Wednesday, February 28, 2007

Salesforce Targets Wall Street Inc. is honing in on the financial institutions market, a space traditionally dominated by SAP, Siebel, and shoddy in-house application. This is a space where there is a definite customer pain-point, and Salesforce can solve this problem and generate a significant competitive advantage. The best banks on Wall Street have some of the shoddiest and simply dysfunctional products. These applications are old-school and a huge drain on employee productivity. It's my feeling that Salesforce's wealth management platform will be adopted quickly and eagerly by most of the white shoe firms.
Getting Merrill Lynch as a customer for the wealth management platform is huge. William Blair & Co. analyst Laura Lederman explained, "It's not just about the money. Winning Merrill Lynch makes look more legitimate in the eyes of their customers." This is just more evidence that Salesforce isn't just about CRM--the company is rolling out Salesforce Banking Edition, Salesforce Capital Markets Edition, Salesforce Insurance Edition, and Salesforce Mortgage Edition.

Monday, February 26, 2007

The Starbucks Experience

Last Friday, Howard Schultz, founder, former CEO, and Starbucks visionary sent a memo to upper management about the “commoditization of our brand” and a dilution of the Starbucks experience. I commend him for offering this so candidly. The truth is that Starbucks has drifted far from its roots in espresso excellence. If you ask a barista, he’ll tell you that he spends more time pressing the hot chocolate button than making any coffee. There’s nothing wrong with that though. In fact, Starbucks isn’t about coffee—it’s about community and being a great place for different people to get together for an informal time. Recently the company has become complacent and stopped innovating, sinking into the category of fast-food or just another cafĂ©.

Howard wrote: “I have said for 20 years that our success is not an entitlement and now it's proving to be a reality. Let's be smarter about how we are spending our time, money and resources. Let's get back to the core. Push for innovation and do the things necessary to once again differentiate Starbucks from all others.” Full text of Howard’s memo can be found at

Success is not an entitlement. It must be won every day with ever single customer. Starbucks changed the world of coffee—that’s innovation. Selling hot sandwiches might pacify Wall Street, but it’s distracting from the Starbucks brand and hurting the company long-run. Let’s go back to the roots, reinvigorate and take a clear look at the future.

Here’s what Starbucks should do:

1. Go back to the La Marzocco machines in small urban stores with relatively low traffic. This brings back the history and customers appreciate that. For the office jock stores, people pay for speed, so don’t even think about La Marzocco there. Forget the automatic espresso machines while you’re at it—they are the antithesis of the Starbucks experience.

2. Make it a community meeting place. Let’s see a jazz guitar player there, a verse reading session, or something more interactive. This is best for late evening stores.

3. Stop funding movies like Akeelah and the Bee. Artistic film would have been a nice move, or something foreign. Akeelah had absolutely nothing to do with the Starbucks experience.

Comments welcome, but any that are off-topic will be removed.

Thursday, February 22, 2007

Google Apps? Not convincing...yet.

Google announced yesterday that’s it’s stepping on Microsoft’s core business. The Mountain View, CA company said that it’s rolling out Google Apps Premier Edition, a bundled package of it’s on-demand productivity applications, including Docs, Spreadsheet, Gmail, and Calendar. It’s targeting large blue chip firms such as General Electric, with whom it already is selling the product. Exciting about this new package is the low cost, at about $50 per user annually. That’s sure beats paying hundreds of dollars for Microsoft’s software, maintaining your own servers, and hiring an IT group to manage it. It’s a tremendous deal, except for one part: Google Apps offer very limited functionality, and for hard-core and extreme users of Microsoft’s Office suite, that’s just not going to cut it. Leaving the security issue aside, Google Apps require significant improvements before they can compete with many of Microsoft’s products. For now I’m sticking with Redmond.

Pandora and User-Empowerment

Following up our discussion on music and broadcasting models, I’d like to take a moment to offer a snapshot of Pandora, a great music distribution model. I had the opportunity to meet Pandora founder Tim Westergren last month in Salt Lake City at the University Private Equity Summit. He gave a great talk on music and technology. Born out of the Music Genome Project, which analyzed the work of over 10,000 different artists, Pandora is essentially a way to access that database and make it useful for users. Many users call Pandora their personal DJ, and it’s exactly that. When you log on, enter your favorite artist and Pandora will create a station that plays music tailored to your tastes. It takes some time for Pandora to figure out exactly what you like, but that’s part of the fun. It’s funded by graphical advertisements, but you can pay to have those removed if you like.

Why is Pandora successful? It’s all about user choice, something that Mel Karmazin at Sirius doesn’t know a thing about. Satellite radio is force-fed content, which totally ignores the user-empowering technology that we have. Consumers will pick the next music distribution model, not media execs living in the old-world. I’d place my bets on Pandora and user-choice.

Wednesday, February 21, 2007

XM and SIRI Fiasco

This last Monday Mel Karmazin and Gary Parsons admitted that satellite radio would fail. The proposed $11.4 billion merger of struggling satellite-radio operators XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. is an admission their failure in the media space. Sure, there are immense economies of scale in the business, and they can achieve a lower long-run average total cost, but the FCC granted them an outright monopoly in the satellite radio space. Come on guys, get your act together. First they can’t attract enough subscribers to make any money, so they throw a Hail Mary and decide to merge. Remember Mel, if all else fails, just merge. Play around with some corporate finance, hire some bankers, and declare massive restructuring costs to make it look like the decrepit XM SIRI juggernaut isn’t losing as much money as it really is. Time to throw in the towel and sell the only real asset they have—Howard and Oprah.

Why did satellite radio fail?

1. Their business did not address a valid customer pain-point. Satellite radio isn’t that much of a technological advancement compared to terrestrial radio. It is an incremental advancement. You still have the ads, and the sound quality isn’t even that great. You couldn’t pay me to put it in my car. The demand isn’t there.

2. XM and Sirius are battling the era of individual choice. People want to choose, what they hear, and have content that is tailored to their tastes. The iPod has nothing to do with force-fed content like XM and everything to do with choice. We are in an era of user driven content, and people want to hear what they choose. That's why they have chosen the iPod.

Load Up the Truck: announced earnings today, coming pretty much in-line with a slight disappointment on the net income side. No worries, though, this is a buying opportunity. The solid subscriber growth is a validation of the power of the on-demand model, their careful attention to customer needs, and the momentum that the AppExchange will bring. Sure the stock is expensive, but that’s because they have made the competition irrelevant. Look at Oracle and SAP. The difference between them and is the power of the on-demand model. But what makes them a better company than RightNow (RNOW) or even NetSuite? Great companies offer consistent attention to their customers, enabling them with customization, great functionality, and reliable tech support. Sure, with a lot of hard work, these are easy to come by. What gives its awesome potential is the budding ecosystem of complimentary applications to enhance the core product’s functionality. Individual incentives are at the core of the AppExchange, and sure, will transfer some revenues to third-party developers by allowing them to sell their products, but in the long run, it will build durable monopoly power. As the ecosystem grows, can offer that much more to its customers.

Here’s an update of today’s numbers and my comments:
- Net Paying Subscribers Rise a Record 90,000 to 646,000 --Looking good
- Record Revenue of $144M, up 58% year-over-year --nice, but not quite as strong as it will be
- Net Customers Rise a Record 2,700 to 29,800
- Largest customer grows to 25,000 subscribers
- Operating Cash Flow of $38M --bulding a monopoly takes time, the cash will come later
- Total Cash and Marketable Securities increase $41M to $413M, up $116M year over year
- Break-even GAAP EPS, at the high end of company guidance

Pictured above: Marc Benioff, CEO and Founder

Saturday, February 17, 2007

How Stacks Up With Peers

CRM Update: How Stacks Up With Peers

Continuing this week’s focus on and CRM providers in general, let’s take a look at NetSuite. Hold on a minute, why CRM? One evident theme is the CRM companies branching out of merely sales and customer management into general business productivity applications, disrupting Microsoft’s model as it has become complacent and virtually ignored the benefits of the on-demand model. These companies are filling an obvious unmet need in the marketplace, which is why we’ve given them so much attention this week. Take my word for it—I’ve seen it on the front lines. At an amazingly successful and well-run company like Goldman Sachs, most applications are developed internally, resulting in shoddy functionality and poor UI. Employees hate it and calling the tech group wastes half the morning for some desk jocks. The CRM companies aren’t about sales or just customer management, but encompass everything from online marketing to payroll.

Let’s take a look at NetSuite, a great CRM company based out of San Mateo. NetSuite epitomizes the trend in on-demand CRM provider—they aren’t just a sales and customer management company, but are an all-around full-service business applications provider. Accounting, payroll, e-commerce, and traditional CRM are included in the on-demand package. It’s really a one-stop-shop when it comes to business applications, and makes sense considering their target market for the Small Business product is firms with 20 employees or fewer. They are definitely encroaching on Intuit’s Quickbooks accounting software, which has the greatest market share in that space. The truth is that NetSuite may offer just too much when it comes to small business, where Excel and Quickbooks can do the job. There have been some complaints about their email customer support, which should have been resolved since. Nevertheless, we’re excited for the IPO and hope to pick up some shares if it doesn’t pop too high.

Wednesday, February 14, 2007

Why Will Win (CRM)

Oracle? SAP? What do these companies have in common? For one, they have failed to fully embrace the on-demand software model. This model, known as Saas (software as a service) is making the old model completely irrelevant in today’s on-the-go and increasingly mobile world. Sure, Larry Ellison is the godfather of relational databases in for modern business, but hoards of ex-Oracles have fled the Redwood Shores for, where the “End of Software” is near. In his usual bellicose manner, CEO and Founder Marc Benioff, has set out to take on his former boss at Oracle. With the stock up over 200% since, the IPO and spectacular subscriber growth, there is no doubt that software on-demand is in high demand. is a best of breed in this new generation software model. It’s my expectation that their excellence in customer relationship management will expand into other areas, notably accounting, web analytics, and online marketing management.

What to Expect:

1. CRM will gain market share in the customer relationship management area faster than expected simply because they have identified customer pain points and provide a functional and effective tool
2. The App-Exchange or APEX will generate significant network externalities. As other developers generate applications for the CRM platform, the value of switching to CRM will increase. Nice history lesson: Apple and Microsoft. Who’s got the marketshare?

Tuesday, February 13, 2007

Load Up on CitiTrends (CTRN)

What could be a better buy than a value-based urban-apparel retailer with huge growth prospects, on sale at a bargain price? Best of all they operate in a niche market and know it well. That's CitiTrends, the purveyor of quality threads catering to the lower-income African-American market. Best of all, African-Americans as a group are the fasted growing portion of our non-immigrant population and their purchasing power is expected to grow faster than any other ethnic group aggregated. What's the value in CitiTrends? Hasn't the stock just shot up? Yes, they beat on same-store-sales, a crucial retailing metric, this month--blowing analyst estimates out of the water. But more than that, CitiTrends is expanding quickly in the Northeast U.S., notably the Chicago area. What catches my eye however, is the expansion into the West. If any of ya'll are from there like myself, you'll know that it's the Latino market that is hugely untapped. Wall Street doesn't see CitiTrends' ability to sell the same products to our amigos Latinos. Where Wall Street is blind is see loads of profits to be made.
Slightly off topic but consistent, highlighting the growing Latino market and it's importance is to Bank of America is yesterday's WSJ.
In the latest sign of the U.S. banking industry's aggressive pursuit of the Hispanic market, Bank of America Corp. has quietly begun offering credit cards to customers without Social Security numbers -- typically illegal immigrants. The new Bank of America program is open to people who lack both a Social Security number and a credit history, as long as they have held a checking account with the bank for three months without an overdraft. Most adults in the U.S. who don't have a Social Security number are undocumented immigrants.