Traditional Marketing, Social Networks and CRM: How it All Fits Together

I just did a presentation at Decisions Spring 2012 and I thought it would be interesting to summarize the presentation here as well as it is something I feel is important, given the hype and confusion regarding social networks and social CRM at present. The exercise has also clarified some of my thinking on the subject so even if you saw the presentation, this may help you understand my perspective.

The Imperative for Change

The way we engage with vendors and engage with each other is changing. It used to be that the primary source of information for a product was the manufacturer. With the advent of the internet, information is ubiquitous. All human knowledge (or, at least, the practical and useful stuff) is now a mere URL away. Also, people who we would only see at weddings and funerals, are now a click away thanks to sites like Twitter, LinkedIn and Facebook.

This change may feel sudden but they have in fact been building up over a number of years. Back in 1999, The Cluetrain Manifesto was written which predicted that the internet would force companies to change the way they treat and interact with their customers. Classic “theses” include:

“Markets are conversations.”

“The Internet is enabling conversations among human beings that were simply not possible in the era of mass media.”

“People in networked markets have figured out that they get far better information and support from one another than from vendors.”

“Already, companies that speak in the language of the pitch, the dog-and-pony show, are no longer speaking to anyone.”

“We are immune to advertising. Just forget it.”

While it has been over ten years, these quotes are as powerful today as back then and certainly more understandable. Most of us are part of the ‘networked market’ now, we just called it ‘social’.

Push and Pull Marketing

Now we have an appreciation of where we are heading, let us reflect on where the traditional corporate conversation is. Traditionally, marketing has been divided into two categories: Push and Pull.

Push marketing is the convincing of a known party (a seller) to conduct a sale.

Pull marketing is the convincing of an unknown party (a consumer) to initiate a buy.

Examples of these strategies can be seen today with the partner model of Microsoft. Microsoft often offer incentive to ‘the channel’ to promote the sales of a certain product. For example, they may promote a “get a Dynamics GP license for $1” offer to the partners to encourage them to push the product.

An example of a Microsoft “pull strategy” are the inspiring adverts we have all seen telling us how Microsoft enables us to achieve more.

The Apple iPad advertisements are also classic examples of a pull strategy.

The Problem With the Push and Pull Model

There is a growing problem with defining advertising strategies as “push” or “pull”. The problem is it assumes an intermediary. In the case of Microsoft, the model is still valid in that there is a partner network. However, for many products, the distance between the manufacturer and the buyer is shrinking. It also assumes a largely passive seller with the buying decision being controlled through the result of actions of the manufacturer.

Let us consider the example of a used car. While advertising may pull me to choose a certain dealership, there is no push as there is, effectively, no manufacturer to profit from the sale. The push now shifts so it is between the user car salesman to the buyer. It is now the seller’s actions which promote the sale. He may, for example, promote a specific car on the lot that he wants to sell. Therefore, while in the traditional model, push was an interaction between the manufacturer and the seller and pull was an interaction between the manufacturer and the buyer, this has devolved into two types of interactions between the buyer and seller.

Let’s listen to the conversation:

Seller: You should buy this car here (push)

Buyer: I’ve been looking at online at the cars on the lot and I want you to sell me this one at the same price (pull)

Seller: Deal

Another interesting note in this interaction is that the buyer does not say where they were getting information about the cars on the lot. While, for a traditional push, it would be from the seller, with the myriad of online conversations it is not necessarily the case.

However, putting aside the social aspect for the moment, from the seller’s perspective, the push and pull strategies now become:

Push Marketing is promoting a sale with a known buyer

Pull Marketing is promoting a sale with an unknown buyer

Why Traditional CRM Systems Only Do Half the Job

Traditionally, CRM systems contain information on who you are looking to sell to, who you have sold to in the past and who you have failed to sell to in the past. In other words, CRM systems are great at holding information on known potential buyers. This means they are great for push marketing and most traditional CRM systems have a marketing module for direct marketing (the poster child for push).

Where they fall short is providing insight into unknown buyers. The best they can do is give rough guidelines of the kinds of people that may purchase based on those that have purchased in the past but they will never tell you a phone number of someone who is ready to buy at this moment. In other words, traditional CRM systems are almost useless for communicating with the unknown audience for your product.

The Problem With Pull

To make matters worse, traditional pull advertising (billboards, television etc.) is becoming less effective in that a consumer now has many sources of information, via the internet, to aid in their purchase decision. It is well and good getting an idea that your key demographic is “affluent 30-somethings” and putting a message out in the wild targeting this group but the “affluent 30-somethings” now have many other sources, all self-selected and these sources are likely to match their personal profile much better than trends generated from a database.

How Do We Make CRM Systems More Pull-Friendly?

While there is definitely value in bringing business intelligence tools to CRM to gain insights into customers, the information such tools provide us on customers we do not know about is limited. For example, let us imagine there is a new market for our product completely outside of our traditional selling space. No analysis of our known customers is going to reveal this insight. To do this, we must look elsewhere.

The good news is the ‘unknowns’ are communicating their thoughts and desires every day and in a way that we can easily access. Through social networks is it possible to read the minds of millions of people we would otherwise have no interaction with. Insights from these new conversations can be used to:

• Generate sales leads
• Provide insight into product innovation
• Identify problems consumers may be having with the product
• Gain a better understanding of competitors

Therefore to make a CRM system more pull-friendly it needs to:

• Allow us to easily generate content to promote social conversations
• Allow us to capture the participants of these discussions in CRM so we can establish a direct relationship with them and engage in push marketing i.e. generate a sale

Brent Leary summarized the idea well in the following diagram.

Why Many CRM Makers (and Their Customers) Are Still Getting it Wrong

Even the most social of CRM manufacturers do not see the complete picture. While many allow for ‘monitoring’ e.g. displaying a contact’s twitter feed on their contact record, very few allow the generation of content to promote discussion and even fewer provide a simple mechanism to capture those discussions and bring them into a traditional sales/support process.

The reason these solutions sell so well is that many companies also fail to see the big picture. According to IBM, 80% of companies have a social presence but very few have worked out how to use it for CRM. You may also hear the common complaint that it is difficult to measure the return on investment (ROI) on social marketing. The fact is, while these organisations are spending lots of money generating awareness online, they are failing to promote a call to action and therefore are generating precious little revenue from their many thousands of Facebook fans.

I am sure if I painted my face on the moon it would generate a lot of attention for me but without giving people a clear path to purchase, I will have simply spent a lot of money to make me famous, but not rich.

In fact, I only know of one product which handles the issue of pull marketing and social networks for CRM well. This product is Webfortis Parrot. I have no vested interest here, I just love the product and believe it fills the gap to make Dynamics CRM a complete push and pull solution.

Why Bringing it Into CRM is Vital

The reason it is essential that the conversation be brought in and managed through a CRM system is simple; social networks allow you to keep tabs on people but they do not make for meaningful relationships. The notion that a traditional CRM system is some kind of inferior tool for creating strong relationships is simply not true. Steven McKee recently posited this in Business Week and I fundamentally disagree with him. It is true that traditional CRM systems can be used poorly and it is also true social networks ensure all mistakes will be public knowledge within an instant but to suggest a traditional CRM is only good for one-way communication is a nonsense.

The CRM tool is only as good as the user so if a salesman is communicating poorly with their customers and using a CRM system to more efficiently manage their customers this will obviously be a more efficient path to a poor result. Conversely, if a salesperson is a good communicator and can communicate authentically, as promoted by the Cluetrain Manifesto, then a CRM tool will allow them to do this with a much larger customer base than if they were not using it.

So while it may be true that a CRM system does not, of itself, promote poor communications and poor relationships, why do we think it is better than communicating via a social network? The answer is because the research backs it up. Paul Adams, a social researcher at Facebook (formerly at Google) synthesized a mountain of academic research on the social nature of humans. Paul talks about weak and strong ties. Broadly speaking this is the difference between a friend and an acquaintance. It turns out that to communicate with strong ties, we use different channels than we do for weak ties, as shown below.

He goes on to say “Many people use e-mail for very private exchanges…Some young adults use e-mail to communicate with their strongest ties because their (online) social network is overloaded with information.”

The fact is, while we can generate a weak tie to someone through social networks, to create a strong tie to someone requires the use the traditional tools of communication such as a face to face meeting, a phone call, text messages and e-mail. These channels are, as confirmed by Steven McKee, the domain of CRM systems.

Steven is not alone in thinking social networks are a channel that is somehow different to other channels of communication but it is not; it is simply one channel available to establish a rapport with someone. However, in terms of generating that ‘trusted advisor’ status keenly sought by many salespeople, social happens to be one of the worst channels you can pick. In other words, social is great for generating the lead but lousy for progressing the sale.

Does All This Only Apply to B2C?

One of the themes in the questions asked of me after the presentation at Decisions was whether this was more of a topic for B2C (companies that sell to individuals) rather than B2B (companies that sell to other companies).

My personal belief is if you feel pull marketing is important to your marketing strategy and gaining insight into the unknowns is also important then there is value in employing the social channel. While the emphasis may be different, even in a B2B sale, the ultimate consumer is a person. For example, if I, as a seller, can gain insight into the desires of the employees of a company, I can present that information to the CEO (ideally in a face to face meeting) and use this information to close the deal.

If the CEO is not listening to the employees directly, it is likely the insights gained will be a revelation to him and this will go a long way towards establishing a strong tie with this key decision maker.

Conclusions

Traditionally, direct sale companies employed a sales force to establish strong ties with prospects. To reach the known potential buyers, which the sales force could not get to, push marketing was also used. To reach the unknown buyers, pull marketing was used.

Technology (CRM) allowed the sales force to better manage their client base and establish strong connections. Push marketing, in the form of direct mail campaigns continued to be employed, secure in the knowledge that it was cheaper to resell to a previous buyer than to sell to a new buyer. Pull marketing was also employed to attract new buyers, although this was managed outside of the CRM system.

With the advent of the internet and social networks, the value of traditional pull marketing (e.g. billboard advertising) was reduced as there were many sources of information on the same product from sources other than the seller. Therefore, to deal with this loss of marketing value, CRM systems need to assist in the generation of content to promote conversations on a given topic. They also need to be able to monitor these conversations and, if they are of interest, easily capture them within the CRM system so a relationship can be established with the potential, previously unknown, customer.

To establish this relationship, while communication could remain on the social network, research shows that the traditional channels of communication, such as face-to-face meetings and the telephone are more effective.

As all communication is between two people, it is often thought that social networks are of limited value in a B2B sale. However, as they give us insight into the people than make up an organization, there is still value to be had.

To date, CRM systems handle the social channel quite poorly in terms of content generation, monitoring and conversion into a CRM record. CRM manufacturers are aware of the problems and are rushing to address them, although even the most comprehensive CRM solutions are still lacking in this regard.

A Quick Bayesian Classifier For CRM

Following on from my previous article where I talk about the idea of a Bayesian filter for CRM, I did a bit of digging on the interwebs and found this Excel Bayesian Classifier. Being open source it is easy to review the VBA to see how it works (which I plan to do at some point and see if I can make a workflow version or similar).

The default example is about movie ratings but it is easy to convert this to be more ‘CRM friendly’. Here is one I prepared earlier:

In this example, I use three variables (one more than the example provided out of the box):

• Value Range (this is the range an estimate for the value of the opportunity falls in to. For example, ‘Low’ may be deals worth $0-$10,000)
• Company Type (Private or Government)
• Relationship (How good our relationship is with the prospect)

and the results of these ‘historical opportunities’ are shown in the fourth column. We can think of this as the Closed Opportunities view entered into the spreadsheet.

The discerning eye will be able to work out the kind of deals we succeed at but, if it is not obvious (and if you are dealing with many opportunity examples it will not be) this is where our Bayesian Classifier comes in.

Predicted Results

Here are the statistical predicted outcomes for the variables in the absence of all other information.

In other words, we do well at the smaller deals, deals with private organisations and deals where we have a close relationship with the prospect.

We can now dump our Open Opportunities view into the first three columns and the spreadsheet will predict which ones we will win, based on the information gained from the historical ones.

While, in this case, the result is a prediction of whether the opportunity will be won or lost, it is also possible to return a confidence level (percentage) on the likelihood of the outcome. This would be used as our probability percentage for winning the deal.

What I really like about this spreadsheet is that it appears to allow for any number of input variables. In my case I used three but you could used more.

Strictly speaking, this is what is called a ‘naive’ classifier which means it assumes there is no relationship between the three variables. If it was such that we only went for large government deals, this assumption would not be correct and this dependence would affect the system’s ability to accurately predict the result.

So Why Are We Going To All This Effort?

I briefly outlined the reasons in my last blog but Phil Richardson, former heavy-hitter on the Microsoft CRM development team and college friend, who has recently moved into the position of Head of Baby Roasting at salesforce (not his real title), wrote an article a few years ago talking about the problems of pipeline revenue projection using a human-estimated probability. Some of the problems he references are:

• Probability estimate usually either guessed or blindly refers to the sales stage
• Historical success not considered
• Historical opportunity characteristics not considered
• Does not consider the historical success of the salesperson’s estimations

The use of a classifier addresses all of these issues in one hit.

Another option would be to use a ‘scorecard’ to score an opportunity based on predicted ‘good values’. The main problem with a scorecard system is you must determine what the good values are and you must work out how many points to assign each value. The Bayesian classifier does this automatically through the statistical calculations.

Conclusions

If you have a large volume of some kind of record in your CRM system (opportunities, leads, cases etc.) and you think that certain characteristics may govern the fate of these records (win/lose, conversion to an opportunity, routing to a specific queue etc.) download the spreadsheet, feed it some historical data and see how it goes at predicting either other historical outcomes or keep a tally on how it goes with existing records.

My ‘Killer App’ For CRM

This is an idea I have mentioned to people from time to time. It can be applied to any extensible CRM system in the market and, in my opinion, it will eventually be an integral part of all CRM systems in the market. To my knowledge there is no CRM system doing this today.

So what is it? A configurable Bayesian filter.

What is a Bayesian Filter?

Many of us, directly or indirectly, use a Bayesian filter every day. Many spam filters rely on this technique. Essentially, a Bayesian filter uses past evidence of a number of situations to assess whether a current situation is a match. In the case of e-mail, the filter generally has a collection of ‘good’ e-mails (ham) and ‘bad’ e-mails (spam). By keeping a track of the words in those e-mails, it employs statistics to work out the probability whether a new e-mail is ‘ham’ or ‘spam’.

The unusual name comes from a mathematician called Thomas Bayes who formulated a specific case of the theorem used to run such filters. As is often the case in mathematics, the theory came first and the application came a lot later (in this case about 250 years later).

How Does It Apply to CRM?

Let us consider the bread and butter of CRM: sales force automation. Let us assume we have a large volume of sales opportunities going through CRM. Some of these opportunities are won and some are lost. Generally, while they are in the process of being won or lost, they are assigned a probability to help with predicting future revenues.

In the case of sales opportunities our filter will review all historical opportunities that were won (ham) and those that were lost (spam). It could then look at the fields on the opportunity record and associated customer record and, based on these, assign a  probability of success to all opportunities in the pipeline.

Not only do we eliminate the eternal problem of traditionally optimistic salespeople manually assigning probabilities which may or may not reflect reality but we may also gain insight into where our business is successful e.g. is there a certain industry where we do particularly well?

What Other Applications Are There?

Let’s say we have strong integration to our communication channels e.g. e-mail, twitter etc. Let us also assume we have the ability to convert this communication into ‘CRM stuff’ e.g. sales leads, opportunities, support tickets/cases etc. We, again, have an opportunity to apply our filter. In the case of Dynamics CRM, from Outlook, we can, at the click of a button, turn this into a sales opportunity or case. Our filter can look at all historical conversions and, based on the content of the e-mails, consider whether new e-mails should be automatically converted or not. Another application may be the automatic creation of cases and auto-routing them to the right queue, based on how previous e-mails had been routed and queued.

Why Will This Be More Important In The Future?

Firstly, as CRM use matures, businesses will be capturing more and more structured data and will want to analyse it for insights into their business. This tool allows us to review certain historical data and derive insights for our present situation.

Secondly, as social channels become more important, we will need a way to efficiently filter the ‘wheat from the chaff’. One of the skills one must learn when using Facebook is the skill of not caring if you do not read every single update in your feed. I personal struggle with the idea that I may have missed ‘the one really important update’. In the case of Facebook, the chance of an important update is vanishingly small but, for business trying to monitor the massive volumes of social data, the consequence of missing a key opportunity or complaint is much more costly making an ‘intelligent filter’ increasingly more vital.

Conclusions

So there is my one ‘killer app’ for CRM. If you plan to implement this, I am sure we can come to an arrangement on my cut of the waterfalls of cash that will flow from it. Ultimately though, I am keen to see it ‘in the wild’ because it opens up a world of possibilities for CRM beyond the simple capturing of data in a central location, which is very exciting.

A Random Number Generator For Dynamics CRM 2011

This blog is a bit of a departure in that it centers around a bit of code. I am not a coder. I cannot write jscript, .Net or register a plugin. I know CRM from a functional perspective and where code can be used to augment the functionality. I leave the actual writing of code to others. The advantage of this is it gives me great motivation to come up with unusual ways to solve problems. An example of this was my global search / universal search tool for CRM. Totally codeless, reasonably practical and very easy to maintain and configure.

Today I am looking at a random number generator.

For those of you still adverse to the curly braces and semi-colons, you can skip to the section where I talk about updating the random numbers en masse, which is codeless.

Why Do We Need a Random Number Generator?

It is an excellent question. I personally need it for another blog post I am planning to do on network analysis but another reason might be to create a random sample of contacts for a marketing campaign, or some other business case where a representative sample of records are needed but it would be impractical to use the entire set of records. Another reason might be to populate data for the testing of reports, dashboards or graphs.

Why Did You Abandon the Righteous Path of the Codeless?

I did try to do it without code using workflows (e.g. populating a number field with the current date and time) but this was not possible. With the ability to create custom workflow assemblies with the next major update I imagine a whole new world of workflow fun will open up. Now all we need are synchronous workflows, calculated fields and the dialog DB Query function in workflow and we are set.

How Do We Do It?

The first thing we do is create a field to hold the random number. In my case I have created the imaginatively labelled ‘Random Number’.

For transparency I added this to the form and to the default view.

Now we need the code.

The jscript Code

Thanks to Rhett Clinton, another aussie CRM MVP for the key bit of code:

var num = Math.floor(Math.random()*101);

While an aussie, he lives in the UK, so his quiet demeanour and respectful attitude often mean people confuse him for being English or a New Zealander.

So what is happening in this code line? Well we are taking a variable ‘num’ and setting it to a value. Starting from the inside and working out, Math.random() returns a number BETWEEN 0 and 1 i.e. never equal to them. Multiplying this by 101 gives us a number between 0 and 101. Math.floor rounds the result down and, as the result will always be greater than but not equal to zero and less than but not equal to 101, the result is a number between 0 and 100.

Next we need to assign this value to the field we have added to the form. To do this, I Binged about and came across Hosk’s Javascript Xrm.Page basics. Other than through his active online presence, I do not know Ben Hoskins. His blog suggests he likes a beer and calls it as he sees it which means I like him already.

Combining the gems from Hosk’s site with Rhett’s code and with the input of my colleagues Bhavin Mehta and Rafael Urbano you get the following:

function RandomNumber()
{
var num = Math.floor(Math.random()*101);
Xrm.Page.getAttribute("new_randomnumber").setValue(num);
}

Putting this into a web resource, we then attach it to a form event e.g. OnLoad and we are good to go.

Using OnLoad means every time the form is opened, the random number value is changed. This also means the form wants to be saved, even if nothing else has changed. If this proves impractical you could use the OnSave event instead.

The result is a field whose value changes every time you open the form, although it only triggers on the opening of the form (for OnLoad) or the saving of the form (for OnSave). The bulk edit form or changing values through other methods, such as workflow, do not trigger the script.

 

Other Approaches

Another approach would be a plugin. This would remove the need to open the form and could be triggered off, for example, the ticking of a box on the form. Therefore we would tick the box via mass editing or workflow and the random number code would be fired.

Mass Updating Values

The biggest problem in using jscript is when you need to update multiple records at the same time. Because jscript will only fire when the form is opened it means that you need to open up the form for every record you want to update. Another approach is to use data enrichment. The advantage of this approach is you can insert a random number onto the records with no code whatsoever.

Firstly hit the ‘Export to Excel’ button on the list of contacts you want to update.

For static exports you will see the option to re-import the data

Once we have it in Excel, we can use the Excel RANDBETWEEN() function to generate our random numbers. The function RANDBETWEEN(0,100) does the trick.

We then import our data with the import wizard and our records have random numbers associated to them.

NB: The numbers in the previous two screenshots are different only because I took the pictures over different runs. Usually they would be the same.

This approach is a little manual but has the advantage of not requiring the jscript to generate the random numbers.

Conclusions

There you have it, the ability to add a random number to a record. Using jscript the number will change every time you access the form or, via re-importing, the number will change every time you export and refresh the random number via Excel functions. Using a plugin allows for more options for updating the field. Enjoy!

Salesforce First Quarter Results For 2012

Salesforce just released their first quarter results for 2012 (what they call 2013 Q1) so I thought it would be interesting to see how salesforce kicked off the new year. Obviously the growth in revenue is the main push of their messaging but the numbers show a few more things.

For previous analysis (of which there is a fair amount, use the search engine on the left with the keyword ‘salesforce’. The last analysis was on the full year results).

Where Do I Get My Numbers From?

There was a recent LinkedIn survey asking which CRM will be the leader in five years. In that I put in my five cents regarding my fears for the long term prospects of a company failing to make a profit and was challenged on where I was getting my numbers from. As usual, all financial numbers come from the detailed financials on salesforce’s own web site. I use the GAAP numbers (Generally Accepted Accounting Principles) rather than the non-GAAP numbers used in salesforce press releases.

What is the difference between GAAP and non-GAAP? GAAP financials follow conventions adopted by bodies such as the Securities and Exchange Commission (SEC) so that different companies can be compared on an equal footing. Non-GAAP means the company in question deviates from these conventions, limiting the ability to compare them to other companies.

Often the reason cited for such a deviation is because the company believes their model is unique and that usual accounting does not accurately reflect their prosperity. Another reason companies deviate from the GAAP path is because of ‘one-off’ events skewing results (what is called pro-forma accounting). While certainly a pioneer in cloud software, I am not convinced they need to deviate as they do such that substantial losses and negative free cash flows turn into non-GAAP profits and non-GAAP positive cash flows.

In other words, if you want to hear about ‘unbooked work’ and ‘deferred income’ or about non-GAAP EPS go to the salesforce press center. Here I use the numbers salesforce report to the SEC.

Revenue Growth

Here I will bring in some addition data, taken from money.msn.com ten year summary for salesforce. The annual revenue growth was:

To January 2004: 88%
To January 2005: 84%
To January 2006: 76%
To January 2007: 60%
To January 2008: 51%
To January 2009: 44%
To January 2010: 21%
To January 2011: 27%
To January 2012: 37%

We see that, like many small start ups, initial growth was massive but tapered as the company grew larger. More recently, with Benioff’s strong focus on revenue, growth has picked up again. Looking at the numbers from salesforce’s detailed financials we see the nature of this new-found growth.

The black line is a two-period moving average. Moving averages tend to smooth out the bumps to give a clearer picture of the underlying trend. In this case we see that whatever Marc was doing to generate the growth in sales is starting to wear off with the curve flattening.

Margins

Again, using the ten year summary, we see margins (income as a percentage of revenue were):

To January 2003: –19%
To January 2004: 4%
To January 2005: 4%
To January 2006: 9%
To January 2007: 0%
To January 2008: 2%
To January 2009: 4%
To January 2010: 6%
To January 2011: 4%
To January 2012: –1%

So while revenues increased over the past couple of years, margins have suffered and are back in the negative which has not been seen since the  company’s early days.

Again, the quarter-by-quarter graph from the salesforce detailed financials is even more damning.

To compare to the revenue growth, about the same time revenue started improving (2010 Q1) was the same time margins started suffering. The situation now being such that for every $100 of revenue, the cost to the business is $103.

Profitability

Back in February I suggested that while the business was losing money, the bleeding seemed to be constant and not getting worse. This has proven to not be the case.

While the drop in margin is small (about 2%) because the revenue has increased so much, the loss this quarter is greater than the combined loss of the previous three quarters combined. Let me write this in bold, large letters to drive home the point.

THIS QUARTER’S LOSS FOR SALESFORCE IS GREATER THAN THE LOSS OF THE LAST THREE QUARTERS COMBINED

Salesforce managed to make a loss of $19m compared to the $12m lost of the previous three quarters. Part of me wonders whether there was some creative accounting done to keep the previous quarter in line with the others to round off the year, pushing the bad news to this first quarter, giving another three quarters to make up for lost ground before the next annual report. If this is the case I would expect to see the next quarter recover slightly from this dreadful result.

What surprised me is, in the announcement call for the quarter, Benioff describing the quarter as a “great start…absolutely spectacular” and the CFO, Graham Smith, describing is as “excellent start…better than we expected”. If this is a good start I would hate to see a bad one. I understand Benioff is focussed on revenue growth but when he said in the previous quarter’s call he was ‘committed to  increasing our margins’ I was thinking he would put the company towards profitability not sink in further into the red.

What surprised me more was not one analyst on the call for this quarter picking him up on it. Everything was about the ‘deferred income’ and ‘unbooked work’. Here is the thing:

SALESFORCE CAN HAVE AS MUCH AS THEY LIKE IN NON-GAAP INCOME BUT IF THEIR MARGINS ARE NEGATIVE THEY ARE STILL STUFFED

Selling $10 bills for $9 does not make for a healthy business and lately, to get the revenue growth up, they have been selling them for $8. The analysts are asking how many $10 bills are likely to be sold next week when they should be asking “why are you selling yourself short?”

Stock Sales

Back in February I asked what the directors of Microsoft and salesforce were thinking. I looked at the messages they are sending to the market compared to their personal share sales. Graham Smith, CFO, despite lauding the praises of the company in every quarterly announcement (this one included) continues to offload his ownership of the company. Here are the numbers if you are interested. Every week Graham exercises some options and also has an automatic share sale in place. The automatic shares netted him around $2.7m in April and the share options generated around $320,000.

While there is an argument to say share ownership and options aligns an employees interest to that of the shareholders, there is also an argument that says if I am exercising options and selling shares every week I will, within my ability, do whatever it takes to convince the market the share price should remain as high as possible. The difference in these goals is the difference between the long term prosperity of the company and telling the market what they want to hear to maintain the share price in the short term.

While I have no doubt Graham is acting with all appropriate care in his capacity as CFO, I can also understand if he feels conflicted in his role and I do not envy his position in this regard.

Subscription Numbers

Unfortunately salesforce kept tight lipped about the enterprise deals they did this quarter and about their subscription numbers, so I, again, have to speculate based on their revenues. My best guess, assuming they are maintaining a revenue per subscriber per quarter level of around $150 is that they have 4.6m subscribers. Assuming the average company size is still around 35, this means the number of customers is about 132,000. The bad news is, if these numbers are correct, each month each subscriber costs salesforce $1 ($1 * 4.6m users * 4 months = the approximate loss for the quarter).

Conclusions

I understand Marc is keen to capture market share but it seems the price for doing so is proving very high to the point where the health of the business is being jeopardised. While the trend of tapering growth as the size of a company increases has been rebuffed, the cost has been margin to the point that the company is making significant losses.

The question I have is “where to from here?” Being in the red is simply not a sustainable position, otherwise every company would do it and pay no tax. Salesforce are quick to point out there is plenty of revenue in the pipeline but this is only of benefit if they can make a profit from it. Will salesforce raise prices? Will they find new efficiencies in the business to reduce operational costs while maintaining service? Will they slash sales and marketing spend, killing revenue growth, cruise along on subscription income but inevitably sacrifice share price? Time will tell.

Moving To The Cloud: Update

How the world can change in a month. Back in mid-April I wrote about moving my data to the cloud. In previous parts I talked about using Office 365 and moving ten years of e-mail across to the cloud Exchange server.

So what has happened since last month? Microsoft has released their SkyDrive App and, while Mesh is still operational, with Microsoft announcing the death of the Live brand (of which Mesh is a key part) it is probably a fair speculation to suggest it is a product on the way out.

To this end, my cloud data strategy has shifted somewhat.

So What Is In the SkyDrive App?

The application itself is pretty simple. Once you install it, it copies the entire contents of your cloud SkyDrive to a local folder of your choosing and then keeps it synched. Given Microsoft were giving 25G for free (new signups only get 7G), this had the potential to fill up one of the 32G drives on my PC tablet so I have only installed it on the old laptop.

It is like the old Mesh but with less fine control on what gets brought down and where it goes. There is also no option for synching shortcuts but, apparently, this will be a standard part of Windows 8.

The 100M limit has been increased to 2G, although for larger files you can still use Gladinet to chunk them (I am not sure it is worth it as for files larger than 2G, I’d probably go with a-drive if they are simply family photos or movies).

Finally, if you have really long folder paths and file names, they may get picked up when SkyDrive starts copying down files. In this case it suggests you rearrange things and start the app again.

What About Mesh?

I used Mesh for a couple of purposes. The first was to do what the SkyDrive app does i.e. keep a local copy of information. The second was to sync certain folders onto my wife’s computer and also to my work computer. Short of copying EVERYTHING down to those other machines this is no longer possible. The best that can be done is sharing folders online via a shortcut. While do-able, this is little more than a workaround.

I have now killed Mesh. It was actually fairly simple. I copied the folders to a new folder in my SkyDrive called Mesh, turned off Mesh for all computers and then took a backup in case things go awry. I can always browse online if I need a folder at work and I have given my wife the appropriate shortcuts for the stuff she needs. It is a little clunkier than before but workable.

What About New Stuff?

Essentially, I have the SkyDrive folder in the My Documents area. Anything new is held on the desktop and moved across when things get too crowded. With the relatively complex folder structure of a Windows user account, this is not a great solution but I will see how it goes. My fear is something being dropped into another Documents folder and being overlooked.

Hopefully, either the app will improve over time or Windows 8 will simplify the user account structure.

Conclusions

I am not the biggest fan of the new SkyDrive app but transitioning to use it was relatively straightforward and I am sure the feedback from the web will coax Microsoft into tweaking it. With devices becoming more cloud-friendly for data storage I am not sure forcing a user to dump down their entire SkyDrive is the greatest choice and my prediction is this will be the first to go.

Vote For Leon. Shining Like A Shaft of Gold When All Around is Dark

It is that time of year again when the vague promise of a vote will guarantee a free beer/lunch/shoe shine.

If you find my random mental eruptions influential, feel free to vote: http://www.dynamicsworld.co.uk/top-100-voting-page-5/ If not, vote for everyone else.

If I make the cut, I promise to continue to write handy tips and tricks, do the odd book review (hint, hint publishers) and highlight why the rudderless SalesForce ship is lurching unsteadily onto the rocks of bankruptcy and ruin, while the SalesForce executives jump into their golden lifeboat crafted lovingly from relentless share sales. If you are a SalesForcer and are gnashing your teeth, that means I’ve influenced you so do the right thing. If you are laughing because you know it is true, vote for me as a beacon of light and purity in a world of marketing hype and hyperbole.

Otherwise vote for Matt Wittemann. He’s a good bloke and will keep me in Mac and Jacks on my next visit to Seattle if he gets up