Our Full-Service B2B Marketing Program Delivers Sales-Ready Leads Click to Learn More!
Welcome Guest | Sign In
ECommerceTimes.com
Salesforce Commerce Solution Guide

Sliding Revenues

By Denis Pombriant CRM Buyer ECT News Network
May 4, 2016 3:21 PM PT
tech-revenue-trends

Apple's earnings disappointment thudded into view last week in the middle of an afternoon of briefings at Oracle's Modern Marketing Experience conference in Las Vegas. In that context, it gave me a lot to think about -- especially the difference between a one-time earnings disappointment and something more serious.

I have a feeling that Apple is only the most visible instance of the wheels beginning to wobble on the truck of tech.

The legacy software vendors, including Oracle, SAP and Microsoft, have fundamental challenges ahead as they continue to march to the cloud. Each needs to move its considerable customer base to cloud solutions that have very different economic models, and each will have to face the fact that success involves lower revenues as customers adjust to paying for subscriptions.

In that scenario, success will look a lot like failure.

The Way of the World

This is typical of end-of-paradigm situations, and there isn't much to help. Textile manufacturing was once the heart of our economy, but that's moved to lower-cost countries by and large. We backfilled with higher-value products and services, and the same is happening now with technology.

Ironically though, the issues and challenges facing Apple and the other companies moving to the cloud are different from a pure economic perspective.

Apple's flagship consumer products are reaching barriers caused by market saturation and lower-cost competition. The move for Apple is to innovate more consumer goods if it can -- but that's a big if. There is likely a limit to how much personal gadgetry we can extract from chips and screens. Google Glass and Apple Watch might be hints of a ceiling, though it's still too early to call a trend.

Commoditization is another factor. Apple is experiencing headwinds in China, its second largest market after the U.S. Also, it sold fewer iPhones globally in the last quarter than expected, due in part to stiff competition from Android devices that are lower cost and functionally competitive.

Still, Apple garners most of the profits from the sale of smartphones, a market whose margins are tightening with competition. We can expect this trend to continue as vendors cut prices while attempting to maintain market share.

Other Shoes Drop

Apple isn't alone. Twitter is still losing money, though less of it, according to the latest numbers. The same saturation dynamic is operating for Twitter but at a much lower revenue run rate than Apple.

Social media is a winner-take-all market. The value of a network is in the number of participants, which naturally limits the number of competitors. The dominant advertising model that social media networks rely on for revenues has been under pressure, with vendors such as Google and Facebook having to adjust.

The legacy providers face a different problem that manifests in similar ways. As they become more successful at moving customers to the cloud, their revenues shrink and come in over longer periods, so their year-over-year comparisons look worse -- much like Apple's predicament -- even though they may be selling well.

Cloud computing was seen as a great leap forward because it gives customers much lower cost structures, and it has kept that promise. However, it is also a form of commoditization, and I wonder how legacy vendors will replace the revenues they give up as they turn to the cloud.

It's not as though there is a choice: Competition is forcing everyone to the cloud, so it will take years, I think, for legacy vendors to grow enough to replace revenues they are losing in the shift.

Then, too, demand growth is reverting from an exponential growth curve to one that resembles organic population growth, and that means that any vendor seeking to grow will need to do so by taking share from others in a zero-sum game.

What About CRM?

What happens next for CRM is speculative. The new technologies that Salesforce, Oracle and everybody else are bringing to market foretell a time when the front office employs fewer people as commoditization heats up, but that might not be a problem.

The Internet of Things is a hot idea right now with little to show of any real substance, but it's possible that the IoT will be the next bit of infrastructure that will spark exponential growth. As a communications layer, it could spawn a lot of jobs as people relieved of more mundane occupations leverage the information boiling out of the IoT to perform services that only people can do.

In some respects, this is a scary time. Apple's missing its number can't be fun and neither can watching a legacy company's earnings evaporate even as it does most things right.

We're in a transition period, and if we keep our wits about us and continue to innovate, in a few years we might find ourselves in an era that resembles the late 1980s.


Denis Pombriant is a well-known CRM industry researcher, writer and speaker. His new book, Solve for the Customer, is now available on Amazon. He can be reached at denis.pombriant@beagleresearch.com. You can also connect with him on Google+.


How much are you willing to pay for a new smartphone?
I'll pay $1.5K or more for the latest iPhone or Galaxy flagship phone.
I want the latest model, but I can't see paying more than $1K for a phone.
I'm content to buy a slightly older model in the $500 - $750 range.
I don't need an iPhone or Galaxy. I can find a really good phone for $350 or less.
Phone prices are ridiculous. I won't pay more than $100.
I don't have or want a smartphone.
Salesforce Commerce Solution Guide
Salesforce Commerce Solution Guide