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New ways of collaborating enabled by technology

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29th Mar 2004
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A recent article on web services in the Financial Times stimulated some thoughts that I thought I’d share with you, on the impact on customer management of new ways of using and paying for software applications.

During the dot.com boom, some of us got very excited about the idea of application service provision (ASP). The idea was that, instead of selling people software packages on a license fee basis to support particular applications, access to those applications could be via the internet and payment made on a 'pay-per-use' basis. When the dot.com boom collapsed, interest in the ASP model collapsed as well, but a number of companies continued to work on the idea and it is now beginning to enjoy a resurgence of interest, at least according to the Financial Times.

There are now three growingly accepted variants on the ASP model. The first variant involves paying a rental fee to use a largely standardized software application, often from a company that has been set up specially to deliver the service. Email services are perhaps the most ubiquitous example. In Customer Management, Salesforce.com, with a claimed 120,000+ users of its CRM salesforce management package is the most well-known example of this approach.

The second version is closer to traditional ways of selling software. Companies like Oracle and SAP host an application on behalf of a client. This software-outsourcing model looks likely to grow significantly and become a big business. Oracle’s hosting business grew by more than 80 per cent in 2003 and is planned to become a multi-billion dollar business.

The final variant on the ASP model doesn’t look like a software sale at all. In this version, a company invests in a new application area and launches a business that uses that application to deliver a service to its customers. Examples of this model are eBay and Amazon.com. With eBay, the software that powers the site, along with the millions of users themselves, create the value in the site. Amazon now hosts the online stores of other retailers, using the software and its expertise developed around its own site.

Now it is rare for me to spend much time talking about technology. That is much more Stuart Lauchlan’s domain, so why this focus on ASP and its variants? The reason is simple. I believe that this new model of software delivery has consequences much wider than a different payment method for software. Let’s look at some of the impacts that this software model may have.

Firstly, let’s look at it from the CRM software supplier’s perspective. From personal experience, I am aware how difficult it is to build a profitable business from large-scale CRM software packages on a license fee basis. The problem is that large-scale CRM software packages tend to be very expensive, not only in license fee terms, but also in support costs. This limits the size of the market to very large corporates, and often one runs out of market before one has built a profitable business. If one moves to an ASP model, one exchanges a one-off, admittedly large, licence fee, for an ongoing usage- based revenue stream.

This has more impact than changing the cash flow of software companies. Because that ongoing revenue stream is dependent on the client using the software, the business objectives of the supplier and the client organization are more closely aligned, which should lead to software more closely reflecting the clients’ needs. Where there is a shortage of trained people to fill highly-skilled job roles (e.g. data miners, campaign designers, etc) there is also an incentive for the supplier to provide those skills, as an additional revenue stream, leading to better use of rare resources.

From the client perspective there are also significant benefits:

• Paying by use reduces financial risk for them. If there’s no value being delivered from the application, stop using it.

• The supplier is more closely aligned to what the client is trying to achieve.

• The client may get better access to the skills required to use the application effectively.

But perhaps the biggest advantage lies in a different direction and has less immediately obvious benefits. These applications are normally delivered across the internet in a secure way. This means that anyone with a web browser and access to the internet, provided they have been granted access rights to some of the functions of the application, can work on the application. This opens up the possibility of people who work for different organizations collaboratively working on the same application, so processes which cross organizational boundaries can be automated.

There are perhaps two major areas of such processes in most commercial organizations. Firstly supply chain management processes, which involve the whole supply chain for a particular manufacturer and secondly, customer management which involves the customers, the organization and all the service companies involved in supporting customer management processes, from customer communications to customer service.

This is likely to lead to a blurring of the boundaries between the organizations involved in either supply chain management processes or customer management processes for a particular organization delivering products and services to end-consumers.

In the long-term, this should lead to an economic system which is much more responsive to end-consumers demands and help companies migrate to the sort of economic environment envisaged in The Support Economy.

In the shorter-term, there are significant efficiency gains to be made from better control over processes which cross-organizational boundaries, probably at the expense of service providers’ profit margins. In the customer management world, this is most obvious in the growing interest in Marketing Resource Management (MRM) applications.

It is in these areas of supply chain management and customer management that we see the most significant strategic opportunities arising and the most opportunity for significant benefits to arise.

As always we’d like to hear your comments, particularly on the Click Tactics or Elateral solutions. Make them below or email me at [email protected]

Regards,

Richard Forsyth

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