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EXCLUSIVE INTERVIEW

Gomez CEO Alex Stein on High-Performance ROI

In an era when downtime can mean loss of revenue, floods of expensive calls to contact centers and a reduction in customer loyalty, more and more organizations are seeking the expertise of Internet performance management firms. Waltham, Massachusetts-based Gomez is one such company, providing software and services that capture performance data from tens of thousands of collection points behind the corporate firewall, on the backbone and from users’ connection sites.

Reflecting businesses’ growing need, subscriptions to Gomez’ Internet Performance Management grew 51 percent in 2003 from the prior year. In addition, the privately held company received two rounds of financing, added 90 new clients and claimed subscription renewal rates of more than 95 percent.

To more closely reflect its focus on Internet performance management, the company also sold Gomez Pro, its benchmarking and Web site assessment services, to Watchfire, which offers software and services to manage online businesses.

Recently, Gomez CEO Dr. Alex Stein sat down with the E-Commerce Times to discuss the state of the market, Gomez’ future, its clients and the expanded role the Internet plays in business.

E-Commerce Times: It seems Gomez had quite a good year last year.

Alex Stein: We really did, and it’s really gratifying because it’s like the old saying: You go through a tunnel, and it seems incredibly dark until you actually come out. It’s tough. Clearly, 2001 and 2002 were very difficult years in the technology market. There was incredible retrenchment in investment from our target clients. We were focusing on building things, and a lot of them took two years to [reach] full fruition.

In 2003, I think, the market assisted us, and there was renewed realization that no matter who you are — whether you’re a technology company like eBay or a very well thought-of bricks-and-mortar like Best Buy — the Internet channel is affecting your bottom line.

Just as we were releasing technology that we had been working on for up to two years, the market said, “Okay, we’ll look [at it].” I can’t take total credit, but it was certainly very rewarding, and you see it in our staff. They’re in at 7:00 [a.m.] and in at 8:00 at night, sort of hopping around because we’re getting great client validation. And that’s more valuable than anything.

ECT: It must have been tough.

Stein: You’re right, it was difficult. One of the metrics any company looks at is, “What’s the sales cycle?” A year and a half ago, when senior management would get together and say, “All right, what’s the sales data, what’s the sales cycle?” we’d have one anecdotal deal where, on the best side, someone would say, “Well, I need it tomorrow.”

But those were few and far between. You’d get others, where … you made the case and they said, “Yes, we need it,” but the sales cycle was indefinite because there were so many restructurings. Some of the firms we were talking to restructured two or three times before we got the sale. And they didn’t know if they had the budget. They didn’t know what their charter was. So you had sales cycles that were a year long.

To put that in contrast [with the present] … we hired a fair number of new salespeople in mid-January. Every one of them — every one — has closed business in Q1. Clearly … major corporations have come to the realization that they want to manage this channel. They’re not comfortable with what they’re finding out in terms of their reliability — their position relative to the competition — and they’re acting. So I think 2004, the way it’s starting off, is going to be better than ’03 like ’03 was better than ’02.

ECT: Is it because this is provable technology? Because there’s real ROI?

Stein: That is absolutely the case. That’s something we learned in the process. A year and a half ago, we were fixated on competing with the competition, and we found that was a model that largely skipped the ROI for the client.

If you think about the Internet-monitoring industry, it grew up as a nice-to-have in the bubble. It’s aggregate data you could look at to see, “Well, in general, last month this is how we did.” [But] if you’re going to address the revenue goals or the cost-containment goals, you have to really be operational-ready, and you have to be able to measure all the way up through the complete customer experience.

I’ll give you an example: Recently, we spoke to a bunch of clients [at] a seminar in Toronto. One of the firms said the issue for them was that every time something went wrong with the Web, their call-center volume went crazy. And you know how much it costs — US$5 to answer the phone, and then the meter starts running. They saw a very specific link between the Web site [being] down and call-center volume.

Okay, so here’s an ROI discussion to have. Telling them [that] last month they were down — you know what? They knew that.

ECT: Is your solution appropriate for anything beyond Global 1000?

Stein: Clearly, we focus on the Global 1000 because of the substantial impact we can make on their profits or top-line revenue, but we also serve many smaller firms that are leaders — CBS MarketWatch, the travel firms. So what we use as the difference is, if the firm really has a strategic commitment or they’ve realized the impact of the Internet.

Best Buy’s a good example. Why is the Internet so important to them? It’s important to them because they have a very sophisticated view about the way the Internet channel links into their retail channel and their call-center channel. Therefore, it’s a competitive advantage for them, and it affects their value proposition.

We’re a high-service value company, and we’re positioning best-of-breed. It makes no sense for us to compete in tiny companies that just need a simple keep-alive test, because we’re overkill. But, regardless of size, if you have significant ROI associated with managing the Internet, then you are appropriate, and we do sell to you.

ECT: I would imagine it could be even more critical to retailers in a competitive market, because people aren’t likely to go through the hassle of switching banks if they encounter a problem online, but they can easily go to another site to order clothes or a book.

Stein: You’re absolutely right. Look at the airlines. United Airlines came to us right after they first went into bankruptcy, and they bought a fairly sizeable one-year contract from us. I was fairly blown away by that. I think they were two weeks into bankruptcy. I always make a point of speaking to the customers anyway, but I made a point of speaking to the buyer, and I said, “Tell me about the dynamics here.” And the dynamics were that, in a time [of] getting costs under control — to the point where it wasn’t just management focused on it, there was now a court-appointed trustee focused on it — they had a few initiatives. One was to control call-center costs, get people on the Web. They had the same problem as the bank I was talking about: [if the] Web site is poor, people go to the phones.

Secondly, they had to manage their cost structure. Their technology group was under substantial pressure, and they had many different people who needed performance data — market people, customer-service people, operations people, internal infrastructure people. They had a significant effort just trying to manage the data. They weren’t able to keep up with it. They bought us to manage the Internet channel. That had to do with [our] very flexible reporting capabilities. Half of their operations people were just focused on creating reports until they used us. They were able to automate with us and get those people to proactively keep the site up. So that controlled their technology costs, improved Web performance and controlled their call-center costs. This past January, when they renewed, they quadrupled the contract. And the question is, why did they do that?

They’ve decided it’s not just about costs. It’s also about revenues. They want to sell me my motel, my rental car, and now they’re competing with some pretty heavy technology companies like Expedia [and] Travelocity. The standards against which they’re competing are that much higher. They’re a perfect example [of how] the Internet, by necessity, became a prime competitive tool.

We have eBay. We have Akamai. We have DoubleClick. DoubleClick and Akamai are not Global 1000 firms, but they are the experts at delivering Internet content, and for them, every dollar is at risk if they’re not able to perform that function.

ECT: And how about government? There’s a lot of focus on e-government these days.

Stein: We’ve just started that initiative. It makes a lot of sense. Of course, focusing on government takes a lot of lead time and investment. Just last quarter, we got our first big government contract. We won the Royal Mail in the U.K., and that was a highly competitive, RFP process.

I see it at the state level here [in the United States] with the states being under so much pressure. They’re cutting back on registry of motor vehicles — the number of offices is reduced — but you still need to renew your registration and pay your tickets. Now they’re all letting you do it online. If the online [site] isn’t up, that’s not going to work. I think we’ll see in this year a slower but very steady growth in government as we get on the approved vendor list for the different agencies.

Selling to the government is not like selling to any other [client]. I’ve spoken to a lot of my peers at other companies, [and] they said when they started to focus on the government, it took one year before they got their first sale into the government because there is such an in-depth approval process. It’s not just about having the right solution. You have to go through very specific hoops. The Royal Mail, having won that so quickly, was somewhat unexpected for us. We’re certainly pleased.

ECT: I know you say now that Gomez focuses on ROI when selling to potential clients, but how do you compete with companies out there that have similar offerings?

Stein: I think, as is so often the case, having 80 percent of a solution often is no better than having 0 percent of a solution. We’re dealing with a technology world that’s in the fourth year of either flat [spending] or cutbacks. They don’t have the time to incorporate wholly new processes, to fight you over your data.

ECT: What do you think makes Gomez different?

Stein: The difference is we spent a lot of time focusing on how, first of all, the Internet channel is affecting our clients and then looking at their processes and figuring out how we can help them. We just finished what we call a tiger-team process, where we went out to 35 companies in Canada, the U.S. and the U.K. — some were clients, some were prospects, and some we had lost — to try to find out how performance fit in.

We got a very clear picture of a three-stage process. Some firms are just trying to understand where they are: They’ve built infrastructure, and they don’t even know what it is. They just know it’s too expensive. Others are trying to fix it, but … they have poor peering relationships, or their Web site was designed in an ineffective way. And then others, like Bank of America today, have a real-time process. Now that they’re where they really want to be, systematically they need to keep it there.

At the end of the day, the way we differ is by listening: We do that last 20 percent, which means we’re really effective for our clients. It’s that last 20 percent of the solution that says they have all that diagnostic detail, they have the real-time data, they have the ability to not only measure the backbone but the last mile. And a lot of problems occur on that last mile.

I’ll give you [an] example: the BBC. We took them from the competition about 10 months ago, and when we took them, we doubled the size of the deal. I was there when the deal was closing and said, “Why are you doing this?” And they said: “Part of our need is the news changes all the time. This week it may be the World Cup. Next week, it may be a war or something. We need to be able to turn our spotlight on specific sections of our infrastructure for a few weeks at a time and then move it on. You’re the only ones that allow us to self-position in real-time.”

So they ended up buying more service from us than they needed because they wanted the ability to turn it on and off as they wanted. It was that little extra bit that, with us, they had the flexibility of provisioning themselves. To them, the fact that we fit into their process not only won their business, but also doubled the size [of the deal].

Read more in Part 2 of this exclusive interview, to be published Friday, May 14.

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