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Salesforce.com’s next billion-dollar business: marketing tech August 27, 2012

Posted by David Card in Uncategorized.
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On its earnings call, Salesforce.com showed 34 percent revenue growth and called marketing its next billion-dollar business. The most vocal proponent of the so-called “social enterprise,” Salesforce has made big bets on social media marketing technology with huge acquisitions (Radian6, Buddy Media). The company is well positioned, but it has a lot of work to do.

Salesforce’s Q2 revenue growth was solid, but at just over $730 million it is much smaller than that of its biggest enterprise software rivals. Oracle’s software business grew only 6 percent, but it’s already $8 billion, and Microsoft’s server, tools and business software sales topped $11 billion. Salesforce CEO Marc Benioff said on the call that its customer service product line has moved beyond a $500 million yearly run-rate on its way to $1 billion, and he expects that marketing technology would achieve that “not overnight, but not that long, either.”

Grand vision

Salesforce plans to integrate social marketing management with customer service and wrap the whole with social collaboration via its Chatter work media products. Benioff cited Burberry as a customer that had added Radian6 and was deploying Chatter.

The twin pillars of Salesforce’s marketing business are Radian6, a listening platform it acquired a year and a half ago for $326 million, and Buddy Media, its just-closed $689 million acquisition that makes management tools for social media advertising and marketing. But when giving full-year revenue guidance, CFO Graham Smith indicated Salesforce was expecting only $25 million in revenue from Buddy Media. A questioner on the call asked that, while Buddy Media managed 10 percent of the advertising that ran on Facebook, did Salesforce need any more assets in its marketing tech portfolio. Benioff responded that he’d already acquired the biggest players in social media marketing management – not so subtly taking digs at Oracle’s acquisitions in the space.

Slow execution?

Two weeks ago, Salesforce introduced “Communities,” which will enable companies to create private, Chatter-based social networks to collaborate with remote employees, customers, and their supply chain. But smaller competitors like Jive Software and Telligent are well ahead of Salesforce, especially since Salesforce’s product will only go into limited beta this year, with general availability scheduled for the second half of 2013. Salesforce trumpets its ability to combine a social networking platform with business process apps, but the specialists are already packaging up suites of functions for various types of marketing, collaboration, and integration with enterprise applications.

And Salesforce may be, if anything, too focused on social media. Another questioner asked if Saleforce was going to add lead-generation management to its portfolio. Benioff said that he thought lead generation and email marketing were not areas of spending growth. That may be true, but marketers I talk to, especially in retail, still value email marketing as a better conversion tool than social media. Benioff said Salesforce’s marketing dashboard could accommodate direct marketing, but that he might lean on Salesforce’s AppExchange marketplace for third-party tools.

Indeed, most companies have their own preferred email marketing platforms, and Salesforce probably doesn’t need to acquire what might end up as a competitive alternative. Salesforce is collecting the pieces for a full-fledged assault on marketing, but its next $1 billion may take a little longer than Benioff predicts.

 

Question of the week

What else should Salesforce add to its marketing tech portfolio?

Groupocalypse: Groupon loses its way August 20, 2012

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In my last few Weekly Updates, I’ve written about Zynga and Facebook, two companies whose business models I’ll continue to defend. But right now they make up a pair of the Horsemen of the IPO Apocalypse. I might as well add a third. Groupon’s second quarter results were about in the middle of its guidance, it showed a profit, and it cut way back on marketing expenses as a percentage of sales. The result? Its stock is at an all-time low. Can Groupon turn it around?

The opportunity

Unlike Facebook — a digital media leader and core technology platform provider — and Zynga — on a cold streak but with a plan — I’m pretty sure that Groupon is headed in completely the wrong direction. I have written that Groupon’s scale would be a huge competitive advantage as social commerce shook out. I thought its massive sales force, customer base, and merchant relationships would produce a terrific combo.

In theory, Groupon should be able to analyze its customer data to help it target and improve deal conversions and feed insights back to its merchants. Groupon should be building out other marketing offerings for those merchants, so that it could move beyond new customer acquisition into loyalty programs, and sell them services like paid listings and SEO. Groupon could be a local merchant’s one-stop marketing supplier in a way that even Google would have trouble matching.

Misdirected?

Instead, Groupon’s revenue in actual retail is growing faster than its high-margin deals business. It envisions itself as an e-commerce technology platform provider. CEO Andrew Mason says he wants Groupon to become the “operating system for local commerce.” And the company is bragging about being a leader in mobile commerce.

Does Groupon really want to build warehouses and compete with Amazon in multi-category online retail? Perhaps it wants to get into payments – no, that’s not a crowded field at all. Or how about in-store point-of-sale hardware for small business? Madness.

Yes, mobile commerce is promising. Groupon says that in July nearly one third of its North American transactions were completed on mobile devices, a figure that’s up 35 percent from the year earlier. Groupon’s mobile app has just as much adoption as those of Amazon and eBay, but does that mean Groupon could become a mobile transactions platform for local merchants and retailers?

Perhaps. But I expect big, national retailers that sell through local stores and affiliates are better equipped to handle sophisticated technologies like geofencing and real-time inventory liquidation than the local small businesses that are Groupon’s strength. Remember, airlines are the leaders in yield management. Your typical local restaurant or gas station is probably not thinking about balancing discounts versus empty slots that might go unsold via complex algorithms and business rules. Lots of Groupon merchants couldn’t even handle volume discounts profitably.

There’s no shame in being a force in local marketing. BIA/Kelsey projects that digital advertising will only comprise 11 percent of a $150 billion U.S. market by 2016. There’s plenty of opportunity – and plenty of competition already – for Groupon to offer services to support local merchants’ marketing needs. Make no mistake, there are some positive signs for Groupon’s core U.S. business:

  • Groupon’s targeting is starting to improve efficiency in cities where it has been using it longest
  • Nearly 20 percent of its merchants are increasing their use of Groupon’s other services.
  • Its Groupon Rewards loyalty program is gaining traction.

What momentum Groupon has is in marketing services. Once it embraces this, and shifts its development and sales assets accordingly, it will start to claw its way back towards prosperity.

Question of the week

How could Groupon turn itself around?

A social gaming manifesto August 13, 2012

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Zynga is in turmoil. Since its IPO, its stock has cratered, attracting public exposure of company morale problems that may be more than pockets of dissent. The company reorganized senior management, leading to the departure of its COO, veteran games exec John Schappert. Its emerging mobile strategy has failed to impress.

Zynga is the biggest fish in the social gaming pond, but videogame giant Electronic Arts is right up there on the charts, along with relative newcomers like King.com and Wooga. Disney never made much of Playdom in casual games, but its “Where’s my Perry” looks like it might be an iOS franchise. With increasing competition, it’s worth understanding whether Zynga’s troubles are unique to the company, or whether it is social gaming itself that is struggling.

Is “social gaming” a misnomer?

Tadhg Kelly, a game designer blogger, is on the money when he notes that most social gaming isn’t actually very social. Many so-called social gamers are just taking a quick break of time-wasting fun without necessarily involving a human opponent or collaborator. While there are unique characteristics to the current generation of social games – callouts to friends for help, integrated status updates – many are the natural successors to the kind of casual games like “Bejeweled” that have been around as long as the web. (And had paper-based predecessors before that.) In many ways, social networks are just a new vehicle to promote and distribute casual games.

Based on GigaOM Pro’s spring 2012 survey of U.S. online adults, social gamers and casual gamers have a lot in common. Twenty-five percent of online adults are monthly users of casual games – that’s a figure that hasn’t changed much over the years. Those casual gamers tend to be middle-aged women (61 percent female) and only 14 percent of them play multiplayer games like “Worlds of Warcraft.” Survey respondents who said they played games on social networks had similar demographic and behavioral characteristics. These social gamers make up about 15 percent of online adults and also skew female (60 percent) and middle-aged. Over half (58 percent) play casual games and 13 percent play multiplayer games. Thirty-six percent of mobile phone-owning social gamers play mobile games and 38 percent of casual gamers do so.

Social gaming strategies

Today, Zynga has built a billion-dollar business off of casual games built on Facebook’s social network platform. The company is metrics-driven – perhaps to a fault – in its effort to engineer games for frequent, casual usage, viral promotion, and virtual good sales to a relatively small number of heavy users. But there’s little evidence that those heavy users are classic hardcore videogamers or players of multiuser role playing games, so expanding into those genres probably won’t scale.

Casual gaming is a mature business in the U.S. Zynga and its social games competitors should follow these principles:

  • Manage the portfolio. It’s impossible to predict hits, so like other entertainment companies (movie studios, record labels) social games companies must manage a portfolio of titles, and jump on the ones that take off. Not every hit will be a franchise for sequels and spinoffs, so the key is launching lots of titles on a regular basis, doing as much analysis of them as possible, and vigorous cross-promotion.
  • Cultivate multiple revenue streams. Zynga has mastered virtual goods, but it needs to be more aggressive on sponsorship and in-game advertising. In fact, virtual goods-bartering shows a lot of promise as a sponsorship means. Facebook has enabled game and content subscriptions. That’s worth experimentation, but subscription may appeal more to hardcore gamers.
  • Build out the platform. I’ve given Zynga perhaps more credit than it deserves for starting to build its own platform. Successfully deploying APIs for technology and promotion to third-party game studios could help smooth out the ups and downs of the hits business, but only if social games platforms can generate revenues from licensing, advertising, or promotion fees.

Mobile might be different. Judging by the survey data, there’s reason to expect a similar number of mobile gamers will be high-spending “whales.” But that’s not proven yet, and apps stores are establishing a model of low-priced games rather than virtual goods. So mobile revenue experimentation is a must.

Question of the week

How can social gaming companies transition into mobile gaming?

Social platform players reveal diverging roles August 6, 2012

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Last week, Facebook and Twitter generated consternation within their respective ecosystems. Disgruntled developer Dalton Caldwell whined that Facebook found his app so potentially competitive that it “threatened” to buy him out. Meanwhile, Twitter had to apologize for temporarily shutting down a reporter who was helping feed a ruckus within its all-important Olympics-coverage network. These unrelated uproars illustrate key differences in the two dominant social media platforms. Facebook APIs channel data and technology services, but Twitter’s all about the data.

Both companies make social technology platforms that enable third-party developers using public APIs to build apps and services. Both platforms have spawned successful business ecosystems generating utility and value for mass-market audiences, app developers and web sites, and the platform companies themselves. Facebook has irked developers with its policy changes: particularly by making changes to how application activity gets shared among users, which can have a big impact on app traffic and promotion. Usually, it’s Twitter that gets accused of competing with its developers.

What matters for Facebook’s ecosystem

Although Google seemed only too happy to try to take advantage of whatever bad vibe Caldwell’s missive might create, the incident is a classic teapot tempest. This piece I wrote assessing the position of some social tech platforms and their ecosystems is still valid. For a thriving ecosystem, in addition to core technologies and support, would-be platforms need to give developers access to large and/or valuable audiences, distribution or even out-of-network syndication, data, and a way to make money.

Google has its own history of API inconsistency, but more important, Google+ hasn’t really clicked with users as a destination or place to use apps. And although Google is making some progress attracting marketers who value the potential for Google+ technologies to permeate other Google apps and affect search rankings, Google hasn’t connected its powerful ad networks to Google+ for developer revenue.

I doubt many developers fear that Facebook will compete with or buy them out, and an Instagram-like exit is an incentive, not a deterrent. Rather, a more serious Facebook platform issue is that its original platform poster child, the social games giant Zynga, is struggling lately. Zynga’s wounds are self-inflicted or the natural ebb and flow of managing a portfolio of entertainment titles. Zynga is experiencing sequel-itis and the fact that not all hits are instant franchises. But many see Zynga as a symptom of the Facebook platform’s vulnerability to increasing mobile usage.

This is premature, but worth monitoring. Mobile-only usage is starting to be noteworthy for Facebook, but some of that may be occurring in emerging markets where neither Facebook nor its ecosystem have business models to be damaged. And Facebook’s “sponsored stories” advertising format is showing early promise and can accommodate mobile usage. However, while individual gaming on mobile handsets is common, social gaming is less so. Neither has Facebook established its role in mobile app distribution or content discovery.

Twitter plays different role

Meanwhile, Twitter’s dust-up reveals the relative importance of the company’s roles within its own ecosystem. My GigaOM colleague Mathew Ingram writes equally about Twitter as an information utility, a media company, and a technology supplier. Yes, Twitter is a true platform, but its APIs are arguably far more important as a data source than they are as tools for developers building application functionality. The journalists, celebrities, and consumers that generate the content that flows through the Twitter network are a bigger part of the ecosystem than are third-party app developers.

So what are the takeaways from last week’s events? Facebook partners should stick close to the company’s budding mobile efforts, and experiment early and often. Caldwell’s concerns about Facebook’s business practices are overwrought, but questions about Facebook’s longer-term mobile platform and its ecosystem remain unanswered. And while Twitter is evolving its technology, developers should notice how much that evolution is about content display. Twitter may have some ideas about apps running within its platform, but Twitter’s most critical role is as an information and content distribution mechanism.

Question of the week

Which social media platform is more vulnerable?