Tag: product marketing

Pros and Cons of the Freemium Software Business Model

One of the hottest trends in the software business over last several years has been the rise of the “Freemium” business model. For those unfamiliar with the term, a Freemium model is characterized by an entry level version of your software which is totally free to users–forever.

This business model has actually been around in the software industry since the 80’s and was originally referred to as “crippleware” or “lite” entry level versions of software. The term “Freemium” apparently entered the software industry lexicon when used by Jarid Lukin of Alacra in 2006. But enough history. Regardless what you call it, the model on the surface is well suited to the software business due to no (or very low) cost of goods sold.

Whatever term you use, the model is predicated on creating a large “free” user base quickly, usually by using viral marketing methods such as referrals and word of mouth along with other very low cost methods such as SEO. The large free base is then “monetized” by selling advertising to their eyeballs and/or upselling them on premium software features or services. The Freemium model today is widely used in the software biz across a number of form factors including Open Source, SaaS and traditionally licensed software.

What’s most interesting to me about the model is the trendiness of it the last few years since the term Freemium came into use. I see many companies that appear to be adopting it because they feel like so many others are using it — that it must be the right thing to do. But is it the right thing to do in all cases? In my opinion–it is not. Let’s take a closer look.

Freemium Model PROS

Fundamentally viral: he more users you get–the more users you get. Free users will refer other users who could turn out to be paying users.
Allows you to upsell your own (free)customers–upselling a customer that’s already incorporated your tool into his workflow is generally easier than selling a new customer from “scratch”.
Keeps prospects in your target market away from being locked in by the competition.
The barriers to entry to your product line are at the minimum possible (even less friction than free trials and money back guarantees)
Great for startups to say be able to say ”we have XXXXX gazillion users”.
Enables Free Beta testing of new products with a large number of users.
“Free” traffic and user bases can sometimes be converted to advertising revenue.

Freemium Model CONS

Usually has low conversions rates to paid version, average is about 1%–although this obviously varies widely.
If you do offer customer/technical support to free users, it’s potentially a large expense unsupported by little if any revenue.
If you don’t offer support or only offer poor/reduced support to free users (such as forum-only support), what does that do to your conversion rates to paid users–as well as your overall reputation?
If you do offer reduced or no support to free users, lots of time can be wasted trying to figure out who “qualifies” for what level of support .
99% will never pay you a dime–are they REALLY customers?
In addition to customer technical support costs, if you’re SaaS-based the cost of data/bandwidth/hosting for free users can be significant.
Requires EXTREME application ease-of-use to work well.
There is some evidence that having a free version reduces your conversion rates on free trials of your paid product.

The main reasons I don’t like Freemium models, except when circumstances clearly call for it:

Having a free version conditions the market that “free” is the appropriate price.
A free version can reduce the overall value perception of your product
It’s critical to the success of a Freemium model and difficult to get the free/paid feature set split “just right”. If you don’t get this split just right, you either won’t be able to attract enough free users (too little value in Freemium product) or you won’t be able to convert you Freemium users to paid versions (too much value in the Freemium product).
“Free” is a mentality that’s hard to overcome in a user; it’s much harder from convert a free user to a paid user than it is from an entry level (cheap) paid user to a premium paid user. An example of this is the difficulty of online newspapers in converting readers to paid models after years of “training” them that their content should be “free”.
I’d prefer to use available profits on professional marketing programs rather than starving the marketing budget due to excessive support/hosting costs.

Even taking my biases above into consideration, there is definitely a place for a Freemium business model in some situations:

The Best Circumstances to use a Freemium Model

Although the Freemium model has worked in B2B markets, in general I believe it’s better suited to consumer mass markets where viral is possible, price points are already low and free user bases and traffic can be high–making it possible to monetize the traffic via advertising
Entering a market with a very strong, embedded competitor.
When attacking a market with very limited resources or lacking in marketing skills.
With a product has a great “social pull” which lends itself well to viral marketing.
Freemium has already become the standard in your market segment, so you’re almost forced to follow suit.
As an act of desperation when nothing else has worked.

I’m sure there are others circumstances where a Freemium model makes sense–the list above is what comes to mind quickly.

So that’s what I think about Freemium–many will not agree. What’s been your experience with it? Leave a comment below with your own thoughts, lessons or best practices.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

5 Comments by admin on May 11, 2013

filed in B2C, Business Models, Corporate Strategy, Online Marketing, Product Marketing/Management, Promotion

BYOD, Enterprise Mobile ISVs and Cross-Platform Support

One of the hottest trends in the technology industry these days is the phenomenon know as “Bring your own Device” or BYOD. For IT departments, this is the latest control-related nightmare they loath so much. The original technological shift from Mainframes to Minis and PCs was probably the start of many control-related sleep disturbances and BYOD continues the trend. Mobile computing in itself was bad enough from the perspective of the internal IT folk;. Mobile BYOD may be enough to push them all to drink.

But enough about anguish for the IT guys: what are the implications of BYOD for independent software vendors?

Cross-platform support

One of the major challenges–or opportunities–that I believe software vendors face in a BYOD world is the potentially wide variety of mobile platforms to support. Many readers are likely thinking “its only the iPhone/iOS and Android, so not a problem. Nothing else is relevant.”

Maybe-But bear with me for a bit.

Things aren’t always what they seem on the surface. For one thing, Android is hardly a single, tightly unified platform like iOS. It’s basically an open source operating system in which every OEM can (and often does) modify the OS to provide differentiation on their hardware platform. In a way this can be a good thing by spurring innovation; but if you’re a third party software vendor dependent on the parts of the OS that is often modified–it can also be viewed as problematic. But should it be?

Google has recently sought to rein in the fragmentation issue as the numerous hardware-focused variants were causing a lot of consternation in the third party software community. At a minimum this fragmentation causes a great deal of testing complexity, and at worst the necessity to maintain different code for each hardware OEM’s platform.

Back in the old days

This reminds me of back in the 80s in the early days of MS DOS. IBM had its PC DOS version and all of the other PC hardware OEMs had their own version of MS DOS as well–almost compatible with each other, but with just enough variation to cause problems. Needless to say, this caused problems in the ISV community which had to choose between supporting myriad platforms–or picking winners. Neither appeared to be a great choice.

Even if you don’t consider the Android fragmentation issue serious, I contend there are other similar platform support issues. In a world tightly controlled by the IT department, the platform choices might indeed be limited to Android and iOS. But what about Blackberry, Microsoft and any new platforms that might come along in this large and competitive market? Again I can almost see the smirking by some reading this: “those platforms are market also-rans with very small market shares. I don’t need to support them!”

Or do you?

Back in the old days–one more time

One more time I’ll take you way back for another analogous situation. In the 90s I was running a systems/network management software business targeted at the enterprise IT market. This was an “add-on” product business; our product ran on top of the Network Operating Systems (NOS) of the day. Back then, Novell Netware dominated the market with an estimated 60-80% share of the business. The other major NOS platforms (widely considered also-rans) were Banyan Vines (about 5-8% market share) and numerous OEM variants of Microsoft LAN Manager (10-15% share total). LAN Manager was slightly different depending upon the OEM hardware platform, much like Windows itself in the earlier example and Android today. The fragmentation of LAN Manager made it even less desirable for an add-on ISV market segment like our category.

All of our competitors looked at the market and designed their products to run strictly on Netware. On the surface this made total sense. There was just one problem—in the enterprise IT market (the primary target for our segment) the customers are huge companies with a lot of buying power; they like to get vendors to do what they want. Of course, many enterprises did standardize on Novell Netware at that time.

We took a contrarian approach at the time and chose to extend our product, supporting both VINES and LAN Manager in addition to Netware. We found that the larger the company, the more heterogeneous their networking environments tended to be. Even if 90% of the systems within an enterprise were based upon Netware, there was a strong desire in enterprises for support of ALL of their networks companywide. So although Banyan and Microsoft LAN Manager each had a modest number of accounts using only their NOS (we won those by default), we were in a much stronger position than our competitors in the largest enterprises with heterogeneous network environments. We won far more than are share, and the additional revenue more than made up of the modest additional development cost and support complexity.

So how do software vendors capitalize?

I bore you with the old case study above because I believe BYOD in the Enterprise will only accentuate the benefits of supporting as many platforms as possible. Although many companies with highly influential IT departments will limit choice, this is really against the spirit of BYOD. While it may look unlikely to some right now, I see BYOD generally moving the enterprise mobile software market toward heterogeneous, multi-platform environments. Forward thinking ISVs would be wise to consider this in their product plans.

There are many new challenges that are already rising as the BYOD movement takes hold. BYOD in the enterprise is a rich area for discussion. In addition to the cross-platform support issue discussed here, there are major security, legal, support and economic/cost considerations to consider. Some of these issues don’t yet have great answers–maybe we’ll explore them in a later column. BYOD is a major paradigm shift for all segments of the IT business. I believe that there will be many more yet unforeseen factors that will greatly impact the landscape for enterprises, end users and software/hardware vendors as the situation matures.

What are your thoughts on the cross platform support issue we’ve raised in this article? Give us your take. And what are some other issues brought on by BYOD that aren’t widely being discussed yet? Post a comment so we can all benefit from your experiences.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

No Comments by admin on March 16, 2013

filed in Business Models, Corporate Strategy, General Management, Product Marketing/Management, Software/Product Development, enterprise software

Software Company Diversification

One of the difficult strategic decisions that software industry management teams have to make is finding the delicate balance between “focusing on the core business” and “not putting all of your eggs in one basket”.

One obvious way of differentiating how much diversification is appropriate for a specific company is by company size and maturity. A brand new startup better be very focused on doing one thing well or they may not last very long. A large, established company generally needs to have at least several new irons waiting in the fire as initial products and market segments mature, or they risk shrinking in size rather than continuing to grow. The two ends of the spectrum are pretty obvious, but there is a wide continuum of situations in between where the proper strategy isn’t as obvious. Let’s look at some factors to consider when formulating your own diversification strategy:

How much growth is left in your primary business/market/technology

This may be the first thing you should consider when contemplating the diversification question. If you’ve hit on a huge market opportunity with a lot of room to run and have gained good traction, it’s often unwise to develop “eyes bigger than your stomach”. In this environment your best growth opportunity is usually keeping your eyes on that single ball. Everything else being equal, a focused strategy is always easier to execute than a diversified one. So if you have explosive growth prospects ahead as far as the eye can see, it’s better to defer the diversification decision for sometime down the road.

Competition level in your primary business

Strong competition in your primary market is often a factor that can cause a management team to either look toward diversification or decide it needs to focus on it’s core market-depending on the details. The key is how competitive you are: if you are very competitive and yet caught in a heated battle with that strong competition the choice is often to stay focused. However, if that competition is so strong that your company is an also-ran, a decision to diversify is often taken. On the other end of the spectrum if the competition is weak, that may also allow you to more easily take on some diversification without the risk of losing hold of your profitable core business.

Level of available resources

This is a big key; if you only have the resources to do one thing well it’s critical to keep you focus on a single ball. It doesn’t matter if you have five great ideas–pick the one you think is best and sell out to be successful there. I often see early stage managers make this mistake. They aren’t sure which of their ideas is the best and this uncertainty causes them to split their very scarce resources among multiple paths. Unfortunately, this usually dooms them to not gaining critical momentum in a single area. It’s also important to measure all types of key resources when considering this factor, not just financial. Do you have enough skilled engineers, marketers or management bandwidth? If any of these or any number of other resources are in too short supply, diversification at this time is probably a bad idea.

Ease of extending proprietary technology into adjacent markets

This requires an evaluation of your existing IP. Often software companies have cutting edge technologies that can be adapted to other market segments and provide a similar differential advantage as in the initial core market. But what if the technology is very specialized, or you just can’t see another good market opportunity to invade using your existing technology as your entry advantage? In these cases it’s best to be realistic and look at other ways of diversifying, such as acquiring new technology/product categories via M&A that are usable in your current segment.

Can you create or acquire new technologies which your existing market wants?

There’s a lot that goes into answering this question. A lot of it relates to your technical staff–are they specialists in your existing technologies, or do you have the type of talent that is constantly coming up with outside-the-box ideas and potential new products?

If there isn’t fertile ground internally for innovative new ideas you many need to look at acquisitions which can bring fresh technologies and products to your pipeline. These don’t need to be huge, costly acquisitions; often you can acquire highly innovative startups which are little more than a small engineering team, a core product and a few initial customers.

Also, are your product managers identifying unmet needs from your existing user base? This is usually crucial to bringing SUCCESSFUL new products to existing markets, whether driven by internal development or acquisition of external technologies/products/companies.

Diversifying to Completely New Markets with Completely New Products/Technologies is very dangerous

Above all you want to avoid moving into a completely new market with a completely new product/technology. The odds of pulling this off successfully are very low, roughly equivalent to that of any brand new startup company. If fact, this is often referred to as a “restart”. It generally occurs when a company looks forward and sees certain failure ahead due to a hopelessly out-of-date technology or an evaporating market segment (often due to a technological sea change). I often see this from managements that are very discouraged and desperately seeking “greener grass on the other side of the fence”. But of course the grass isn’t always greener. This approach should be viewed as a last resort only; every attempt should be made to diversify into an area where there is some technological or market experience.

Like most strategic decisions, diversification in the software business isn’t inherently good or bad. The circumstances really dictate how much you should pursue. What do you think about the strategic tradeoff between focus and prudent diversification?–leave a comment below with your experiences and views.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

No Comments by admin on January 13, 2013

filed in Business Models, Corporate Strategy, General Management, Product Marketing/Management, Software/Product Development, Startup/Early Stage, Uncategorized

How Important is a Strong Rolodex in the Software and Hardware Business?

I get this comment all the time: “We’re looking for a VP-Sales/VP-Business Development/Sales Manager/Sales Rep with a strong Rolodex in the (pick your market segment) market”. But how important is a rolodex in the IT business? In my opinion, not as important as many people seem to think…..

I realize that this is a contrarian viewpoint among those of us in the technology business. Some may even view it as “stupid”. However, it’s not in any way a spontaneous comment, but an opinion I’ve developed over a long period of time. I’m sure I’ll get a lot of push back on this opinion, since it flies in the face of conventional wisdom. Here’s my argument:

What a rolodex does for you

First of all, of course a strong rolodex in a specific market segment is a good thing. To say otherwise is silly. But what does it really do for you? It may get a phone call returned or a meeting set up faster that it otherwise would. This is of course helpful, but far from critical in my mind, especially compared to other factors I’ll explore below. I should point out there are some market segments that are so closed that they appear almost tribal in nature. In those cases, including one example which is mentioned later in this article, a strong rolodex can move to near the top of the list of critical success factors. But in my experience these situations are rare and far from normal.

Many other things have to line up first

I’ve always maintained that sales reps get too much blame when they fail, and too much credit (and often outsized monetary rewards) when they’re successful. SO many things have to be done well in a company for a rep to have a chance. The executive managers must first capitalize the company adequately, or usually nothing works very well. Product Marketing must properly define a market opportunity that matches well with the company’s intellectual property and technical capabilities. The R&D folks must create a product which makes a contribution to the marketplace, offering a differential advantage over competitive offerings. Maybe all of this seems obvious; but none of it is easy. A lot can go wrong, and I believe every one of these activities is more difficult and important than having a pre-existing rolodex in the market. Even it this wasn’t true, it’s really difficult to attract the right sales reps (with or without an strong rolodex in your segment) without evidence that the above activities are going well.

Most important attributes for a technology sales rep

Smart – This may seem obvious, but all too often people looking for a “quick hit” underrate it’s importance or don’t adequately investigate intellect in their new sales hires.

Technology acumen – There are many good sales reps in the world. But regardless of whether we’re talking about hardware, semiconductors, traditional software or SaaS, there are far fewer that have the education, training and ability to quickly absorb complex and fast-moving technology that is fundamental to our business.

Work ethic – While intellect and technical competence are important, selling still isn’t brain surgery. But it’s a really difficult job that takes persistence, hard work and the self-confidence to keep going in the face of a lot of rejection. There is no substitute for a strong work ethic in a consistently high performing sales rep.

Ability to build relationships – this is key- and shouldn’t be confused with having a large rolodex of names and phone numbers. Just because someone knows a lot of people doesn’t mean those prospects necessarily wants to hear from them, or trusts them enough to buy from them. In many cases it’s just the opposite. If you have strong relationship-building skills, you can do it over and over again across any market segment. Give me a strong relationship-builder with no existing contacts in a market segment over a weaker relationship-builder who knows everyone in the segment–any day of the week.

Market segment experience and rolodex – these are beneficial qualities, there is on doubt. But I believe they are down the list in importance relative to those listed above.

An example of where your Rolodex IS CRITICAL

Now just because I don’t think a strong rolodex generally leads the list of important attributes in the software or hardware business, that doesn’t mean I feel that way in every case. The best example of when it’s VERY important is when raising capital from institutional sources, such as venture capitalists. Not only is it important to personally know them (or get an introduction from someone who knows them well) before a fund-raising approach, it’s critical to a bizarre degree. It’s not universal, but if you approach many VCs without leveraging an existing relationship you may in fact have blown any chance with them in the future, no matter how impressive the value proposition of your business. So this is a case where having a strong rolodex in place is paramount–but the details of this is better left for another article.

That’s what I think about the importance of a rolodex in the technology marketplace. I’ve personally moved among many different market segments in my career and don’t consider it all that difficult. The most difficult part is often convincing someone it isn’t all that difficult! While it can be helpful to have a strong rolodex, I believe it is placed way too high in many folks priorities in most cases. If you disagree–post a comment below and tell us why, or just provide us with the wisdom of your own rolodex-related experiences.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

No Comments by admin on December 2, 2012

filed in B2C, Business Development, Corporate Strategy, General Management, Product Marketing/Management, SaaS, Startup/Early Stage, enterprise software, hardware, sales

Musings on Software Market Segmentation and TV Morning Shows

I like to check out one of the morning TV shows on one of the major US-based networks for a few minutes, as I’m eating my breakfast cereal. There are 3 major programs on at the start of the day: NBC’s Today Show (the traditional market leader), ABC’s Good Morning America (the perennial runner-up) and the recently re-branded CBS This Morning in (last place for many years).

So what the heck does this have to do with software market segmentation, you ask?

I’ve been struck by how much the morning show race reminded me of the software industry has become more vertical over time. In particular, there are some strong parallels between the software business and the morning shows with respect to the product being “soft enough” to make relatively easy product changes as part of a new segmentation strategy.

Recent changes in strategy on the TV morning shows

The Today Show has been the “10,000 lb Gorilla” of the morning shows since the beginning of the category. They’ve had a large lead over their competitors across multiple changes in on-air personnel and even societal cultural changes over the years. The Today Show’s format has been aimed at a “horizontal” audience–a little bit of something for everyone. They start with hard news at the beginning of the show and it gradually becomes “lighter”, transitioning to Pop culture, celebrities and gossip as the show progresses through its marathon 4 hour time slot.

The other two major shows have taken a real beating at the hands of NBC in the ratings, with many tweaks to their formats and even more turnover in personnel over those many years. Fundamentally they have tried to compete by “building a better Today Show”, essentially competing head on with the market leader in a horizontal fashion. But over the last couple of years, ABC and more recently CBS have changed their strategy, utilizing a much sharper segmentation than at any point previously. ABC has essentially gone “younger and lighter” over the last couple of years. The show has the least serious tone and is the most “fun” of the three, focusing a lot of time on pop culture and other topics skewed toward younger viewers. It’s paid off. Good Morning America has taken a clear lead over the Today Show due primarily to this new segmentation and to a lesser extent some personnel missteps at NBC.

After many years in last place, CBS has segmented sharply in the other direction with a shorter 2 hour program focused almost entirely on hard news and staffed by serious, credible news people. It’s too early to say how successful this will ultimately be for CBS, but they have won over this writer and have picked up some market share overall-I’m watching consistently CBS in the morning for the first time. The Today Show has been struggling to remix it formula and regain its clear lead, looking much like a complacent large company that has grown fat, dumb and happy as a result of years of unchallenged success.

Software Market Equivalents

Ok, enough about TV morning shows! How does this relate to segmentation in the software market? A very similar situation albeit in a B2B rather than B2C market, is the ERP software market. The ERP market is also a very large, horizontal market–a mass B2B software market, if you will. Just about every company in the world needs some type of ERP software to run its business, from an entry-level, basic accounting application like Intuit’s Quickbooks all the way up to very expensive, complex enterprise suites such as offered by Oracle, Microsoft, SAP and Sage.

This of course is one form of verticalization–segmentation by target customer size and sophistication. Intuit and Oracle aren’t targeting the same segments. But the ERP market is so large that over time it has also segmented by industry; nearly every industry group of any significance now has ERP software vendors with specialized applications aimed at a narrow industrial segment.

Another similar example is Medical Practice Management Software. The last time I looked, there were over ONE THOUSAND software vendors with products targeting this very large market. You would think the software requirements of most medical practices would be pretty standard across the board. But because the market is so large and lucrative, nearly every market segment (Surgeons, Gynecologists, Dentists, Chiropractors, etc.) has it’s own sub-market of competitors, with applications that speak that particular medical practice’s lingo and strictly models its business processes.

I have a personal example from earlier in my career that illustrates how important segmentation can be as part of a software company’s overall strategy. I took over as CEO of an early stage mapping software company with excellent technology but an unsophisticated business strategy. While the company had a neat technical advantage over its larger competitors, the product otherwise was positioned directly against the market leaders in that space. The primary distribution channel for the mainstream mapping products of the time was computer and electronics retailers, a notoriously tough and expensive channel. I was able to make some headway in penetrating this channel. But even with our technical feature advantage it was already too late in the game and we lacked the resources to compete and win head-to-head with the larger market leaders of that time.

So we quickly came up with a segmentation strategy that proved quite helpful. Initially we took out some features away from our primary product and created an entry level product priced far below the mainstream mapping products. This allowed us to occupy the price leader position targeting the most price-sensitive consumers, and distribute through both consumer/gaming software stores of the time as well as mass market retailers such as drug and grocery stores. The mainstream mapping software players had almost no presence in these channels due to their higher price points. This entry level product, created with minimal development costs, allowed us to generate cash flow to fund our longer term segmentation strategy which was to target the B2B market. The mainstream mapping products were fairly generic and used by business people as well as consumers, but really designed for any consumer with no business-oriented features to speak of. We were able to create a premium, business-focused version of our product which we positioned as the mapping products for mobile workers/road warriors such as sales reps and service technicians. We included important business-specific features, such as integration with the popular CRM systems of the day, which weren’t found in any of the other mainstream mapping products of the day.

Important considerations in segmentation strategy

Hopefully we’ve established that segmentation of your software market can be a very powerful tool to compete with and outflank strong competitors and ultimately maximize the value of your business. So what are the important things to consider in formulating your segmentation strategy? Let’s look at a few:

Horizontal vs. Vertical – The first thing to consider is how horizontal your segment currently is and how vertical you think you need to be to compete effectively. There is a fine line here; the more horizontal you can remain (targeting multiple segments with the same product) the higher your product’s ultimate profit potential. But you must be realistic about your market position–go as “vertical” as you need to win–or your profit potential is likely zero!

Market Maturity – The more mature the market is when you enter, the more likely it will be important to segment smartly and attack a vertical niche. Of course this or any single factor shouldn’t be used in a vacuum to create a strategy–many factors need to be considered in your segmentation decision.

Market Size – The larger the market size, the more likely it is that it’s ALREADY segmented and will likely force you to do the same. There are several prominent potential exceptions here, listed in the bullet points below.

Market experience of the company - Do you know the market well, and just as important, are you known by the market? In cases where you’re known and understand your market well, it raises your odds of success even entering with a more horizontal approach.

Levels of funding – Big companies with massive resources or heavily funded startups may be able to successfully use a horizontal approach, although many confident late entrants of this type have failed in a variety of software market categories.

IP/Technology & other strategic advantages – A true innovator with market changing IP may also be able to attack and win in an established market using a horizontal approach, as they are effectively changing the ground rules of the market. But again, I’ve witnessed many companies very confident in their technical advantage that have ended up with their hats handed to them when competing head on in an established market.

Important upfront decision–but never too late to change

Like any important business consideration, it’s far better to optimally segment the market for your products up front then to wait until you are FORCED to do so. But just like a morning TV show, in the software business it’s relatively easy–at least compared to other technology categories such as computer hardware or semiconductors– and almost never too late to modify your target segments.

What’s your feeling on how best to approach segmentation in the software business? Post a comment so we can all benefit from your experiences.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

No Comments by admin on October 21, 2012

filed in B2C, Business Models, Corporate Strategy, Distribution Channels, Pricing, Product Marketing/Management, Retail, Software/Product Development, Startup/Early Stage

Is Your Tech Business Marketing or Sales Driven?

Software and hardware business are often segmented by the vertical or horizontal market they’re targeting, their technology platform, small vs. large companies and so on. One of the important ways to segment tech businesses, which isn’t often discussed, is by whether the company is sales-driven or marketing-driven in their customer acquisition strategies.

A balanced approach

Now some reading this article may ask “why wouldn’t you take a balanced approach”? Indeed, I don’t mean to suggest that either sales or marketing should be absent in the customer acquisition efforts of tech companies. There are a few scenarios that could be drawn up to support such a singular approach—but very few for sure. There are also some situations where the customer acquisition circumstances are “in between” in price, complexity, market size, etc. and you end up with a fairly balanced approach between marketing and sales. But in my experience the sales or marketing function will rise to the lead, more often than not.

Key criteria in choosing customer acquisition techniques

There are several considerations that often drive whether marketing or sales will dominate:

Product Complexity – This often decides whether or not a product can be truly driven to purchase by marketing or whether significant sales rep intervention will be required to close a deal. It should be noted that when product complexity is high, marketing support in the form of sales tools (examples: case studies, road map presentations by product management) will still be very important in the sales cycle. But this will generally be a sale that is driven by the sales force with marketing in a supporting role.
Product Price/ Typical Sale Size – The smaller the product price and typical sales size, the more likely you’ll be able to acquire customers exclusively through marketing, or in conjunction with inside sales that is largely “taking orders”. Conversely, products that cost a lot may require the extra interaction provided by an outside sales force (and the deal size also justifies the cost of the sales force).
Market Size – Very large markets with lots of customers are more easily and cost-effectively reached with effective marketing. A tight market with a small number of total prospects (think nuclear power plants) will usually be served almost exclusively by an outside sales force with minimal marketing intervention.
Use of Channels – While companies selling heavily through channels often need reps to call on the channel partners, far fewer channel reps are required than if the reps are dedicated to direct selling. Generally the heavier the use of third party channels in the customer acquisition approach, the more heavily the mix will lean toward investment in marketing.

Marketing driven keys to success

Adequate marketing funds – If you’re going to be marketing-driven in your customer acquisition approach, you better dedicate enough money to fund marketing programs with superior performance. To do otherwise will cripple your business.
An objective, data driven culture – The beauty of a marketing-driven approach is that it can take much subjectivity out the management of optimizing your customer acquisition activities. Especially in this era of highly measurable online marketing, decisions should be made on what the data says—not on the whims of the CEO or some other senior executive.
Excellent inside sales in support – Except for very simple, low cost products where marketing can truly drive the sale all the way to completion—these days that often means a software download, SaaS signup or physical product order—it’s still important to have an efficient (but low cost) inside sales operation supporting your marketing machine.

Sales driven keys to success

Great sales people – Hiring good people is so very important in every area, but when your relying on an expensive outside sales force to drive revenue—you better hire the best reps you can afford and attract.
Success driven comp plan – If your success depends upon them, make sure your sales reps become really happy only when the company is happy as well.
Good marketing support in the form of lead generation programs and sales tools – Unless you have a tiny market with obvious, easily identifiable prospects, it’s still very important to have a marketing function which generates leads as well as supplies good sales tools.

The best approach isn’t always chosen

Unfortunately, logic and situation analysis doesn’t always win out when designing a customer acquisition strategy. Usually by the time a company grows to be large, their approach is in line with what’s best for the business. Of course, your chances of growing to be a big company are reduced if you make serious errors in sales and marketing strategy. But in any event, by the time a company is big they are usually utilizing both sales and marketing heavily and in the proper balance.

Startups and early stage companies are another matter. Often the emphasis on either sales or marketing is based on the experience of the founders and senior executives. If they’ve been successful in the past and their new company has a similar focus, maybe it’s fine and their approach works again. But a problem occurs when these executives start up a very different type of company than they’ve had success with in the past. It’s human nature to fall back on what I refer to as your “common business sense”, which is formed by your personal background and past experiences. This is when you can get a misalignment between what a company needs and the approach taken in the sales & marketing mix.

Even worse still is when the customer acquisition approach develops more or less haphazardly. This can happen when the founders of a company really don’t have much functional experience in sales or marketing. This occurs somewhat frequently in software and hardware companies, as many startups are created by technical types. In these cases there may be a fairly unsophisticated approach to both sales and marketing—and whatever works early may end up dominate. For example, a sales rep is hired who has some success, so the model becomes hire a lot more reps and turn them loose without much (or any) support on the marketing side. Or an early direct email campaign or online advertising generates some sales, so money is poured into that method. Unfortunately, these may not be the best approaches strategically for the business in the long run.

That’s what I think about Sales vs. Marketing driven orientations in software and hardware companies. What do you think? Post a comment with your own opinions or stories about what drives customer acquisition in high tech companies.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

No Comments by admin on July 27, 2012

filed in Business Models, Corporate Strategy, Distribution Channels, General Management, Marcom, Online Marketing, Pricing, Product Marketing/Management, Promotion, SaaS, Startup/Early Stage

Optimal Levels of Formal Process in High Tech Companies

The level of process in an organization is a pretty esoteric topic that I haven’t seen discussed very often, or in very much depth. Yet I believe it is critically important to any CEO looking to grow a company, particularly a software or hardware technology based company.

The reason I believe it is so important is that, in aggregate, how process-oriented your company culture is effects every nook and cranny of company operations. Oftentimes, however, senior management doesn’t even explicitly think about how much process they want governing company operations. More often than not, this part of the culture grows in a random and haphazard manner, driven by unforeseen key events that shape the level of process. Sometimes the level of structure varies dramatically by department. In these cases, managers below the senior executive level usually are driving department cultures that may or may not be process-oriented, depending upon their own operating styles. The key takeaway here is that process levels often aren’t being driven strategically, but occurring tactically or even haphazardly. This is usually a mistake–here’s why I think so.

In technology companies, in particular, the level of processes can make or destroy your business. There are three reasons that I feel there is much more sensitivity in high tech companies to process levels:

The rapid evolution of technology and technology markets
The need to innovate if you want to thrive in technology businesses
The necessity and difficulty of constantly ‘taming” new technology

I’ll use as an example a recent experience with a client to illustrate my point. The client is a small but growing software company. They have in their culture a high level of chaos, as is common with many growing, young software businesses. The company was bootstrapped and grown out of what started as a service business, and possesses very little in the way of corporate controls or processes.

On the positive side they are very responsive, fast-moving and innovative, able to capitalize on changes in technology and inefficiencies in the market. These are very important qualities in a software startup, particularly one of the thinly capitalized variety. These attributes are the very reason they’ve been able to crack through the very early stage that kills many startups, and has allowed them to grow and thrive.

But there’s a flip-side to this type of unstructured corporate environment, however. This company lacks the discipline that is required to “stick to the plan”. Indeed, there is very little planning going on to begin with! This operating style fits great in the segments of the business where innovation is critical, such as conceiving new products. But in other areas where a more disciplined, structured approach is important, performance is much lower and is a drag on company results. While excellent at conceiving and quickly prototyping new products, follow-on releases often come out much later than planned. QA is not a formal function and the initial new releases and documentation are lower quality than they could and indeed should be. The website has very little oversight and is littered with a lack of consistency, broken links, old content and grammar & spelling errors. We’ve worked on correcting these problems — carefully — without killing the very environment that is enabling success. It’s tricky to fix without “throwing the baby out with the bathwater”.

This is just one example, and of course the level of process needed to run IBM optimally is fundamentally different from that of an early stage software startup. In your particular company, it may be very important to have a high level of formal process in one department–and just as important to minimize the level of process in another. This may be quite different altogether in other companies.

So how do you know that you need to adjust your level of process in a strategic sense? Here are a few guidelines to get you thinking about where your process level stacks up vs. what may be optimal:

Your competitors are beating you to the punch

This is a sure sign that you are bureaucratic and process-oriented relative to your market. While there may be good reasons for the processes you have installed, being consistently behind in responding to market needs can have a very negative effect on your growth prospects.

You are constantly releasing “flawed” products into the market

This is the converse to the first point above. It usually indicates you moving too fast, with too little process and structure in product development, QA and release. In truth, the end results of this approach is usually worse that being beaten to market.

Employees are complaining about so much process

I always listen to what employees are saying; they are the “canary in coal mine”, often a leading indicator of issues that later show up in your financial statements. The caveat here is that these types of complaints can also indicate a hiring problem. Make sure you’re not hiring people who’s operating style aren’t a good fit with the way the company needs to operate.

Employees are complaining about the lack of process controls

The converse to the point directly above is when employees are complaining about how much chaos exists in the company. While the point above about watch for hiring mismatches rings true here as well, this is often the time you need to take a hard look at adding some structure to how you operate.

There’s absolutely no “chaos” in your organization–and little or no innovation as well

I have a rule of thumb when it comes to pricing new products: if no one is complaining about price, you probably are leaving money on the table. My “chaos corollary” is similar: if there is no chaos in your operations that folks are complaining about, you probably have created an environment so process-oriented it will limit your innovation and resulting revenue.

Generally speaking, I have a bias towards a little less process and a bit more chaos in software and hardware companies. Often excessive process is just a bad band-aid covering up poor hiring practices. Nothing allows you to minimize process like a strong, responsible, empowered group of employees. Creating the environment to hire and retain highly responsible people generally leads to a company getting done everything it needs to, with a good level of innovation to boot–while keeping formal process to a minimum.

I recommend holding off adding new processes until you absolutely have to, because going the other direction is much more difficult. But in fact, it’s important to have the proper balance if you want your company to function optimally. Analyze what the proper level of structure and process is not just for your company overall, but in each discrete operating segment of your business.

There you have it–my view on how to analyze and instill the proper amount of formal process for your company. What’s your view on this topic? Post a comment to expand the discussion.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

4 Comments by admin on April 21, 2012

filed in Business Models, Corporate Strategy, General Management, Operations, Software/Product Development, Startup/Early Stage, enterprise software, hardware

Starting Software Product Businesses Within Service Companies

The focus of my consulting practice is on commercial software product businesses, whether traditionally licensed, mobile, open source, SaaS–or some combination of all. While many software product businesses are originally organized with that purpose in mind, a remarkably large number of others started in another business. Let’s take a look at a few service-oriented scenarios which tend to grow into or spin off software product businesses:

Software (consulting) services

It’s very common for a product to be developed out of a software services company, which can mean a range of services such as consulting or outsourcing. These companies are being asked to design/create full applications, either for internal use by end user customers or as actual commercial software products. As a result, these service companies are in good position to recognize software product opportunities; sometimes these products are created by a funded service contract (if the service company is savvy enough to retain code rights!).

Government contracting

This is a very similar situation to the Software Services example above, with a couple of important differences. Government contractors are often not pure software development organizations; they may create hardware or provide other services as their government customers dictate. So they may not have a culture which emphasizes software development. Even more importantly, it can be tricky to retain rights to code developed with government funding–contracting expertise and an upfront emphasis on rights retention are critical in these circumstances.

Hardware/Systems

Another common scenario is software developed within a hardware or systems-oriented company. While not strictly fitting into the service category, I’ve included this example because it’s another common way software product companies are started that doesn’t fit the traditional methodology. The fact is that even in hardware companies these days, most of the innovation and IP is software-based. So it’s not at all unusual to see software developed as part of a systems approach that is later seen as having a market as a standalone application, apart from the hardware. Many successful software companies have started as spin-offs from hardware or systems-oriented companies.

VARs

Here’s another slightly different flavor of the Software Consulting Services example we began with. VARs are solutions providers for end user customers and are frequently asked to extend existing applications which are lacking in some way, integrate these solutions with other applications, or even write a standalone custom application. They are therefore well-positioned to get an early view of (and sometimes a customer-funded head-start developing) products needed to satisfy unfilled end users needs.

End user

End users often have in-house development capabilities and develop their own applications. In this case, the “service” organization is the internal IT department. These applications are often developed because of a “hole” in the existing commercial product offerings available in the marketplace. Forward thinking organizations may further develop and then spin-off these internal applications into commercial products.

So that’s a look at how organizations which aren’t-software product-oriented end up with a software product business. It can be a really great way for a software business to start–but there are many things that can prevent the successful transition into a going concern software product business. Here’s a list of a few:

Issues Which Can Prevent Success:

Culture

This is a frequent culprit in the failure of product businesses which are developed in the various service environments as discussed above. Depending upon the parent’s business, a mismatch in culture can come from a lack of understanding of either the software or product aspects of the resulting new business. For example, the management team of and “end-user” company that has developed a product may not be sufficiently software-savvy to make the right decisions to put the new business on a solid footing. A business executive in a software services company may not understand what it takes to develop a product to commercial product standards, or successfully market it. One of the biggest mismatches in culture often occurs within a government contractor. The “common business sense” required to be successful in the contracting business is shockingly different than that of a commercial software product business. The cultures are nearly polar opposites–It’s like English vs. French.

Capitalization

Often the cultural differences listed above or low overall capitalization of the parent company leads to the most common problem of these software product spin-offs: lack of proper initial capitalization. One of the attractive aspects of the software business is that it requires much less investment capital that a manufactured goods business–but it’s still a product business. Product businesses require more capital than service businesses. So even if you’ve created a great mousetrap, if you don’t have the money required to continue to develop it as well as market it–at least until you’re cash-flow positive–failure is quite likely.

Not productized

Maybe the most common problem of all is the lack of “productization” of the software application prior to launch as a commercial product. The level of usability, functionality and reliability required in the commercial product marketplace far exceeds the standards of the custom software application market. When you are supporting a single company directly with a custom app, you can afford a level of support which can overcome minor deficiencies in the areas listed. Once rolled out to a mass market of users in the software product marketplace, these deficiencies can kill a promising new product very quickly.

Me-too Products

One of the areas of expertise lacking in a service-oriented company (almost by definition) is Product Marketing/Management/Planning. The lack of this functional expertise can lead to a number of mistakes. One of the elementary mistakes that I see surprisingly often is not ensuring that you are making a novel “contribution to the market”. A software product startup with the 19^th product to enter an existing market, with no discernable competitive advantage, is a great way to lose money.

Lack of software product industry experience

If you add up the potential mistakes listed above, most of them can be mitigated by the addition of software-product company operating experience. Sadly, in many instances the parent service company senior management is too proud or simply ignorant and unable to acknowledge this weakness. This potential weakness can be alleviated by hiring an experienced operating executive, or retaining a software product industry management consultant such as PJM Consulting.

The bottom line to all of this is that there are alternatives to the more conventional approaches of creating a traditional investor-funded or founder-bootstrapped software product company. Whether created intentionally from the beginning or a “happy accident”, companies started this way can provide an advantage of significantly reduced capital-requirement-to-profitability compared to traditional startup methods. But there are potholes and roadblocks that must be avoided to prevent crib death of embryonic software startups born this way.

So that’s some of the lessons I’ve learned with regards to creating product businesses from service companies. Is this something you’ve done or witnessed others attempt?–what were your results? Pitch in with your two cents — post a comment to expand the discussion.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

7 Comments by admin on March 23, 2012

filed in Business Models, Corporate Strategy, General Management, Product Marketing/Management, SaaS, Software/Product Development, Startup/Early Stage, VARs, hardware

Social Media Marketing for B2B Tech Companies

By now, every company has grasped the importance of having a social media presence on the web. Or have they?

In discussions with potential clients and others I am actually amazed how many folks have done little or nothing in the area of social media marketing.

Why do you think this is? Some business executives immediately associate “social media” solely with consumer-oriented activities on social medial sites such as Facebook, Twitter and MySpace. You know the stereotypes that are popularly characterized by the mainstream media: pictures of wild high school parties, viral invitations to flash mobs, and inane posts about what people are having for breakfast.

But there is serious business going on in the Social Media world. The fact is that Social Media marketing has definitely become not just a mainstream activity, but a critical one. No longer are at an advantage if you are heavily using social media in your marketing mix; you are falling behind if you aren’t!

Social Media is obviously very important in B2C software and hardware marketing. Because it is less well understood, I will be focusing on B2B marketing in this article.

Blogs

A Blog is the single most important step into Social Media for a B2B tech marketer. In addition to being a great way to bring traffic directly to your site, it provides the content to use as bait for all of your other social media activities. There are almost too many benefits to list here, but let’s try a few:

New and high quality website content which increases SEO (search engines LOVE fresh, high quality content. This assumes a self-hosted Blog–it’s critical for your Blog to be hosted on your domain to maximize SEO benefits)
Direct traffic to your website
Fast & Easy search engine crawling and indexing due to the large number of Blog ping services, Blog indexes and Blog search engines
High quality backlinks from the Blog services mentioned above, as well as from happy readers who link to your Blog
Content you can repurpose in a number of ways such as publishing in newsletters and posting on appropriate social media sites
Positions your company and key employees as “thought leaders” in your category

This is just a taste of what a Blog can do for you; the uses and benefits are limited mostly by your imagination. It’s a bit of work, no doubt, but has a high return if you dedicate reasonable resources to the effort.

Linkedin

After creating your Blog, this is the second most important social media activity for a Business-to-Business technology marketer. Key employees should create a complete profile (for professional development purposes, if no other reason) and a profile for the company should also be created. But that’s just where the fun starts. Here are some additional important activities to consider:

Join and Use Groups: Other than setting up a complete and effective profile for both you and your company, the most important thing you can do is join groups. You’re allowed up to 50, and if you choose the groups well they can be a very effective segment of your online marketing efforts. Become known and respected by participating in discussions. But most importantly, post links to your Blog content, press releases, newsletters, webinars, etc. If you’ve targeted the right groups, this will create a good deal of qualified traffic to your website and other online vehicles.

Build your Network: This is the place where you want to go fast, but don’t hurry. The more people in your business segment you know, the easier it will be to market your product over a long period of time. The key is to take a long term perspective. You don’t build a network by being pushy or “all about you”. It’s like any other form of networking. Reach out not only to connect, but to actually assist those in your network. In the long run, you’ll have a stronger position and it will benefit your business.

Search for Prospects: People are listed on Linkedin that you wouldn’t find elsewhere. It’s a great place to search for both companies and high level executives that you’d like to connect with. Be very careful in your targeting efforts and try not to be too obviously sale-sy. But if you are respectful and careful, an excellent source of targeted prospects awaits you, that you can contact directly (with a premium account) or connect with through your mutual contacts.

Ask and Answer Questions: This Linkedin feature provides a great, low key way to both show off and improve your knowledge. By answering questions posted by others you can demonstrate your knowledge in a forum without having to appear to be bragging. Don’t be afraid to ask questions either; there are a great many resources out there to fill in the blanks in your current knowledge base.

Twitter

This is a great place to connect with like-minded people. As profiled time and again in the mass media, it’s also a great place to waste time. So unless you find that you can become a productive and efficient Twitter networker, make sure you don’t become addicted to tweeting. Some people love it, some hate it–what’s important is to leverage it optimally for your business. I personally don’t waste a lot of time on Twitter, but there are some folks who have dedicated a lot of time–to great effect for their business. Especially if you have more time than money for marketing, there’s a lot you can do to gain exposure and goodwill for your business here. At a minimum you should post your Blog content, press releases and other important external communications. You should also think about assigning members of key departments (PR, customer service, tech support) to Twitter, giving your users and potential customers an easy, informal way to interact with appropriate parts of your company

YouTube

Yes, Youtube! Everyone loves to go to YouTube to view that video of the 6 month old baby surfing in the bathtub while smoking a cigar (Ok, I made that up, but if you do a search you might just find it on YouTube). But it’s also a great place to post a short intro video about your product or service. You can even put up training videos to show the depth of your knowledge in a particular area, or the depth of your product or service offering. The videos are hosted on YouTube, but you link to them and feature them on your website. These videos will give you a leg up in search engine ranking as Google, et al love video content and provide it with preferential search result positions.

Facebook

Yes, use Facebook as well! Facebook is certainly not a core platform for business to business marketers. But 750 million users (and still growing like a radioactive weed) shouldn’t be ignored. So create a personal profile and company page and post your Blog content and other external communications pieces there. If nothing else, you’ll get some quality backlinks to help your SEO efforts with very little effort. Don’t waste time here, but it makes no sense to completely ignore this platform, either.

Coming Soon — Google +?

This is a real wild card that could have a big impact on the Social Media Marketing landscape. As I write this article it’s too early to tell what Google+’s ultimate impact with be on B2B social media marketing. Most people don’t yet have access. I haven’t used it yet, so I only know what I’ve read. It’s still in pre-release phase (although it seems that most things at Google are!), and the features are still being developed. But so far it appears to be off to a very promising start, with 25M users in only a few weeks of controlled beta release. Reviewers have raved about the elegance of the “Circles” feature, which allegedly makes it very easy to segregate those connected to you into logical groups, a real problem on Facebook. Of course, Google is aimed far past B2B social media with Google Plus, taking aim squarely at Facebook as a mass-market social media network. But I think this new platform also has particularly strong potential for the B2B crowd, with possible integration with tools like Google Adwords, Analytics, Apps, Docs, etc. We’ll have to wait and see where this goes, and I’ll be watching closely.

There’s certainly much more that can be written on this topic. This was just a quick look at what I think about the importance of social media marketing for B2B Software & Tech companies. For example, there are new vertical social media networks popping up every day–there may be one perfectly aligned with your market. This is a varied and rapidly evolving topic–what are your questions or opinions? If you need help with your marketing mix or other aspects of managing your software or hardware company, please contact me at your convenience. In the meantime, post a comment to share your views on this topic and continue the discussion.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

2 Comments by admin on August 14, 2011

filed in Business Development, Marcom, Online Marketing, Product Marketing/Management, Promotion, Social media

Is Outbound Marketing Dead?

The craze in the marketing world these days is “Inbound Marketing”–otherwise know as “content marketing”, “permission marketing”, “new marketing” “modern marketing” and a few other buzz-terms. The definitions may vary slightly, but they’re essentially variations on the same theme:

Potential customers find you, rather than you (the marketer) approaching them.

The current commentary on marketing methods goes like this:

People are insanely busy these days, and constantly inundated with marketing offers of all kinds, causing them to tune them out. Traditional outbound methods such as direct mail/email, advertising, etc. no longer work as a result. The answer is to use inbound marketing methods, defined as to driving traffic to your website via search engines, content (such as blogs and videos) and social media. Since these users have found you, they are by definition more attentive and better qualified targets.

Of course, although this discussion is very hot in the marketing world today, it isn’t really a new topic. It’s an argument about Push vs. Pull marketing, concepts which have been around nearly since the beginning of marketing as a science. At any rate, the preceding paragraph makes a lot of sense, does it not? No denying that getting boatloads of prospects finding you is a good thing.

The problem I see is that like most “trends”, the inbound marketing case is being grossly overstated. There is no doubt that the Internet has enabled pull/inbound methods grow to a degree not previously possible. If you’re a software or tech company marketer, in almost every market/product situation you should be leveraging online inbound methods to the max. But is that all you should be doing?

Of course not. Some companies may be able to fill their pipelines using only inbound methods. But this shouldn’t be an either/or discussion. In almost every situation, both inbound (pull) and outbound (push) should be used. They are not competitive methods; they each serve a different purpose, and are actually very complementary. Let’s take a look why:

Different psychographic profile of prospects

Prospects are not a homogeneous group in any market. They come in all shapes and sizes–early adopters, mainstream buyers, late adopters, etc. As a result, they respond to different stimuli, and have different buying styles. Many want to be totally in control and never have any “invasive” marketing targeted at them. But for every person that is offended by any offer directed at them, there are others who are happy to receive a timely, targeted offer which saves them money–as well as time– in searching out a software or hardware product they need. This is especially true for some very busy folks, and others that absolutely hate the shopping process. Outbound marketing can be a real advantage with these prospect profiles.

Different stage in the buying process

This is a key point which someone relatively new to marketing may not understand. If you have a prospect in the active buying stage, inbound marketing works great. Since they are out searching for your product or service, if you’ve done a good job on inbound marketing activities, there is a good chance they will “find” you. But what about those target prospects that aren’t yet in active buying mode? Should you just be ignoring them? I think not. First of all, you absolutely want to get a leg up on your competition and get your message to them as early as possible. By doing this, you’ll be on their short list of vendors to check out when they are ready to buy. But the right offer can also turn that future prospect into an active buyer–without so much as a look at the competition. What happens to your odds if yours is the only marketing message they see? Outbound marketing is much more effective than inbound in this scenario.

Timing vs. budget

From a marketer’s perspective, outbound and inbound marketing may fulfill different needs. Inbound marketing may provide a solid, day-in-and-day-out flow of leads and revenue. Outbound marketing can provide a more instantaneous bump to your numbers. Think PPC advertising vs. SEO. An inbound marketing technique like SEO is probably the more powerful activity in the long run, but and outbound method like PPC advertising can start creating business almost instantly. This outbound marketing bump can be very useful during slow periods where you’d like to “smooth out” your numbers, when you’re just getting started, during a busy (but competitive) holiday buying season or to give extra emphasis to a new product introduction.

Targeted Offers

Since you have greater control with respect to when a prospect will be exposed to an offer, it’s much easier to provide urgency and that critical timeliness component via outbound marketing. In addition, targeting can also be easier with outbound methods. Direct outbound marketing, in particular, can be highly targeted if good lists are available.

Push and pull on the same prospect

Lastly and very importantly, this really isn’t an either/or argument–as I stated earlier. When discussing inbound and outbound marketing, we’re really still just talking about push and pull by other names. As any good marketer knows, push and pull work together. The number of total marketing impressions matters–more impressions increase your odds. This is fundamental brand-building. As an example, it’s well documented that PPC ads and organic results on the SERP converts better than either alone. So don’t choose between inbound and outbound marketing–use best practices in both methodologies to optimize your marketing results.

So what do you think? Will all your investments going forward be toward inbound Marketing activities, or is there still room in your budget for outbound methods? I’d love to hear your plans and opinions–post a comment to weigh in on this discussion.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

4 Comments by admin on May 16, 2011

filed in Online Marketing, Product Marketing/Management, Promotion, Social media

Morettini on Management

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Pros and Cons of the Freemium Software Business Model

BYOD, Enterprise Mobile ISVs and Cross-Platform Support

Software Company Diversification

How Important is a Strong Rolodex in the Software and Hardware Business?

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Is Your Tech Business Marketing or Sales Driven?

Optimal Levels of Formal Process in High Tech Companies

Starting Software Product Businesses Within Service Companies

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