Month: May 2014

Recommended Bedtime Reading, and signing off for a bit…

ianwaring Amazon, Apple, Books, Google Leave a comment

I’ve never really been a big fiction fan. About the only author i’ve read extensively (outside high technology and business stuff – don’t yawn) was by Michael Crichton. At least the books that have yet to be turned into films. Well, all except “Disclosure”, where Demi Moore sexually harasses Michael Douglas and then throws the company’s political establishment against him when he refuses to succumb to her charms. But I digress.

There’s been a lot of comment on the blogs and twitter feeds I follow on the West Coast of the USA that keep on citing a new book by Andy Weir called “The Martian”. I tried to buy it on my last trip abroad, thinking i’d go buy the voiced version on Audible to listen to, but baulked at it’s then £20+ price tag. However, it appeared on an Amazon email last week for under £10 in hardback form, so I bought it.

Finished it today (like many of the USA folks, completely immersed in it for two days between work bursts). I’m completely with them; it is a fantastic book, and would make a great film. A modern day Robinson Crusoe, but one accidentally left behind on Mars. At least Crusoe had to worry more about Cannibals than continuously working around all the life support systems, and food, to last long enough to be rescued. If indeed NASA didn’t just leave him behind to eat his poison pills. Thoroughly recommended, and superbly written throughout.

Tomorrow, i’m off to Cornwall for a short break before I start my next assignment, which will start on June 2nd. Really looking forward to it. As such, the frequency of my blog posts are, with effect from today, going to drop to one per week. I think my daily posts have now caught up with my brain nuances, and the newsflow in High Technology has started to slow. At least until Apple have their Worldwide Developers Conference at the start of June, and Google do their matching I/O conference a week or two later.

In the three months or so i’ve been writing this blog, a few articles keep on getting lots of page views well after their posting data. The Crossing the Chasm one got reposted on LinkedIn by the original author of the book i’d summarised, and I started to get warnings from WordPress that I appeared to have an incoming tidal wave for 3 days running.

For some reason, my mention of Chromecast working on the Tesco Hudl tablet gets regular traffic, nominally by hoards of people querying Google to see if Tesco sell Chromecast in the UK.

Surprisingly few look at my tips for spotting the 4 key trends to look at with any business, in order to suss out what dimensions are and are not working. Or the other post about how to conduct yourself in a price war (there are only two things you focus on, and all paths to action stem from there).

I’m gone for a week, and to see how adept my 2 year old granddaughter has got on her iPad Mini we bought her (a necessity, as when she visits us, I never could get it back until she leaves again). She is impressively native on it with photos and with YouTube. Even tries to swipe “Skip Ad” on ITV on the telly.

So, signing off until May 30th. See you once i’m back.

11 steps to initiate a business spectacular – true story

ianwaring Management, Marketing, Microsoft, Pricing, Selling, Training 1 Comment

Nuclear Bomb Mushroom

I got asked today how we grew the Microsoft Business at (then) Distributor Metrologie from £1m/month to £5m/month, at the same time doubling the margin from 1% to 2% in the thick of a price war. The sequence of events were as follows:

  1. Metrologie had the previous year bought Olivetti Software Distribution, and had moved its staff and logistics into the company’s High Wycombe base. I got asked to take over the Management of the Microsoft Business after the previous manager had left the company, and the business was bobbing along at £1m/month at 1% margins. Largest customer at the time was Dixons Stores Group, who were tracking at £600K sales per month at that stage.
  2. I was given the one purchasing person to build into a Product Manager, and one buyer. There was an existing licensing team in place.
  3. The bit I wasn’t appraised of was that the Directors had been told that the company was to be subject to a Productivity Improvement Plan, at the same time the vendor was looking to rationalise it’s UK Distributor numbers from 5 to 4. This is code for a prewarning that the expected casualty was…. us.
  4. I talked to 5 resellers and asked what issues they had dealing with any of the Microsoft distributors. The main issue was staff turnover (3 months telesales service typical!), lack of consistent/available licensing expertise and a minefield of pricing mistakes that lost everyone money.
  5. Our small team elected to use some of our Microsoft funds to get as many front line staff as possible Microsoft Sales certified. I wasn’t allowed to take anyone off the phones during the working week, but managed to get 12 people in over a two day weekend to go from zero to passing their accreditation exam. They were willing to get that badge to get them better future career prospects. A few weeks later we trained another classful on the same basis; we ended up with more Sales accredited salespeople than all the other distributors at the time.
  6. With that, when someone called in to order PCs or Servers, they were routinely asked if they wanted software with them – and found (to their delight) that they had an authoritative expert already on the line who handled the order, without surprises, first time.
  7. If you’re in a price war, you focus on two things; one is that you isolate who your key customers are, and secondly you profile the business to see which are the key products.
  8. For the key growth potential customers, we invested our Microsoft co-op funds in helping them do demand creation work; with that, they had a choice of landing an extra 10% margin stream new business dealing with us, or could get 1% lower prices from a distributor willing to sell at cost. No contest, as long as our pricing was there or thereabouts.
  9. The key benchmark products were Microsoft Windows and Microsoft Office Professional. Whenever deciding who to trade with, the first phone call was to benchmark the prices of those two part numbers, or slight variations of the same products. However, no-one watched the surrounding, less common products. So, we priced Windows and Office very tightly, but increased the selling prices by 2-3% on the less common products. The default selling price for a specific size of reseller (which mapped into which sales team looked after their account) was put on the trading platform to ensure consistency.
  10. Hand offs to the licensing team, if the business landed, were double-bubbled back to the field/internal salesperson team handling each account – so any more complex queries were handed off, handled professionally, priced and transacted without errors.
  11. We put all the measures in place, tracking the number of customers buying Microsoft software from us 1 month in 3, 2 months in 3 and every month. We routinely incented each sales team to increase the purchase frequencies in their account base on call out days, with programs that were well supported and fun in the office.

The business kept on stepping up. Still a few challenges; we at least twice got reverse ram raids, emptying returned stock back into our warehouse on day 30 of a 31 day month, making a sudden need for sales on the last trading day a bit of a white knuckle ride to offset the likely write down credit (until Microsoft could in turn return the cost to us). The same customer had, at the time, a habit of deciding not to pay it’s suppliers at month end at the end of key trading months, which is not a good thing when you’re making 1% margins assuming they’d pay you to terms.

One of the side effects of the Distribution business is that margins are thin, but volume grows aggressively – at least until you end up with a very small number of really big distributors left standing. A bit like getting wood shavings from wood on a lathe – you want just enough to peel off and the lathe turning faster and faster – but shy away from trying to be too greedy, digging the chisel in deeper and potentially seizing up the lathe.

With a business growing 40%+ per year and margins in the 1-2% range, you can’t fund the growth from retained profits. You just have to keep going back to the stock market every year, demonstrating growth that makes you look like one of the potential “last men standing”, and get another cash infusion to last until next year. And so it goes on, with the smaller distributors gradually falling away.

With the growth from £1m/month to £5m/month in 4 months – much less than the time to seek extra funds to feed the cash position to support the growth – the business started to overtrade. Vendors were very strict on terms, so it became a full time job juggling cash to keep the business flowing. Fortunately, we had magnificent credit and finance teams who, working with our resellers, allowed us the room to keep the business rolling.

With that, we were called into a meeting with the vendor to be told that we were losing the Microsoft Business, despite the big progress we’d made. I got headhunted for a role at Demon Internet, and Tracy (my Product Manager of 4 months experience) got headhunted to become Marketing Manager at a London Reseller. I stayed an extra month to complete our appeal to the vendor, but left at the end of June.

About 2 weeks into my new job, I got a call from my ex-boss to say the company’s appeal had been successful at European level, and that their Distribution Contract with the vendor was to continue. A great end to that story. The company later merged with one of the other distributors, and a cheque for £1000 arrived in the post at home for payment of stock options i’d been awarded in my last months there.

So, the basics are simple, as are the things you need to focus on if you’re ever in a price war (i’ve covered the basics in two previous blog posts, but the more advanced things are something i’d need to customise for any specific engagement). But talking to the customer, and working back to the issues delivering a good and friction free experience to them, is a great way to get things fixed. It has demonstrably worked for me every time – so far!

Email: is 20% getting through really a success?

ianwaring Marketing, Metrics, Mobiles, Newspapers 1 Comment

Baseball Throw

Over the weekend, I sent an email out to a lot of my contacts on LinkedIn. Because of the number of folks i’m connected to, I elected to subscribe to Mailchimp, the email distribution service recommended by most of the experts I engage in the WordPress community. I might be sad, but it’s been fascinating to watch  the stats roll in after sending that email.

In terms of proportion of all my emails successfully delivered, that looks fine:

Emails Delivered to LinkedIn Contacts

However, 2 days after the email was sent, readership of my email message, with the subject line including the recipients Christian name to avoid one of the main traps that spam gets caught in, is:

Emails Seen and UnOpened

Eh, pardon? Only 47.4% of the emails I sent out were read at all? On first blush, that sounds really low to an amateur me. I would have expected it for folks on annual leave, but still not as low as less than half of all messages sent out. In terms of device types used to read the email:

Desktop vs Mobile Email Receipt

which I guess isn’t surprising, given the big volume of readers that looked at the email in the first hour of when it was sent (which was at around 9:00pm on Saturday night). There was another smaller peak between 7am-8am on Sunday morning, and then fairly level tides with small surges around working day arrival, lunch and departure times. In terms of devices used:

Devices used to read Email

However, Mailchimp insert a health warning, saying that iOS devices do handshake the email comms reliably, whereas other services are a lot more fickle – so the number of Apple devices may tend to over report. That said, it reinforces the point I made in a post a few days ago about the importance of keeping your email subject line down to 35 characters – to ensure it’s fully displayed on an iPhone.

All in, I was still shocked by the apparent number of emails successively delivered but not opened at all. Thinking it was bad, I checked and found that Mailchimp reckon the average response aimed into folks aligned to Computers and Electronics (which is my main industry), voluntarily opted in, is 17.8%, and click throughs to provided content around the 1.9% mark. My email click through rate is running at 2.9%. So, my email was 2x the industry norm for readership and 50% above normal click-through rates, though these are predominantly people i’ve enjoyed working with in the past – and who voluntarily connected to me down the years.

So, sending an email looks to be as bad at getting through as expecting to see Tweets from a specific person in your Twitter stream. I know some of my SMS traffic to my wife goes awry occasionally, and i’m told Snapchat is one of the few messaging services that routinely gives you an indication that your message did get through and was viewed.

Getting guaranteed attention of a communication is hence a much longer journey than I expected, and probably (like newspaper ads of old) relying on repeat “opportunities to see”. But don’t panic – i’m not sending the email again to that list; it was a one-time exercise.

This is probably a dose of the obvious to most people, but the proportion of emails lost in action – when I always thought it a reliable distribution mechanism – remains a big learning for me.

Consistency is often an undervalued asset

ianwaring DEC, Marketing, Selling 2 Comments

Ford Tractor Backhoe Brochure

One of the legendary things that Ken Olsen, founder of Digital Equipment Corporation, used to do from time to time was to issue fairly long parables across the company (note: 110,000+ staff at the time). Following release, there was often quite a discussion to try to understand what he meant, and to then apply what we believed to be the sage learning experience to improve our own corners of the company.

I’ve kept a number of these from way back then, and still find some of them just as applicable these days. Try this one for size, keeping in mind that Ken was also a main board Director of Ford at the time also. I’ll lay odds that many can relate to it, even today – some 37 years after he wrote this.

SUBJ: TRACTORS AND COMPUTERS

I am in the market for a backhoe. It is not an important project and I am embarassed to spend much time on it, but it is an interesting experience.

The other day I stopped at a Ford tractor place and went through their literature rack to get some background information on tractors. They had two kinds of literature. One is a colored brochure with beautiful pictures and glowing terms describing what their tractors would do and the other, black on yellow data sheets which are very plain and just filled with numbers.

They have four models which I think may cover my needs but they all say they are made by different product lines. They seem to compete with each other in who can make the most expensive, beautiful, color brochure and it appears they are more in competition with each other than with other tractor manufacturers. No way would they explain why one Ford tractor would have advantages over another.

Everything in the literature is positive and beautiful. I then tried to study the data sheets. These too seemed to be made by separate product lines even though their tractors were almost identical. They vary from two pages to eight pages and there is no consistency in the way in which the data is presented.

I thought one way of comparing would be to find out what each model weighed so that I could make a guess as to which one had more power and more value. One data sheet had no weights, the next had a tractor without a loader and without a backhoe, the next had a tractor and a loader and the fourth had a tractor, loader, and a backhoe. There were all possible combinations and no way of comparing them.

One brochure brags about the wonderful feature of having a 3 point hitch. It goes into great technical detail of what the pin sizes and dimensions of the hitch are and how much power it has but no where does it ever describe what the advantages of a 3 point hitch are and what you sacrifice in order to get it. With all the beautiful color brochures and the glowing claims made for their tractors which are obviously aimed at the layman, the real questions can only be answered by an expert who happens to know what a 3 point hitch is.

I stopped by the Ford place while going between plants and felt guilty about getting involved with the salesman and so I didn’t talk to anyone. I was afraid that once I did start talking I would get involved for a long time and I wasn’t sure that the salesman would understand the difference between the models anyway. My guess is the salesman would, first of all, sell only the tractor models which he has had experience in selling and would not get involved or feel at ease with the tractor models which he did not have experience with. Then there is the other type of salesman, who I am sure is in this field as in all others, who once he got hold of you would spend most of the time telling about his experiences when he used to sell John Deere Tractors and avoid all technical issues involved in the present line which he is selling.

If I don’t get tired of the whole idea of a backhoe after trying to figure out the pile of literature I have, I’ll try talking to the salesman and see how I do. It takes a lot of nerve because I feel intimidated by my lack of knowledge about the equipment and also about the traditions of buying in this market. I don’t know if you pay list price or whether you look for a 20% discount. I also have to build up my nerve because I am always embarrassed when they act surprised that I don’t know how deep a ditch I want to dig and how heavy a load I want to lift, and I don’t even know how high I want to lift the load.

Sometime I’d like to have you explain whether there is a parallel at Digital with this or not.

Sometimes a picture is “How on earth did you do that”?

ianwaring Amazon, Cloud, DEC, Enterprise IT, IBM, Open Source, Pricing, Purchasing, Software Leave a comment

IBM3270ALLIN1

People often remember a startling or surprising first impression. Riverdance when they first appeared during the voting interval during Eurovision 1994. 19-year old Everton substitute Wayne Rooney being put on the pitch against a season-long unbeaten Arsenal side, and scoring. A young David Beckham doing likewise against Wimbledon from the half way line. Or Doug Flutie, Quarterback for Boston College, throwing the winning touchdown in a Rose Bowl final from an incredible distance with no time left on the clock. There is even a road in Boston called “Flutie Pass” named in memory of that sensational hail mary throw.

There are always lots of pressures on IT Managers and their staff, with tightening budgets, constrained resources and a precious shortage of time. We used to have a task to try and minimise the friction these folks had in buying Enterprise IT products and services from us or our reseller channels. A salesperson or vendor was normally the last person they wanted to have a dependency on for basic, routine “stuff”, especially for items they should be able to work out for themselves. At least if given the right information in lucid form, concise and free of surprises – immediately available at their fingertips.

The picture was one of the ones we put in the DECdirect Software Catalogue. It shows an IBM 3278 terminal, hooked up to an IBM Mainframe, with Digital’s VAX based ALL-IN-1 Office Automation Suite running on it. At the time, this was a startling revelation; the usual method for joining an IBM system to a DEC one at the time was to make the DEC machine look like a remotely connected IBM 2780 card reader. The two double page spreads following that picture showed how to piece this, and other forms of connections to IBM mainframes, together.

The DECdirect Software catalogue had an aim of being able to spit out all the configuration rules, needed part numbers and matching purchase prices with a minimal, simple and concise read. Our target for our channel salesforce(s) was to enable them to extract a correct part number and price for any of our 550 products – across between 20-48 different pricing tiers each – within their normal attention span. Which we assumed was 30 seconds. Given appropriate focus, Predictability, Consistency and the removal of potential surprises can be designed in.

In the event, that business (for which I was the first employee in, working alongside 8 shared telesellers and 2 tech support staff) went 0-$100m in 18 months, with over 90% of the order volume coming in directly from customers, correctly priced at source. That got me a 2-level promotion and running the UK Software Products Business, 16 staff and the country software P&L as a result.

One of my colleagues in DEC Finland did a similar document for hardware options, entitled “Golden Eggs“. Everything in one place, with all the connections on the back of each system nicely documented, and any constraints right in front of you. A work of great beauty, and still maintained to this day for a wide range of other systems and options. The nearest i’ve seen more recently are sample architecture diagrams published by Amazon Web Services – though the basics for IT Managers seeing AWS (or other public cloud vendors offerings) for the first time are not yet apparent to me.

Things in the Enterprise IT world are still unnecessarily complicated, and the ability to stand in the end users shoes for a limited time bears real fruits. I’ve repeated that in several places before and since then with pretty spectacular results; it’s typically only a handful of things to do well in order to liberate end users, and to make resellers and other supply channels insanely productive. All focus then directed on keeping customers happy and their objectives delivered on time, and more often that not, under budget.

One of my friends (who works at senior level in Central Government) lamented to me today that “The (traditional vendor) big players are all trying to convince the world of their cloudy goodness, unfortunately using their existing big contract corporate teams who could not sell life to a dying man”.

I’m sure some of the Public Cloud vendors would be more than capable to arm people like him appropriately. I’d love to help a market leading one do it.

Footnote: I did a previous post on what Vendors, Distributors and Resellers want here.

Email Subscriber Lists: Thunderbirds are go

ianwaring Mailchimp, Wordpress Leave a comment

Thunderbird One

I’d had someone last week ask where the “subscribe” button to my blog was. I didn’t have one. Also conscious that I need to get an email out to a portion of my LinkedIn contacts, I thought it was time to invest in a proper email platform. The WordPress WPMU Dev Community always appear to be in awe of Mailchimp, which has all the features to run professional looking email campaigns and which is free to use for subscriber lists of less than 5000 contacts. It also has excellent integration with WordPress.

I have downloaded my LinkedIn contacts into one list, which I will only use one time as part of my next role landing effort. I was taught many years ago that 70% of all roles tend to come by personal referral and which tend not to get advertised – and hence a small one time plea for referrals. Mailchimp allowed me to customise the email subject lines with people’s Christian names (Surname available also) and to lay things out very neatly. I then spent quite a considerable time laying everything into one of the many provided templates to look nice, and added pictures of some of my accreditation certificates on the end.

The dialogue you go through to finally release the email (in both HTML and Text forms) is really quirky and amusing (it shows a chimps finger dripping sweat about to press a big red button, and afterwards high-fives as the email send goes underway). 5 minutes later I have 21 out of offices and my first reply. Looking good.

The reply email action also allows you to pre-populate the subject and the message field, so it minimises the amount of work the recipient has to enter to reply back to you. Overall, very well thought out from start to finish.

I created a second “Simplicity Sells” mailing list which is totally empty – but which is populated by people who want to subscribe to this blog. After adding in the WordPress Mailchimp for WP Plugin, I put the widget in the right hand bottom footer. That, however, is right at the bottom of a potential very long list of posts, so I elected to add a custom “Subscribe” page using a short code and linked this onto the top menu. All worked first time, and confirmed my email address correctly – and into the mailing list things went.

Reading more on the Mailchimp blog and their knowledge base, you can see a lot of the hoops they jump through on your behalf to run a mailing list for folks that willingly subscribe to your content. Impressed.

All running fine so far. Let’s see how this rolls over the next few days.

Hey (you): Keep it short, use a name, profit

ianwaring Courses, Marketing, Selling, Wordpress Leave a comment

Bang!

Seeing various bits and bobs about writing better emails today (or getting attention for your words among the surroundings in a typical email inbox). One from KissMetrics that advises keeping subject lines to 35 characters (which means that the full text of the subject fits on an Apple iPhone screen) and to start off with the recipients name. More (in multiple subjects squeezed together and a few sample short bits of email subject line click bait) here.

I had an account manager from AWS ask me where the follow facility was on my blog, and i’ve realised there is no easy link – so i’m currently building one using the very impressive Mailchimp. This has an associated WordPress Plugin which appears to have many 5* reviews and a vast majority of the support posts with quick answers. So, a small project to finish this weekend, and a side use to boot a very short message to some of my LinkedIn contacts using the same facility.

That apart, i’ve done my share of reading to try to improve my own writing. All the way from “Write Like the Pros: Using the Secrets of Ad Writers and Journalists in Business” by Mark Bacon, to revising from “How to Write Sales Letters that Sell” by Drayton Bird. Even to buying and listening to the three videos in Drayton Birds “How to Write (and Persuade) Better“. I hope it shows!

In the meantime, I notice Drayton’s off on a rant about a menu he’s been subjected to at a Restaurant up the Shard today. Typical Drayton, though he’s got a lot more mild since he phoned up the CEO’s office at Thus (ScottishTelecom as was, before being subsumed into Cable & Wireless, then Vodafone). I wouldn’t dare repeat what he said, but it caused some immediate impact, and he got some business out of being so explicit at the time. I just cringed.

Officially Certified: AWS Business Professional

ianwaring Amazon, Cloud, Courses, Digital Ocean, Enterprise IT, Future Trends, MySQL, Open Source, Pricing, Rackspace, Tableau, Training Leave a comment

AWS Business Professional Certification

That’s added another badge, albeit the primary reason was to understand AWS’s products and services in order to suss how to build volumes via resellers for them – just in case I can get the opportunity to be asked how i’d do it. However, looking over the fence at some of the technical accreditation exams, I appear to know around half of the answers there already – but need to do those properly and take notes before attempting those.

(One of my old party tricks used to be that I could make it past the entrance exam required for entry into technical streams at Linux related conferences – a rare thing for a senior manager running large Software Business Operations or Product Marketing teams. Being an ex programmer who occasionally fiddles under the bonnet on modern development tools is a useful thing – not least to feed an ability to be able to spot bullshit from quite a distance).

The only AWS module I had any difficulty with was the pricing. One of the things most managers value is simplicity and predictability, but a lot of the pricing of core services have pricing dependencies where you need to know data sizes, I/O rates or the way your demand goes through peaks and troughs in order to arrive at an approximate monthly price. While most of the case studies amply demonstrate that you do make significant savings compared to running workloads on your own in-house infrastructure, I guess typical values for common use cases may be useful. For example, if i’m running a SAP installation of specific data and access dimensions, what operationally are typically running costs – without needing to insert probes all over a running example to estimate it using the provided calculator?

I’d come back from a 7am gym session fairly tired and made the mistake of stepping through the pricing slides without making copious notes. I duly did all that module again and did things properly the next time around – and passed it to complete my certification.

The lego bricks you snap together to design an application infrastructure are simple in principle, loosely connected and what Amazon have built is very impressive. The only thing not provided out of the box is the sort of simple developer bundle of an EC2 instance, some S3 and MySQL based EBD, plus some open source AMIs preconfigured to run WordPress, Joomla, Node.js, LAMP or similar – with a simple weekly automatic backup. That’s what Digital Ocean provide for a virtual machine instance, with specific storage and high Internet Transfer Out limits for a fixed price/month. In the case of the WordPress network on which my customers and this blog runs, that’s a 2-CPU server instance, 40GB of disk space and 4TB/month data traffic for $20/month all in. That sort of simplicity is why many startup developers have done an exit stage left from Rackspace and their ilk, and moved to Digital Ocean in their thousands; it’s predictable and good enough as an experimental sandpit.

The ceiling at AWS is much higher when the application slips into production – which is probably reason enough to put the development work there in the first place.

I have deployed an Amazon Workspace to complete my 12 years of Nutrition Data Analytics work using the Windows-only Tableau Desktop Professional – in an environment where I have no Windows PCs available to me. Just used it on my MacBook Air and on my iPad Mini to good effect. That will cost be just north of £21 ($35) for the month.

I think there’s a lot that can be done to accelerate adoption rates of AWS services in Enterprise IT shops, both in terms of direct engagement and with channels to market properly engaged. My real challenge is getting air time with anyone to show them how – and in the interim, getting some examples ready in case I can make it in to do so.

That said, I recommend the AWS training to anyone. There is some training made available the other side of applying to be a member of the Amazon Partner Network, but there are equally some great technical courses that anyone can take online. See http://aws.amazon.com/training/ for further details.

SaaS Valuations, and the death of Rubber Price Books and Golf Courses

ianwaring Budgets, Demon Internet, Enterprise IT, Open Source, Software, VCs Leave a comment

Software Services Road Signs

Questions appear to being asked in VC circles about sky-high Software-as-a-Service company valuations – including one suggestion i’ve seen that it should be based on customer acquisition cost (something I think is insane – acquisition costs are far higher than i’d ever feel comfortable with at the moment). One lead article is this one from Andreessen Horowitz (A16Z) – which followed similar content as that presented on their podcast last week.

There are a couple of observations here. One is that they have the ‘normal’ Enterprise software business model misrepresented. If a new license costs $1000, then subsequent years maintenance is typically in the 20-23% of license cost range; the average life of a licensed product is reckoned to be around 5 years. My own analogue for a business ticking along nicely was having license revenue from new licenses, and support revenue from maintenance (ie: 20% of license cost, for 5 years) around balanced. Traditionally, all profit is on the support revenue; most large scale enterprise software vendors, in my experience, assume that the license cost (less the first year maintenance revenue) represents cost of sales. That’s why CA, IBM and Oracle salespeople drive around in nice cars.

You will also find vendors routinely increasing maintenance costs by the retail price index as well.

The other characteristic, for SaaS companies with a “money in this financial year” mindset, is how important it is to garner as many sales as is humanly possible at the start of a year; a sale made in month 1 will give you 12 months of income in the current financial year, whereas the same sale in month 12 will put only 1 months revenue in the current fiscal. That said, you can normally see the benefits scheduled to arrive by looking at the deferred revenue on the income statement.

Done correctly, the cost of sales of a SaaS vendor should be markedly less than that of a licensed software vendor. Largely due to an ability to run free trials (at virtual zero marginal cost) and to allow customers to design in an SaaS product as part of a feasibility study – and to provision immediately if it suits the business need. The same is true of open source software; you don’t pay until you need support turned on for a production application.

There is also a single minded focus to minimise churn. I know when I was running the Individual Customer Unit at Demon (responsible for all Consumer and SME connectivity sales), I donated £68,000 of the marketing budget one month to pay for software that measured the performance of the connectivity customers experienced – from their end. Hence statistics on all connectivity issues were fed back next time a successful connection was made, and as an aggregate over several 10’s of 1000’s of customers, we could isolate and remove root causes – and hence improve the customer experience. There really is no point wasting marketing spend on a service that doesn’t do a great job for it’s existing users, long before you even consider chasing recruitment of new ones.

The cost per customer acquired was £30 each, or £20 nett of churn, for customers who were spending £120/year for our service.

The more interesting development is if someone can finally break the assumption that to sell Enterprise software, you need to waste so much on customer acquisition costs. That’s a rubber price book and golf course game, and I think the future trend to use of Public Cloud Services – when costs will go over a cliff and way down from todays levels – will be it’s death. Instead, much greater focus on customer satisfaction at all times, which is really what it should have been all the way along.

Having been doing my AWS Accreditations today, I have plenty of ideas to simplify things out to fire up adoption in Enterprise clients. Big potential there.

Further Insights – Apple/Beats and the Anaemic Twitter

ianwaring Apple, Software, Twitter, VCs, Xioami Leave a comment

Jimmy Iovine Interiew - AllThingsD

A bit of a slow day today – i’m doing my Amazon Web Services Accreditations and it appears to be a slow news day at the same time.

There was neat video cited by Benedict Evans Weekly Email where Jimmy Iovine, one of the two co-founders of Beats, was interviewed at a recent AllThingsDigital conference. Full 41 minute video here. Having listened to it yesterday, I think i’ve changed my mind – and that Beats is probably not the wholesale Xioami-type younger persons brand for Apple. Instead, it sounds like the real benefit is a redesign of Apple’s relatively unsuccessful “iTunes Match” and a re-implementation of the “iTunes Genius” recommendation engine. The Beats folks are curating their own “what track should we play next” capability with over 100 professional record industry mix specialists, and then trying to bolt on some behaviours that a machine-generated recommendation engine can follow.

On a completely different tack, I think Twitter’s lack of user growth is certainly below what most commentators appear to thing as possible (with a base of 200 million Monthly Active Users – compared to Facebooks 1.2 Billion equivalent). That said, there was a comment I saw berating people for being so hard on them.

The central argument is that only 60 million of the 200 million logged in Monthly Active Users post any tweets at all. There was a three year old comment from VC Fred Wilson (full text here) I saw that suggested this was actually a terrific achievement, and that most media production has far less user content shared. Fred (who was an early stage investor in the company) said:

Let’s remember one of the cardinal rules of social media. Out of 100 people, 1% will create the content, 10% will curate the content, and the other 90% will simply consume it. That plays out on this blog, that plays out in Twitter, and that plays out in most of the services we are invested in.

Twitter has 400mm active users a month, 100mm of them are engaged enough to log in, but only 60mm tweet. For years people have made it out like this is a bad thing. It’s not a bad thing. It is an amazing thing. Let people use the service the way they want and you’ll get more users. Logged out users are users just like logged in users. We should focus more on them, build services for them, and treat them like users, not second class citizens.

That said,  a few people are starting to complain about Marc Andreessen’s bombs of successive numbered tweets – the very thing i’ve said (with supporting dialogue from other participants) were really gold. The main complaint given (full article here) was the way they mess up the twitter streams of people who aren’t as fascinated as I am by the content of the discussion to-and-fro’s. I just wish there was a way to bottle these things – and i’m sure they will in time. Whether it’s in Twitter or with a different service. But that’s for another day.

In the meantime, back to my AWS certifications.