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Transition to a Web-based business

Build your marketing into your product

Lessons learned from entrepreneur by Demian Entrekin
July 23, 2009
Short URL: http://vator.tv/n/988

Let's say that you finally realized it's time to transition from a traditional business to a Web business.  You put it off long enough. But then you read Death Spiral and decided to make your move.

Now the hard part, realizing - though it often goes without saying - that a technology overhaul isn't the only change needed.   

The public Internet has created a totally new way of doing business and for a business to succeed. This is called a Web business.  A Web business must be willing to adopt an entirely new set of assumptions about what it is and what it does.

  • Technology Model: Running your software application over the Web changes the most basic rules of the game: You now operate on the public Internet.  The technology development tools have matured and there are now several standard platforms that accelerate the development process.  In a Web business, you support all customers from a single implementation.  This is called a “multi-tenant architecture.”  You cannot customize on a customer-by-customer basis. You have to support massive scalability.  You must be more generic, more abstract, and more configurable.  You must enable your customers to change business rules without writing code.  Releases are typically faster, smaller, and more incremental.  There is no such thing as “silver releases” or “gold releases.”  There is just a production release.  Everything you do revolves around your Web application or your Web service.  Everyting.
  • The Customer: In a Web business, your relationship with the customer changes considerably.  You have the software, the data, the hardware, the roadmap, the pipe and power, and the data center.  You have it all.  All they have is the ability to access your service via a secure login.  You are no longer at an arms length from the customer.  You are their business partner.  Your customer’s metrics become your metrics.  If they succeed with your solution, you succeed.  If not, you don’t.
  • Financial Model: The cost per customer plummets as you achieve scale and will often level off at a few dollars per user per month.  Customer #1 is very expensive – customer #1,000 is very cheap.  This has major implications on funding, pricing, and strategy.  Lower cost opens the door to go down market.  There are still many different revenue models, ranging from subscription (salesforce.com), to advertising (facebook) to fee-based (eBay). Revenues tend to be lower overall as a natural consequence of lower cost, and well-funded competitors will undercut your price because they have a long-term market share plan versus a short-term revenue plan.
  • Marketing: In general, Web companies can do things that traditional companies cannot do.  Some trends are ‘Try it before you buy it,” “freemium,” and “invitation promotions.”  Here is one of the most critical new web marketing truisms: “it is an inbound world” which means that buyers go to the web first and then come to you if they find you.  This has led to a switch from the 4 P’s to the 5 A’s.  In a web business, an emerging and successful strategy is to “build your marketing into your product.”
  • Reach: Once you are on the Web, you are everywhere that users can get a Web connection to your service, which is effectively everywhere.  If you are on the Web, you are available online right now in Burundi.  This radically alters the entire notion of distribution.
  • Features and Functions: Because of reach and technology and cost and new marketing, you can now offer sophisticated functionality to a wider range of customers and markets.  This means you have to design with a “peel the onion” design strategy.  The first layer is brain dead easy, but you can peel back the onion for more and more rich and sophisticated functionality.  “You have to be useful in two minutes, but if you’re not designed to be useful two years, you won’t last two days.”
  • Self Service: Web-based companies often adopt a self-serve strategy as part of the market-penetration plan.  This usually works best by offering a useful feature subset that a few people can get up and going on their own, but that will naturally expand from there.  Some folks call this the “loss leader” or the Trojan horse.  Self-service versus a full-blown implementation with professional services is not an “either/or” choice.  The best solutions are designed to do both. Merrill Lynch bought 25,000 users of Salesforce.com, but they started with 25 in one group.
  • Change Management: If a company that currently operates on a more traditional, enterprise-style model, there will be vested interests that line up against the new Web model.  The risk will be expressed as “cannibalizing the business.”  Many folks will balk at the change but give lip service to the web as a smart move but resist the change.  This change requires strong, committed leadership.  This will not happen organically.
  • Sales Model: The way the company sells may change considerably.  You may have to transition from an outside sales model with heavy travel and lots of customer face time to more of an inside model with teleconferencing and limited face time.  Depending on the nature of the sale, there may still be a major need for enterprise sales talents.
  • Sales commissions: Depending on the revenue model, this may change significantly.  It may not change at all.  If it changes significantly, then get ready to perform some serious surgery or start fresh with a new team and new comp plans.
  • Partners and Mash-ups: In a web model, you can more easily incorporate other web based services to enhance and extend your core offering.  Just look at how many different applications that have popped up to enhance salesforce.com as add-ons and plug-ins.
  • Reporting: In a Web-based model, you can report across customers, users, segments, markets, etc.  You have all the data and all the meta-data.  You can monitor behavior and modify your application accordingly.  You can ask questions you could never even ask before.
  • Support: With one instance of the software and with all the data in one database, the support model gets much leaner and cheaper.  You can begin to automate the support of technical basics.  You can implement live chat.  You can get out ahead of known problems.  You can focus your services teams on business impacts like new processes or new approaches to old problems.  You can elevate the very nature of services to focus on business outcomes rather than break/fix.
  • Integration: Web companies integrate via a WSAPI layer built directly into the web application.  All interfaces flow through this one API.  Interfaces tend to be more standardized and abstracted as a result.  If designed properly, they are easier and faster to implement and maintain.  Interfaces become much more of a “do it yourself” approach.
  • Security: This seems like a much bigger issue that it turns out to be.  If folks can trade stock via the web, then they can trade ad content over the web.
  • Channels: Due to the relatively low cost of implementation, channel partners that rely on integration revenue and support revenue tend to get cut out of the picture.  Straight up re-sellers, who don’t get involved in the solution, become a much more attractive option
  • Implementation: The technical implementation is often drastically reduced.  The emphasis is usually on “do it yourself.”  There is often a need for business process support that is not focused on technology but on business.  Solution implementations that once took six months now take six weeks, or six days, or six minutes.  Full rollout and adoption can still take years.
  • (Image source: lifehack.org)