one is better.  We have big and successful examples of companies that do as they please with their customers–Oracle and Microsoft have both been accused of such more than once so it should be no secret.  We also have examples of companies who have put their customers above all else–I like companies like Zappo’s and Nordstrom or maybe Amazon and Apple (in a curious way, they do care, they just think they know best).  Some of Hurd’s problem at HP may have been putting a numbers guy in charge of a culture driven more by ideals.  We will see whether Apotheker is a better fit.

When the pure numbers companies make an acquisition, it’s pretty clear how things will work.  Fellow Enterprise Irregular Naomi Bloom has a wonderful post out about fairy tales in the land of HR software that describes some of the goings on you should expect:

We (the acquirer) will continue to support all product lines fully:  Of course we really won’t, we can’t afford to, but we don’t want to tell you that too soon.

– We (the acquirer) are delighted with our new colleagues and expect to retain all of them:  Even if we do retain them, and we won’t, they will be disempowered and will be bent to our culture and management.  Expect many to leave as soon as the handcuffs are off.

– Our customers can expect to see only improvements in their support, product roadmaps, and overall happiness as a result of this event:  Well, maybe, if it’s a technology acquisition.  If it is a market share acquisition, we are reducing the competitiveness of the market so that we may extract more profit while delivering less.

To those Fairy Tales, meaning if you hear them you should see them as red flags, I will add that if you see one of your vendors acquire a company and fail to welcome its customers with open arms to the family the way you would have liked to have been treated, that’s a red flag too.

There’s another thread I want to pick up on before I leave this one.  When we look at the two types of companies, ironically, making the customer King often leads to excellent profitability and shareholder value, but focusing on short-term numbers tweaking does not.  One of the disappointing things for me is how often products that were once great and companies can fade into obscurity.  I asked one of my favorite mentors one time what he was proudest of about the company where we had worked together.  His answer was very telling–his biggest accomplishment, he felt, was in creating a great culture.  This was a company that cared foremost for customers, and that culture resulted in an employee base that was very resilient to adverse conditions and very talented.  Later, the company got numbers focused and it has since lost that culture and most of those people.  Culture is the currency for a company that cares about its customers, but what is the currency that makes a big company out of one that cares for numbers?  Looking around for that answer I can only conclude that it is monopoly, customer lock-in, and the inertia that comes to all things big.  These are the only reasons for customers to put up with a company that cares more about its profits than about the customer.

Last point:  I read with interest Chris Sellend’s (lots of us Enterprise Irregulars with something to say!) prediction of a coming Social-Media-in-Marketing backlash.  Riffing on @pgillin, he calls for a Social Marketing Hangover.  I think folks calling for this backlash are right, but perhaps not in the way some of them are thinking.  Think about the two kinds of companies then think about what Social is.  The answer is obvious (to me at least):  companies that have a culture that cares about customers can be wildly successful with Social while customers with cultures that only care about the numbers are doomed to fail.  There is some question in my mind about whether they should even try, though there is a sentiment that feels opening themselves up to customers will let the customers rehabilitate them. 

The real tragedy is it will never occur to the number crunchers what is wrong and the pundits will watch the train wrecks and simply conclude Social was more hype than reality.  The customer-centric crowd won’t notice anything big either except that they can suddenly do what they do best a whole lot easier.

Posted in business, customer service, enterprise software, saas, service, venture | 2 Comments »

Dell Knows My Facebook Friends!

Posted by Bob Warfield on January 6, 2011

All creeped outOkay, this is just a little creepy.  I’m sure I’m late to the party, but I just noticed this.  I was looking at a Dell laptop, and suddenly a good friend’s name popped out at me. 

Seems he had clicked a Facebook “Like” button on the same product along with 646 others.  Of course Dell decided to show my friend Jack’s name because of course it would have more impact on me.

Memo to Dell, I closed that window immediately and ran, not walked away.

Sorry dude, but that just creeps my turnin’ 50 soon Old School self right out!
PS:  It didn’t help that when I switched to checking my mail I immediately got a message purportedly from “Facebook Survey” offering me a $250 gift certificate for Apple.  Just two problems–it wasn’t from Facebook and it required me to sign up for 12 more spammy things before I had a hope of seeing the certificate.  Ironically, the survey wanted to know what I thought of Facebook’s privacy capabilities.  Oops!

Posted in saas | Leave a Comment »

CIO’s: Tablet or Smartphone?

Posted by Bob Warfield on January 5, 2011

The pundits are saying IT will need to support 3 mobile devices per user in 2011.  This week’s InfoBoom sponsored Blog post is all about how to think of your strategy for this disruptive trend.  For those that already have a desktop, a laptop, a smartphone, and a tablet, what have you learned about which ones you really use and need?

My iPhone was great and I used it constantly for the Smartphone features up until I got an iPad.  Now I suspect I’d be just as happy with a much dumber phone, because most of the time I use my iPhone for calls and the iPad for the “smart” features.

What about you?

Posted in saas | 3 Comments »

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