Nick Carr is famous for penning a Harvard Business Review article entitled IT Doesn’t Matter. While I disagree with some of what Nick says on the topic, I usually find his blog postings entertaining, blogworthy if not always illuminating. Recently, I think Nick has excelled himself on the ‘out there’ front.
In Where’s Microsoft? Nick critique’s Dan Farber’s interview with Ray Ozzie. While I get the ‘Microsoft is the biggest centre of gravity for business software and therefore is invincible‘ argument, I don’t think it’s a winner take all market anymore. What Dan subtly implies, and which Nick misses is the social aspect of the changes going on:
But, for smaller businesses and individuals a free or modestly priced suite of browser-based software that can do most of what is required with documents, presentations, spreadsheets, messaging and collaboration is a compelling proposition.
It is the potential for collaboration that could prove the most disruptive yet non-IT related activity. It’s a social activity. There is for instance no reason why we might not see different types of gravitational pull, based on a provider’s ability to leverage relationships. I would argue that telco operators are in a terrific position to do this. If only they could get their act together.
OK – so this is what’s maybe going on in the SMB market. But here’s where I think Nick’s argument falls apart. He is assuming that Microsoft can dominate and so dictate market direction. I don’t think that’s necessarily true for all time although there are times when I secretly wish Microsoft would pull the trigger on cool web stuff. We could get the emerging skunk like turf wars over and done with before someone gets hurt. To its credit, Microsoft is trying to work out the right timing for its move. Regardless, I think that at the heart of what happens next is the concept of service value and the confluence of apparently unrelated events.
In the Economics of Power, Ron Baker provides a thorough analysis of ‘value’ based systems of pricing. You can argue whether the economics stand up, but the evidence seems to suggest that those who deliver demonstrable value thrive the most. I have argued many times that value based fee setting is the only real trigger that will prevent you from succumbing to alternative forms of compliance work. It will serve to disrupt and change the way you have to work. My thesis is based on Ron’s economic foundation. You can of course disagree. But there is a movement out there willing to adopt value based pricing.
In the current crop of service based applications, the number one issues is…service value. While these entrepreneurs may not know it, they’re engaged in value pricing – not market pricing. It is something that is barely scratching the professional surface. Today.
In software, it means that you recognise the value of what you deliver and charge accordingly. That’s what Winweb has done with Accounts Office. It is what Microsoft has emulated with Accounts Office Express 2007. I believe Winweb’s approach to market is right for the times we live in. Does that make Microsoft right as well?
This is not a technical question but one that focuses on the ability of one or another to deliver value for which the customer is willing to pay. That’s because SMBs don’t give a rats arse about technology. Only value. Intuitively, customers know they have to pay for business software somehow.
I believe the value element is what matters in determining a price. It is why at the SMB level accounting functionality may well be worthless. It’s a necessity non trained people cannot use. So to them it’s of no value, even though it is required. So why would they pay for it?
At the other end of the spectrum, the fact there is only SAP and Oracle in real competition at the high end means that until one or other breaks the deadlock, they can continue to charge a relatively high price for what to many looks like utility functions. This is because they can claim process control in the context of a market of two. they can in other words apply Carr’s notion of scarcity within a market context.
OK – I admit it. Brand matters. And in an economic discussion around brand, it is hard to escape the value brand delivers to the customer in exchange for loyalty. In turn, loyalty implies a relationship from which you would or would not be persuaded to move away. The service providers of today understand that only too well. That is why, despite the relative small numbers, what matters is growth in assessing the value they are deemed to deliver – regardless of price.
You simply don’t get hypergrowth of the kind we’ve witnessed without there being a huge value element, based on a trust relationship that contains a significant community element. Unless you believe that businesses behave like lemmings. And I don’t. Most important. At the prices many services charge, it’s all too easy for users to discard those services they find don’t deliver that ‘must have’ quality.
Is this something Microsoft will find impacts its ability to persuade customers to move customers forward or push them into alternatives? I’m not sure though I can imagine scenarios where both occur. In exactly the same way I can imagine Sage customers saying enough is enough.
Relationship matters.
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