The Wisdom of Oracles

I came across an intriguing poll today. A small company called Software Advice , who provide advice on evaluation of ERP and MRP systems, has been running an on-line poll about which software company Oracle will acquire next. The results of their poll so far (which is still open) is here.

What interested me most was not the actual poll results as such, but the way in which this poll has managed to attract a very high response rate (well over 1,000 responses). It could be viewed as an example of crowdsourcing, which is an idea explored by James Surowiecki in his book “The Wisdom of Crowds”. This is a fascinating idea, reasoning that in some cases a large sample of answers will actually generate a more accurate response than a supposed expert. Of course this method does not always work (Gary Kasparov beat thousands of players voting in a poll in a chess match against “the world” in 1999) but it seems like an idea that is worth further testing.

This is the first time I have seen this notion being applied to the world of enterprise software. There are plenty of other questions that could be tackled by such an approach, and I hope that this company or others extend this poll to other areas.

Price is in the eye of the beholder

I enjoyed an article today by Boris Evelson OF Forrester, discussing whether a 20% or discount for BI software was “good” or “bad”. As Boris so correctly points out, vendors go to great lengths to keep secret the list price of their software, as they prefer to assess each pricing negotiation separately. Indeed most vendor contracts have a non-disclosure clause that prevents companies from sharing any pricing information.

Given this, what sense does a 20% (or 50%) discount make? None at all. If the vendor was offering an enterprise deal at USD 2 million initially, and you haggle and get them down to USD 1 million, that may make you feel good, but what if they had been prepared to settle for half a million all along? Vendors are aware that many corporate procurement people have targets to achieve a certain percentage over list, and in most industries that is clear enough. After all, if you wanted to buy a new Mercedes then you can just look up the list price. Then if you get 10% or 20% off that from the dealer it is clear what you have saved.

But if the list price is shrouded in mystery, discounts are meaningless. You need to achieve the lowest price that you can, and the only way for that to happen is to be in a competitive situation. As soon as a vendor knows that they are the sure-fired winner or (even better) the only bidder, then they can basically make up any number that they want and stick to it. I have been on both sides of multi-million dollar software negotiations, and I can assure you that companies frequently pay well over the odds, sometimes millions more than they have to, simply through foolish procurement practices.

You need a well structured evaluation, with several competing vendors, bidding against each other on price as the evaluation is proceeding. In this case you will see who really wants to offer you a good deal. I saw one bid drop from USD 12 million to under half that in a single day once the vendor was convinced that they were genuinely in competition.

I have put quite a few procurement tips together in one module of this course.

Economising on Customer Service

I am sure most of us have experienced some dismal experience when calling a technical helpdesk, being put through a maze of automated menus before finally getting through to some bored, half-trained “engineer”. An example of this from my own past is here. However usually the one bit of an organisation that is fairly responsive is the sales function, for obvious reasons. I relate the following personal example of the risks that a high-tech company can take when it decides to “economise” in this area.

I recently needed to buy a new printer and rang up Dell to do this. Dell now pushes its “consumer” (for which read “cattle class”) sales though to an offshore centre. I placed my order and awaited the confirmation email: nothing. The following day I called, went through the menus again and explained what had happened to another Dell sales person. He told me that there was no trace of my order in the system, do I duly went through the whole thing again, wondering quite what happened to the original details, which after all included my credit card details. I specifically said to he salesman “please make sure that the order was not duplicated”, and I even gave him the name of the sales lady I had originally spoken to. “No problem” I was assured.

A week or so a printer duly arrived, and all seemed well. A couple of days later there was another knock on the door, and, surprise surprise, a second identical printer arrived. I declined delivery, explaining the situation. Well, you can probably guess by now that, despite me sending back the duplicate printer, I was charged twice, so I duly rang up and spoke to the original sales lady who took the initial, seemingly lost order. At least I did this after gong through no less than five separate people at Dell, each of them insisting that I tell the story again and each taking full details (name address, order number, …) every time, as if computers had never been invented.

The thing that reduced me to apoplexy at the end of this was that the sales lady (I could not make this up) suggested that in order to get a refund, I would have to take delivery of a fresh printer, uninstall the one I have sitting on my desk, rebox the current one and sent it back to Dell. Oddly enough, I have declined to do this – pesky customers eh?

So, if anyone from Dell is reading this, please give my money back. For any company executives considering outsourcing their sales operation to a cheap location, just consider what effect this may have on your customers. I can’t say I am exactly itching to order another Dell product at the moment. A customer’s perception of a brand, after all, is significantly derived from their personal interactions with the company. The irony is that Dell used to have an award winning call centre based in Ireland, but seemingly decided that this was all a bit expensive. I am not suggesting that the precipitous decline in their share price over the last eight years can be specifically linked back to their decision to save money on their call centres, but I suspect that it will not have helped.

Whistling in the darkness

According to the Celts, today is the day of the year when the boundaries between the living and the dead dissolve. While the ghosts of the departed such as Lehman Brothers stalk the earth, the living put on masks in order to mimic or placate the evil spirits. I’m a little unclear as to what would be the most suitable mask to don to mimic a deceased investment bank (do Armani make masks?), but software vendors across the globe will be nervously hoping that the spirit of Lehman has been thoroughly placated by the kindly sprites of Hank Paulsen, Gordon Brown et al. Fear is stalking the enterprise software market on a scale not seen since the aftermath of the millenium party in 2001.

Ghouls and goblins in the form of financial controllers in large companies are, as we speak, preparing a witches brew of budget cuts sufficient to make the bravest software salesman quail. Companies look at each other nervously and sing around the campfires to keep the spirits up, saying that their particular type of software does such an important job that it won’t be affected, and indeed that in times of adversity, perhaps companies will actually spend more money on critical IT projects? After all, data quality/MDM/(insert sector) is more important than ever now right? Right?

If you believe that you probably also believe in fairies and that derivatives make our financial systems more stable. As sure as night follows day, in times of economic downturn the finance department bring out their trusty red pen and seek out advertising budgets,travel allowances, training and information technology projects to carve up. At present there is a delayed reaction, as IT projects lumber on like zombies, unaware of the carnage waiting ahead. Perhaps our particular sector or project will be unaffected? Perhaps, but few will escape unscathed.

There will shortly be a lot more tricks than treats out there on offer for the enterprise software salesman as he makes his calls this winter.

Happy halloween!

On Frogs and Software Pricing

I am curious as to the level of take-up of the software as a service (SAAS) model, at least in respect to data management. Of course was the pioneer here, prompting a flood of interest in this approach. Many vendors offer their software in this way as an alternative to the usual “perpetual license” model, yet in many cases it seems to have had limited take-up. The latest vendor to offer their software in this way is Kalido, who are doing so via systems integrator BI partners. There is a lot of sense in SAAS from an end user perspective. A host (if you will excuse the pun) of problems with enterprise software are caused by inconsistencies between the recommended operating environment for a piece of software and what is actually lurking out there in the end user environment. Problems can be caused by esoteric combinations of DBMS, app server, operating system and who knows what, which are very difficult for vendors to replicate, no matter how much trouble they go to in creating test environments. Hosted solutions largely avoid any such issues. Moreover companies can try out software for a limited price per month rather than having to commit up front to a full license, which means that they can pay as they go and pay only for what they use.

For vendors the issue is double edged. By making it easy to try their software they may get customers that would otherwise not have chosen them as they were unwilling to commit to an up-front license cost. However pitching the price is not easy. If your software used to sell at USD 300k + 20% annual maintenance, then if you price the software at USD 5k per month you are seeing the maintenance (USD 60k a year) without the software license fee. Yet if you pitch the monthly fee too high you will scare the customers off and be back into a lengthy sales cycle. Ideally there is some way of pricing that draws customers in further as they use the software more e.g. as they add more users or load more data, gradually increasing the monthly fee. This was actually one of the clever things in the model – it seems really cheap at the beginning, but as you add more and more users you end up with a pretty hefty monthly bill, and can end up wondering how that would have compared to a traditional licence model. But by then you are already committed.

This is ideal from the vendor viewpoint. It is what I will term the “frog in the saucepan pricing model”. The legend goes (and I don’t fancy verifying its veracity) that if you toss a frog into a pan of boiling water it will jump out, but if you put it into a pan of cold water and slowly raise the temperature it does not notice and ends up being cooked. A pricing model that lures the end users in and gradually creeps up without anyone getting upset is certainly what a vendor should aim for. Not all software may be amenable to such gradated pricing, but it seems to me that this is the key if vendors are to avoid SAAS being the “maintenance but no license” model.

Where the Money Goes

There is an extremely interesting entry in a blog called a “A VC”, written by Fred Wilson, managing partner of a small venture capital firm called Union Square partners. It has a particularly clear description and example of the financial mechanics of the venture business, which any software start-up entrepreneur should understand thoroughly before they raise money. The blog is worth reading, though Mr Wilson has an eccentric style which includes his views on popular music interspersed with his venture capital experiences.

For a more in-depth view I strongly recommend the book Smarter Ventures by ex-journalist Katherine Campbell, now herself in the private equity business.

Data Quality stories

Yesterday I went to a London IDC conference on business intelligence and integration, but fate seemed not to be on my side. I had gone mainly to see a presentation on MDM by Deloittes, but when I turned up this was missing from the agenda entirely (the presenter had pulled out with less than two days notice). The next presentation I wanted to see suffered from the presenter being taken ill, and so had someone else reading his slides (which never ends well), and the third presentation I fancied was also cancelled and had an unrelated substitute. This was in no way the organiser’s fault, but was a shame.

The most entertaining thing I saw was a presentation by a consultancy firm on some real-life data quality situations they had encountered at clients, showing just how tricky data quality algorithms can be. There was the “false positive” of two customer records, both A. Smith, both at the same address and both with the same date of birth. Not unreasonably the data quality algorithm duly rejected adding the second of these since it was obviously a duplicate record. It turned out to be two twins, Alice and Anthea.

The most amusing was a company who had a call centre records system and had put in a new data quality system to help them with this. An obscure element of this was a feature that automatically removed any records containing profanity by searching for swear-words within the text fields, presumably to protect the delicate feelings of the call centre manager. All seemed to be going well until after a few weeks it became clear that every single call from a certain English town had been blocked by the system. That town was Scunthorpe (think about it). The joys of unintended consequences.

Separately, I discovered that a well known high street bank has identified 8,000 active customers who, according to their systems, have an age over 160. At least they know they have a problem, and an active data quality program to address it.

Psst, wanna buy some software?

At various times in this blog I have discussed the buying process that enterprise software buyers go through, and suggested some tips and things to avoid. I have just come across an entertaining and useful “mini book” by ex software salesman Doug Mitchell, which you can read here.
Some of the anecdotes are funny, but many of the points being made are serious, discussing the things that software buyers should really be asking the salesman, as distinct from what often happens. Points such as the utterly self-defeating “savings” made by buyers in skimping on training in the software they are buying ring very true: I can remember exactly such conversations when I was at Kalido. I hope at some point Doug manages to expand this into full book form, as there is very little out there written about the interaction between software vendors and their buyers.

Last exits?

Happy New Year. There was a useful post in regarding 2007 technology IPOs. Some of these are outside the scope of this column, but what I found interesting was that it seems that enterprise software companies were able to tap the capital markets at levels of revenue and profitability unseen over the last few years. A couple of years back the message from investment bankers was that you needed quarterly revenues of not less than USD20 million (and preferably more) and several quarters of profitability before even considering an IPO. Yet Netezza’s IPO got away OK despite a lack of profitability (though strong growth), while Sourcefire had quarterly revenue of under USD 15M and was still not profitable, yet also managed an IPO. It looks as if the markets have taken a slightly harder view since then judging by the early performance of these shares, but these IPOs would simply not have happened in 2004 or 2005.

What is less clear is whether 2008 will show the same softening of view, or whether the financial debt crisis afflicting banks will have collateral damage in the IPO market. Software companies and their backers will be hoping for a continued thaw rather than a return to the wintry outlook the capital markets have seen in the past few years.

Another kind of call centre

A blog that I have had a lot of reaction to was “The Joy of Call Centres”

The Joy of Call Centres

If you follow the link you will see a trail of similar bad experiences under the comments. Just to present the other side of the story, I will share with you how good a call centre can be when it is well run. Those of you who know me personally will be aware that I am more attached to my Tivo that most people are to their family pets. Tivo’s innovative technology was matched only by the ineptness of their UK marketing, which sadly means that you cannot buy a new Tivo in the UK, only in the US, though the product is still supported via a call centre in Edinburgh. A few days ago the event I have dreading for years came to pass: my Tivo passed away quietly in the night. It wasn’t immediately apparent that this was the case since my little darling still had its green light on, the equivalent of its eyes open staring into space. Anyway, the point of the story was to explain how incredibly un-BT like the Tivo helpdesk was. It actually took a fair bit of diagnosis to confirm that the Tivo hard drive had actually snuffed it, and the help-desk engineer (a gentleman called David Stoke) was extremely patient and helpful as I went through various steps of diagnosis. What was more impressive was what happened when we were sure that the box was dead. Instead of doing what any regular script-following helpdesk operative would do i.e. hang up, he went off to the internet and actually found me a Tivo for sale on eBay conveniently near where I lived and emailed me the link to it, so that I could quickly replace it. This worked out well and within four days I had a working Tivo up and running again. The attitude of David (and the other people I have spoken to on the Tivo help desk) could not be further from that of the procedure-driven “I’m just reading the script” approach that we have sadly become all to used to in the UK from the likes of BT.

It would seem that I am not unique in this view, and a number of UK companies like Abbey National and Powergen have had enough and are pulling their call centres back to the UK:

I don’t think this is anything really to do with the call centre staff being in India rather than, say Scotland or Ireland (though obviously a shared culture and language skills matter to some extent). I am sure that BT would be capable of training ineffective, hostile call centre staff anywhere in the world given half a chance. However the key is that companies need to understand that a call centre is actually the primary (maybe the only) touch point that exists for most customers: the impression that the call centre staff leave reflects directly on the impression that the customer has of the company as a whole. In the case of BT’s shambolic Mumbai helpdesk I was left with the view that BT was, well, like it always used to be. By contrast the Tivo helpdesk left a very positive impression of caring, enthusiastic staf who were passionate about their customers and the company’s products.

All the marketing in the world means less than these individual real experiences, and it does seem absurd to spend a fortune on direct mail and advertising and then blow it all by having a lousy call centre. By contrast, investing in high quality front-line staff that care about customers would seem to me something that has a very real return on investment.