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Cutter It Journal revision 1


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Cutter It Journal revision 1

  1. 1. BABY, YOU CAN DRIVE MY REVENUE Driving Revenue Growth with Web 2.0 by Troy Angrignon Much has been written about Web 2.0 of late. Unfortu- would be to focus on high-value/high-potential cus- nately, much of it is too conceptual, too utopian, too tomers. This may be a mistake if your business has a granular and technically detailed, or too basic in nature digital product or could have digital/real product to be used by executives or IT managers to fuel their hybrids. If so, it may be subject to Long Tail economics, organization’s success. In this article, I will attempt to which dictate that sometimes millions of markets of fill that gap by clearly articulating a series of tactical a few may be more profitable than a few markets of applications of Web 2.0 that can be used today to create millions. (Long Tail theory is beyond the scope of this increased shareholder value for your company. article. Your best bet is to read Chris Anderson’s book The Long Tail [1] and analyze your business against the For the purposes of this article, a very brief definition Long Tail principles.) Instead, focus on your most prof- of Web 2.0 is in order. There are many conflicting, over- itable products and services — and don’t assume that lapping, and somewhat contradictory definitions under they are your “hits” and “best sellers.” If your venture development, but I will define Web 2.0 as the economic, is Long Tail friendly, you may be making more profit social, philosophical, and technical transitions that are off of the products you sell in smaller batches, and there causing the shift from “personal computing” to “social may be an opportunity for you to push further down computing,” from a read-only Web to a readable/ the tail to sell fewer products to fewer people and to writable/mixable/hackable Web, and from the domi- make more money at the end of the day. nance of the desktop computer to the “Web as plat- form.” That definition is both broad enough and simple Next, you will want to explore more effective sales enough to cover all of what I will discuss here. channels and advertising channels. This is straightfor- ward. If your product can be sold in a self-serve fashion Shareholder value is composed of three key drivers:1 over the Internet and isn’t currently being sold that revenue growth, operating margin, and external expec- way, start doing it. If your product is too complicated tations. This article will discuss how to impact revenue to sell in that fashion, then consider building a simpler growth through the acquisition of new customers, the version (if there is a market for it) and selling it in a retention of existing customers, increased sales from an self-serve fashion over the Internet. As for advertising existing customer base, and, finally, the optimization of channels, expand your use of Internet search as a chan- pricing to maximize revenues. nel. Pay somebody to execute an effective Internet search engine optimization campaign to maximize lead generation. REVENUE GROWTH THROUGH NEW CUSTOMER ACQUISITION If your organization doesn’t already have corporate blogs, it needs to start them. This is no longer optional There are two primary drivers of new customer acquisi- when Web search is now becoming one of the primary tion: marketing and sales and product and service inno- ways that your prospective customers will learn about vation. Companies can positively affect both of these you. Blog postings have inordinately high Google rank using Web 2.0 tools and approaches. and always sit at or near the top of the Google listings. Marketing and Sales If you don’t want to suffer the fate of Kryptonite or U-Haul, both of which have found themselves with One of the first things one would normally be advised pages and pages of negative customer rants on their to do when looking at marketing and sales activities 1 The fourth value driver in the Deloitte Shareholder Value Map, which was used as the basis for this article, is “Asset efficiency,” but there were very few ways to impact that driver, so it was excluded from the discussion. The Deloitte Shareholder Value Map can be found at,1042,sid=59402,00.html. 14 CUTTER IT JOURNAL October 2006 ©2006 Cutter Information LLC
  2. 2. first Google pages, then first, identify what is great about By moving a software company from desktop-based your company and start telling that story. Second, if you software development to a Web 2.0 “light, small, fast, do have problems, FIX THEM — and then tell that story and cheap” development methodology, there will be to your customers as well. It isn’t bad products that peo- more opportunity to get feedback from your customers, ple hate. It’s companies that make bad products and learn from it, and adapt the product, leading to more don’t learn the lessons and then create better products.2 rapid product innovation. Finally, blogs, wikis, RSS [Really Simple Syndication] readers, blog editing tools, Product and Service Innovation and RSS aggregators could be deployed as a lightweight knowledge management system [4] through which to There are many routes to product and service innova- share innovation best practices, learning, and content. tion that can drive new customer acquisition. Among By opening this system up to a broad set of employees, many other options, you can: partners, customers, and even competitors, innovation Broaden your offerings to appeal to more segments ideas can come from anywhere, not just from the core (by rapidly modifying existing offerings to better suit design team or business leaders. As an example of this, customers or adding new ones) IBM recently launched an Innovation World Jam [2], in which it asks its entire “ecosystem” to help the Increase the quantity and quality of new offerings company innovate in public. being launched3 Another significant opportunity lies in creating Web Improve time to market, the product design process, services that access your systems, processes, and infor- or the innovation skills of your people mation. No matter what kind of business you are, there Following are a few suggestions for how to achieve is probably some sort of opportunity to expand the some of the above with Web 2.0. By employing Long number and type of customers that you serve by offer- Tail theory, there is the option of creating more offer- ing access to your data, services, and systems such that ings that would appeal to the tail. You might: it makes it easy for a customer to interoperate without having to go down the outmoded and expensive EDI Move from providing mass-market hits to providing path. Lightweight Web services are quickly replacing access to a much more “niche” product expensive traditional EDI links. For example, Amazon Drive down the cost of connecting your supply to rearchitected its entire operation around Web services, the external demand which allowed the company to build an e-commerce platform with over a million active retail partners [3]. Increase the number and variety of products Look at your operations. Think about how you could you offer open them up to the world and make it easier for peo- Understand and build “filters” that can weed out ple and companies to do business with you. the mismatches and provide just the most relevant offerings to each user CUSTOMER RETENTION AND REVENUE EXPANSION Consider the possibility of your customers creating FROM THE INSTALLED BASE the product you sell Next, let’s look at customer retention and revenue Potentially become an “aggregator” of your type of expansion. There are four levers that can be modified product (including those from other vendors) to increase customer retention and volume of business: Move from an “atom-based” model to either a 1. Product and service innovation hybrid model (Web sales with shipped goods) or a fully digital model (in which you can have unlim- 2. Account management ited “shelf space”) 3. Cross-selling and up-selling 4. General retention practices There are many books and Web articles written on corporate blogging. Two of the better books are Naked Conversations by Robert Scoble 2 and Shel Israel (a good high-level overview of why companies should blog) [5] and Blog Marketing by Jeremy Wright (a detailed look at how to “do” corporate blogging well) [7]. 3 For example, Zeiss, the German optics manufacturer, came close to bankruptcy in the 1990s. Then it started launching new, innovative products, and by 2004 the company was able to state that it generated 43% of its revenue with products launched in the prior three years. This can be a significant route to growth. 15 Get The Cutter Edge free: Vol. 19, No. 10 CUTTER IT JOURNAL
  3. 3. As I covered product and service innovation in the pre- incident and ask forgiveness. This is not the job of the vious section, I will discuss the latter three below. PR department or the legal department, the first of which will speak in corporate speak and the second of Account Management which will deny responsibility in order to protect against lawsuits. I will say it once again: people forgive Traditional account management best practices would companies for their mistakes. If a company screws up, suggest that you focus on the high-value clients. Yet people know it. Not talking about it only makes the because of the Long Tail, you may create more value company look worse. In The Corporate Blogging Book [6], by paying attention to your low-value customers in Debbie Weil discusses how the Kryptonite damage con- aggregate. Another standard practice is to rationalize trol team did a great job of actually replacing its cus- your customer base, weeding out the low-value cus- tomers’ bike locks. What the company didn’t do was tomers and keeping the high-value ones. If you have take the time to tell people about it, thereby leaving a a potential Long-Tail business, though, this too would big, blank, embarrassing hole in its blogosphere. be a mistake. Do the opposite of what conventional wisdom would recommend and see if you can derive As for ABC, the next step would be to implement some more value from the customers that are buying smaller RSS reading infrastructure to start tracking what people volumes but that aggregate to a significant portion of are saying about the company. When people say some- your business. This requires that you drive your costs thing negative, the company needs to admit it if it’s down as far as possible so that you can make money true, or defend it if it’s false. Engage those bloggers further down the tail. This means having a search key- online and learn how to do it well. They are not the word strategy, using blogs as cheap marketing chan- enemy — they are ABC’s customers, partners, vendors, nels, and moving to a self-service model so that and suppliers, who now have a forum for their opinions customers can find, learn about, and buy your product that ABC doesn’t own or control. ABC’s only two or service without interacting with your staff. choices are to ignore that conversation or to join it. Some other actions you could take under the general cat- Once it has begun to engage its customers, ABC should egory of account management include improving your consider building out some online community for its understanding of customer needs, customer satisfaction, users so that it can begin to find out what they really and customer interactions in order to be more responsive care about. The company could design and build a site to customer needs. There are quite a few Web 2.0 ways to that serves its customers’ needs and that allows those achieve this, as we’ll see in the following example. customers to meet and interact. It should post commu- nity guidelines up front and invite customers to help ABC Widgets Meets Web 2.0 build the community, generate content, and moderate the site. ABC will need to reward the good contributors, Let’s look at an example company and see where it address the concerns of customers who are ticked off might apply some Web 2.0 tools and approaches. ABC about something the company has done wrong, and Widget Co. makes consumer electronic devices, includ- sanction/isolate those who are harmful — not to the ing toys and games. It is having a tough year after the company, but to the functioning of the community.4 exploding doll recall incident from last year, in which the company was hammered by bloggers for not recall- Now, ABC needs to invite its customers in to help ing the doll sooner. ABC has some supply chain issues, design new products. The company could invite cus- but the biggest problem lately seems to be the fact that tomers to be on a panel where they can provide both its products aren’t really selling that well, even when it qualitative and quantitative feedback on ABC’s plans. does get them to the store. Customer support calls are Fixing product design and development up front will up because of some complex product designs, and the cause fewer support issues later on. Failing that, the company has a vague sense that customers are frus- company could at least put up blogs and forums where trated, but it isn’t sure how frustrated they really are. customers can explain their support issues and maybe even help ABC to document the problems in an open This company needs to start blogging. Yesterday. The wiki. After all, customers often know the product better CEO has to get out there and tell the company’s side of than the vendor. the story with a human voice. Apologize for the doll 4 In one system, the inhabitants all ranked each other. And the “trolls” (those who were simply being abusive rather than constructive) were shown only the other trolls on the system. Eventually they got bored with being surrounded by their own kind, and they left to poison other communities. This is a fantastic example of passive isolation that works well. 16 CUTTER IT JOURNAL October 2006 ©2006 Cutter Information LLC
  4. 4. If there are any Web-based aspects to this business, then “Marketing and Sales” section, but it bears repeating. ABC must immediately begin to instrument its Web Chris Anderson said it best: “For a generation of cus- applications so that it can watch every single action that tomers used to doing their buying research via search users take. There are nuggets of gold buried in that engine, a company’s brand is not what the company mountain of “usage pattern data.” By watching its users says it is, but what Google says it is” [1]. If ABC wants use the Web-based systems and applications that inter- to retain its current customers and sell them more, then face with ABC’s toys and games, it is possible to deduce it needs to react to what its customers are saying. If its needs that the users themselves cannot even articulate products stink, then the company should admit it, fix but that are obvious from the patterns. There are many them, and then move forward in collaboration with its more things that ABC could do, but that is a first sam- (remaining) customers. pling of ideas for supporting better account manage- ment practices. The entire concept of creating barriers to Cross-Selling and Up-Selling fence your customers in is wrong-headed This leads us to the improvement of cross-selling and and disrespectful. up-selling. Now it will become apparent that when we apply Web 2.0 tools and thinking in one area, it often has positive spillover effects in other areas. For exam- Retention Practices ple, when we look at our sales and advertising channels to identify opportunities to cross-sell/up-sell to existing Traditional retention policies use a fairly heavy-handed customers, we now know to be aware of the entire tail. approach whenever they can get away with it. This We can use low-cost models where appropriate to move includes setting up barriers to switching. The telephone further down the tail into potentially more profitable companies used to rest easy in the knowledge that peo- territory. ple wouldn’t leave, no matter how awful the service Back at ABC Widgets, there are a few things the com- was, because they didn’t want to give up their phone pany could do that seem pretty straightforward. It numbers. Once local number portability passed as a could examine its total customer experience and make law in the US, people defected in droves (often, unfortu- sure that those experience touchpoints are fast and nately, from one frying pan into another fire). The entire functional. People are getting used to, concept of creating barriers to fence your customers in eBay, and Google, where the window between thinking is wrong-headed and disrespectful. of what they want and receiving what they want has Here are some ways the management at ABC could shrunk, and the quality of that interaction has gone up improve retention. They could start by trying to get a compared to dealing with other companies. Revising grasp on what is causing their customers to defect in heavy ERP systems doesn’t count as Web 2.0 thinking, the first place. This is a lot easier to do if you are deliv- but there might be some places that ABC could apply ering some sort of hosted service. It has been suggested some lightweight application development to solve that the salespeople at and Jot (hosted some particularly knotty issues, build out moderated software companies that specialize in CRM and wikis, forums for its users to improve support, and/or move respectively) know within 24 hours if a new customer CD-based software applications online where it can will become a real paying customer. They also know build, learn, and adapt them to the users quickly. This if an existing customer is declining in his or her usage would give ABC a faster order-to-delivery cycle time, as and likely to stop paying for the service. They have the customer could search for the software/game, click achieved these insights by measuring everything and a button, pay for it, and play it immediately. then looking in the usage data for patterns that predict One big area of weakness and opportunity involves buy signals as well as defection signals. brand strength and goodwill. With Web 2.0, there is Because they lack the frequent touchpoints found in no longer any place to hide. Companies that used to an online environment, most companies cannot take bury their customer horror stories in their online advantage of this approach. But for those who have fre- forums (or worse, delete them from the forums, as quent online interactions with their customers, this is a Apple Computer has done many times in the past) are must. They can measure, recognize patterns, and then now faced with the ugly truth every day when they intervene before things go too far wrong and it’s too search for their name. I discussed this above in the 17 Get The Cutter Edge free: Vol. 19, No. 10 CUTTER IT JOURNAL
  5. 5. late to retain a particular customer. Establishing cus- offerings and customers — in other words, striking a tomer communities, forums, advisory panels, and the price elasticity balance between price and volume that like is a good way to solicit feedback and uncover issues will maximize revenue. that are causing customers to consider defection so that they can be addressed early and often. CONCLUSION The examples and suggestions above are not encyclope- PRICE REALIZATION dic, nor were they meant to be. They were intended Finally, we come to price realization — that is, as a general starting point for companies to begin to how much can you charge for this product with this understand how the various Web 2.0 technologies and customer in this market? There are two key levers that attitude shifts fit together and map to the shareholder can affect pricing. Hearkening back to Economics 101, value levers. We have seen how specific Web 2.0 it is easy enough to remember that if you want higher approaches and tools can be used — today — to drive pricing, you can restrict supply or increase demand. And revenue growth in an organization by impacting the you can also optimize pricing in your market such that it acquisition and retention of customers, the amount of maximizes revenues. Remember the old lesson: if you revenue that is earned from those customers, and the price your widget at $20 and sell 10 of them, you will prices that your company can charge for its products make $200, whereas if you price it at $18 and sell 20 of and services. As for next steps, map out your own busi- them, you will make $360. ness, read up on the various technologies, and see if you can fulfill any of your business goals using the tools So where can you apply Web 2.0 to impact the price you above. Then prioritize them and start building. Test, receive for your offerings? Let’s start, as we have with learn, adapt, and repeat! the other factors, by disabusing ourselves of some tradi- tional thinking. Standard economic pricing theory dic- tates that you want to find price-insensitive buyers so REFERENCES that you can push the price higher. Long Tail theory 1. Anderson, Chris. The Long Tail. Hyperion, 2006. challenges that assumption and states that you might 2. “Big Blue Brainstorm.” Businessweek Online, 7 August 2006 find very price-sensitive customers way down in the ( tail that might still buy a lot from you in aggregate if b3996062.htm?chan=tc&campaign_id=rss_tech). you get the offering/pricing matrix right. Once again, review your offerings with Long Tail glasses and be 3. Gray, Jim. “A Conversation with Werner Vogels.” ACM Queue, Vol. 4, No. 4, May 2006 ( careful not to be trapped by the old mode of thinking. modules.php?name=Content&pa=showpage&pid=388). Back at ABC Widgets, in order to drive higher prices, 4. LaMonica, Martin. “Corporate America Wakes Up to Web the company could increase product innovation and 2.0.” CNET, 26 June 2006 ( work on its brand image (and related search results), Corporate+America+wakes+up+to+Web+2.0/2100-1012_ both of which I have covered above. Next, by moving 3-6087566.html). its software offerings from perpetual license CDs to a 5. Scoble, Robert, and Shel Israel. Naked Conversations. John recurring revenue, software-as-a-service model, it can Wiley and Sons, 2006. shorten time to market (using Web 2.0 development 6. Weil, Debbie. The Corporate Blogging Book. Portfolio, 2006. methodologies such as Ruby on Rails, Ajax, and general 7. Wright, Jeremy. Blog Marketing. McGraw-Hill, 2006. agile development principles) and improve the func- tionality of those offerings through rapid customer-dri- Troy Angrignon has a day job as the Emerging Technology Strategist ven iteration. To optimize pricing, ABC could run tests for Business Objects, where he is tasked with identifying new growth on the Web to see how prices affect prospect-to-cus- opportunities, offerings, and business models that arise from new and tomer conversion rates, with a view toward maximizing emerging technologies. He is currently focused on Web 2.0 strategy, conversions and, therefore, revenues. And the blogs, software as a service, and Web services strategy. Outside of that role, customer advisory panels, and communities the com- he also mentors and advises startups on business strategy, business pany has already set up can be used to explore and planning, and market analysis. In addition, Mr. Angrignon is a pas- sionate outdoor sports enthusiast and nonprofit volunteer who lives better understand those benefits of its offerings that in Vancouver, BC, Canada. Mr. Angrignon can be reached at troy. customers really care about. This will enable ABC to modify features and optimize the pricing for each of the 18 CUTTER IT JOURNAL October 2006 ©2006 Cutter Information LLC