In the past few months there has been a great deal of industry discussions related to whether Free Marketing Automation is a good thing. Many of the enterprise vendors in the space claim that Marketing Automation is too complicated to leave novices on their own to figure it out. I couldn’t agree more, but not for the reasons they spread.
In my last blogpost titled “Why Free? Why Now?” I provided some background on the impetus and the reasoning behind LoopFuse’s move to provide a free marketing automation offering. It has been only three weeks since our launch of FreeView, but the response has already been overwhelming. One of the most interesting changes that comes with a move into a freemium model is the shape of the funnel. Over the past several years I’ve studied the funnels of dozens of companies and I’ve noticed that those companies based on freemium models (including opensource) show some very distinctive and interesting patterns.
The Mouth of the Funnel
The first distinctive feature of a freemium-based funnel is obviously that the funnel’s mouth becomes extremely large. Providing anything of significant value for free will attract a large number of people. The number of people attracted is directly related to the amount of value provided for free and inversely related to the “friction” in obtaining that value. For example, when Ben and Jerry’s offers a free ice-cream cone a line will form. But as the line grows the “friction” to obtain the free ice-cream becomes a disincentive for people who realize that waiting an hour in line for a $3 cone may not be worth the effort. However, if the free item were an iPhone instead of an ice-cream cone then the length of the line would naturally extend much farther as people weighed the value of their time against the inconvenience.
Freemium companies must not only ensure that their free offering provides significant value, but also that the “friction” required to obtain that value is minimized. For example what information must the prospect divulge about him/herself and/or his/her organization to access the free offering? What setup and configuration tasks must be completed? How aggressive is the push to migrate from the free offering to the paid upgrade? The value of the free offering minus the total friction required to obtain that value will directly drive the relative size of the earliest stages of the funnel. Of course, in order for people to consider a free offering they must be aware of it. While word-of-mouth is a key component of the freemium marketing strategy, there is still a very important role for traditional marketing to drive awareness.
Behavior-Driven Funnel Definition
The second distinctive feature of a freemium-based funnel is the segmentation of the funnel based on behavior. Traditionally the progression of a lead through the segments of the funnel has been based on external indicators such as registration, download of collateral, participation in webinars, product trial download, contacting sales for assistance, etc. However, due to the volume of leads being managed inside the funnel, a freemium model must provide a hyper-efficient means of measuring the progression of a lead towards purchase and must maintain a level of accuracy in that measurement to ensure that we are not overwhelming the sales team with unqualified leads. Therefore, the segments of the funnel may need to become more specialized based on data being collected directly from the usage statistics of the free offering. For example, in our own funnel, LoopFuse knows exactly how many users, leads, forms, lists, nurturing programs, reports, and campaigns are in use by every single FreeView user. These statistics are key criteria for the promotion of a lead inside of our own funnel segments. This type of integration is usually much easier with SaaS freemium models than with pure opensource models because the usage statistics are more readily available.
The Patient Sales Model
The third distinctive feature of a freemium-based funnel is the lack of momentum in the early stages of the funnel. In a former life I worked at an opensource company and we used to discuss the concept of the “patient sales model”. The concept was based on our observations that it often took YEARS before a free user was ready to purchase a premium upgrade. A user would download the software, become familiar with it’s capabilities and limitations, and it would become part of his/her default toolkit. At some point in the future he/she would pull out that software and would run into a limitation that could only be overcome by upgrading into a premium version. At this point the value proposition is clear to the purchaser, the friction of adoption is zero, and the prospect is usually ready to pay for the value they are receiving. However, there is no magic formula that will predict when this circumstance will present itself. Freemium models front-load the funnel with lots of users on the basis that eventually they will run into this situation. Also, traditional metrics such as days-to-close can become misleading in freemium models unless you start the clock at the point of opportunity creation rather than lead creation.
While the LoopFuse freemium offering (FreeView) is only a few weeks old, we can already see the momentum impact at the front of the funnel. We have already revised our internal funnel segmentation to better utilize the FreeView behavioral data to more accurately identify those prospects who are gaining the most value and are therefore more likely to pay. I am fascinated by the funnels of freemium and opensource companies and look forward to watching the evolution of our own funnel and the subtle patterns and idiosynchrasies we identify along the way. For a great in depth article on the “Fundamentals of a Volume Market Engine” I highly recommend reading Fred Holahan’s article on OpenSource Business Resource.
Overall, I’m a big fan of Chris Anderson’s “Free”. To sum it up, technology advancement is pushing the cost of many things close to zero. There are many recent examples, but the most often cited is the news business. The last 4 years have been absolute carnage in newsrooms whether it be print or broadcast. Estimates range, but conservatively 200K plus jobs have been lost in the sector over this time period. Largely this redefinition of the space has been ushered in by the reaching of digital critical mass. It’s now simply easier and more convenient for everyone to get their information via an alternate channel that also happens to be significantly cheaper to operate.
A past post by the folks at Right On Interactive broached this subject in context of the marketing automation space. From their perspective it seemed inconceivable Free could reach our shores. The argument went that the cost factors were simply too high. While the thought was articulated by ROI, surely this was an outlook shared by the entire space. Whisperings of consolidation and acquisition run rampant, but no one dared consider the true commoditization of the space – except Loopfuse.
Over a 6 month period the team went nearly dark re-engineering the onboarding process, technology deployment model, support community, the sales model. In so doing, what Loopfuse did was to remove as much cost and inefficiency as possible. The resulting model, which no one in the industry can match because of their bloated infrastructure including hoards of sales people and hardware thirsty software enables Loopfuse to get close to zero.
Successfully implementing a marketing automation tool takes time. The major driver of which is the time it takes marketers to understand how to effectively use the tool. What LoopFuse can now do is offer clients a zero dollar alternative to bridge the gap as they discover how to profitably use marketing automation. It’s more of a partnership.
Yes, Free has reached our shores and it’s poised to usher in a new age of marketing. Marketing for the masses where every marketer can explore the potential of integrated profiles, automated touches, and multi-channel engagement without betting the farm.
Last week marked a dramatic turning-point for us at LoopFuse and the general Marketing Automation sector, with the unveiling of our Free Marketing Automation offering, FreeView. The release of FreeView and a new low-cost, zero-risk pricing model, marks an almost year’s-worth of work in planning and infrastructure investment geared to accelerate the adoption of Marketing Automation.
While most in the industry often reference a Forrester report claiming 5% penetration in the Marketing Automation sector, the unusual thing is that no one seems to wonder (publicly) why the rate of growth isn’t much higher given the value Marketing Automation provides.
So allow me to rain on the price-gouging parade. Many of our competitors would have you convinced that Marketing Automation is reserved for marketers with million-dollar budgets, dedicated staff to manage the tools, and a bus-load of expensive professional services representatives to “help” them manage it. “Oh, marketing automation is much too complex for you mere mortal marketers…”, the million-dollar-quota sales-rep claims. In many ways, our competitors are distorting the market by projecting their own enterprise-sales commission structure on to you. The model works for them, at the cost of the consumer (your arm, and your leg). In a market with single-digit penetration, and many competitors continuing to follow Eloqua in to the realm of pricing-out the masses, it is evident that many marketers are simply priced-out of the market. And so now the high price barrier to entry for marketers wanting to adopt marketing automation is lowered to ZERO.
The benefits to marketers under this innovative model are clear:
The value in “free, forever” to marketers is clear with a zero-risk, easy-to-use, supported, and proven product.
As individual marketers benefit from a free offering, so do our Partners. The benefits are actually much more clear to partners, as they are now able to fully-implement a customer for FREE and not have to worry about the product vendor affecting their pricing structure. To a Partner, the relationship becomes pure-profit, and not revenue-sharing, as our competitors would enforce.
Last week, the status-quo of distorting the market with overpriced products ended. Marketing Automation is now open to any and every marketer, to use it for Free Forever. No strings attached, no bait and switch, no credit cards required. Just Sign-up and you’re ready to go in minutes.
Thoughts on the announcement, by others:
Earlier today we announced the release of LoopFuse FreeView, a free version of our popular OneView marketing automation service. The decision to take LoopFuse freemium was made almost a year ago and we have spent much of that time preparing for this launch. After briefing some of the analysts, journalists, and bloggers who cover this space I realized that many of the questions they posed regarding our adoption of freemium may be of interest to others.
Why Now?
The timing of this move is based on several factors. Digital marketing is no longer a niche part of the overall marketing budget. It is quickly becoming the dominant channel for marketers to reach their prospects and their budgets are reflecting this trend. Zenith Optimedia reports in their Advertising Expenditure Forecasts that online advertising spend has doubled in the past 4 years and Forrester’s data indicates that it will likely double again in the next 4-5 years.
We have also witnessed a dramatic rise in the number of digital touchpoints over the past few years from traditional email marketing and website click tracking, to banner ads, SEO, paid search, online events, communities, and the onslaught of social media channels such as Twitter, Facebook, LinkedIn, YouTube, etc. By tracking every one of these touchpoints for each prospect we can create an extensive behavioral dossier that allows marketers to gauge and engage prospects more effectively before they are handed to sales.
If DIGITAL is the future of marketing then MARKETING AUTOMATION is the future of digital. However most analysts in the space estimate market penetration for marketing automation is between 5 and 10%, meaning that the space is still in its infancy. The most technically sophisticated marketing organizations (e.g. software companies) are, of course, the early adopters. These organizations pay a premium to gain a strategic advantage through the adoption of new technology and marketing automation vendors are likewise able to charge a fat premium to provide this advantage.
Unfortunately, many of these services require require 12 or 24 month subscription contracts, professional services implementation consultants, onsite training, and often a pricing model based on the size of your wallet. All of these factors create artificial barriers to adoption, especially for SMB companies. Organizations who do take the plunge face a daunting task of evaluating an overcrowded vendor list with minimal distinction and hope that they make the right decision. The time is right for marketing automation to “tip” and become a tool for the 90-95% of B2B companies who have yet to adopt it.
Why Free?
As certain markets mature, a disruptive player sometimes steps in to challenge the accepted pricing model in the interest of mass market adoption. Sometimes it’s a free on-ramp that lowers the barriers to adoption. Other times it’s a massive price reduction in the market. Either way it provides the opportunity for a de-facto provider to emerge. Over the past decade we have seen several examples of this : PayPal did it to Western Union, opensource software did it to proprietary software, Skype did it to the telcos, AVG and Avast did to McAfee and Norton, and DimDim is doing it to Webex right now. A highly efficient sales, distribution, and support model can disrupt high-touch / high-margin industries by providing a cost effective alternative for the masses.
Freemium business strategies can be very challenging to organizations who are not well prepared. For example, sales teams and processes must be able to adapt to the internal competition provided by the free offering. Infrastructure and architecture must be designed to scale for massive volume. The user experience must be refined to enable mere mortals to be productive without week-long training courses. And dozens of other changes must be undertaken to support freemium. Balancing what is provided gratis against what is available to paying customers. Lucky for us, all of the members of LoopFuse’s executive team have experience in freemium and/or opensource (which is a flavor of freemium).
With the introduction of FreeView, LoopFuse provides an on-ramp that will allow SMB marketers in the B2B space to adopt marketing automation without the hassle and cost previously required. Use it for free and prove to yourself that marketing automation can benefit your organization with zero risk.
I’ve been asked a lot lately to talk about our solution platform and technology used here at LoopFuse, so figured it would be worth a blog… To start, LoopFuse OneView is an on-demand marketing automation software solution. In a nutshell, this means it is software hosted by a vendor on the internet that can be run using a web browser without having to install any software, so is ready for use immediately. This is also called SaaS (software as a service), which is a term originally made popular by vendors such as SalesForce.com. Lately the term “Cloud” has replaced SaaS as the new buzz word.
Cloud computing as a concept and even as a practice has been around for a long time. Although “the cloud” is often seen as a synonym for SaaS, it actually is a broader term in that it refers to hosting all types of internet based services such as remote file storage and not just packaged software solutions. Many “cloud” hosting vendors exist, but the most well known one is Amazon with their AWS (Amazon web services) which includes offerings ranging from data storage to payment services to distributed database hosting.
Although there are many upsides for on-demand software vendors to deploy in the cloud, there still exist a few downsides as well; the main one being loss of complete control of the NOC (network operations center) they run their software service from. For many on-demand applications that are not mission critical, such as photo sharing sites, the tradeoff between losing control of network operations and the cost savings of outsourcing their IT is very acceptable. However, for mission critical applications such as marketing automation where businesses rely on leads being captured to drive revenue, the tradeoff can be less compelling.
At LoopFuse, we made the decision to host all our core services ourselves within our own NOC instead of hosting with a cloud hosting provider such Amazon. Collectively, we’ve had a lot of experience building out network infrastructures and felt this would be the best way for us to ensure the reliability, security, and scale which our customers would depend on. To date, this decision has proven to be a good one. For example, under the Amazon EC2 Service Level Agreement the target uptime is at least 99.95%. While this is very good, it could potentially translate into almost 55 minutes of downtime since the beginning of this year (54.72 to be exact). The actual uptime for the LoopFuse lead capture service since the beginning of this year has been 100% (i.e. no downtime). Even though just under an hour of downtime over a three month period may not seem like much, not being able to capture leads after launching a major customer acquisition campaign would be a major problem for most businesses. Another area where having complete control of the NOC is beneficial is being able to implement specific security controls. An example we encountered of this at LoopFuse was a customer who worked with government agencies that had the specific requirement of degaussing hard drives containing their data after being decommissioned. Because we have direct physical access to all our hardware running within our NOC, we were able to meet this requirement.
Another somewhat unique decision we made related to being an on-demand software provider is how we implemented our multi-tenant architecture. Most SaaS vendors use a multi-tenant architecture where all their customers share all the same hardware, application instance and the same database instance. Although LoopFuse OneView is a multi-tenant application with shared resources, all customer accounts are stored in separate database instances. Because every customer has their own database instance, there is no commingling of customer data (i.e. customer A’s leads to not sit next to customer B’s leads within a database table). Besides being inherently more secure, customers having separate database instances also helps will scalability since can allocate hardware based on size and usage of individual accounts. For example, many smaller customers can be put on a database server where share hardware resources such as CPU and memory and a large enterprise customer can be put on a similar database server by themselves. This prevents the smaller customers from being impacted by the larger customer consuming all the hardware resources and vice versa. Also, scaling up as more customer accounts are added is not limited by what a single server can handle across all customer accounts which would require expensive hardware upgrades, but instead can simply add more reasonably priced servers to the server farm.
Finally there is the actual technology we used to build LoopFuse Oneview, which is primarily J2EE (Java Platform, Enterprise Edition). This was an easy decision for us since Roy Russo, the other founder, and myself both came from JBoss, an Open Source J2EE vendor, we were already very familiar with J2EE. As you might guess, we also deploy on JBoss as well. Using J2EE, along with JBoss, provides many inherently “enterprise” features such as clustering, failover, load balancing, caching, and distributed processing along with enterprise grade security via JAAS.
We also use a number of other Open Source products such as Red Hat linux and MySQL.The use of Open Source technologies and products was a no-brainer as well since we were already well aware of all the benefits. The first and most obvious benefit is cost. The next biggest benefit of Open Source is access; not only to the code but to information. Because of free and open access within the Open Source world, it is much easier to find information about issues and work-arounds, how to implement specialized requirements, and best practices in general. This is a very powerful benefit and one of the main reasons access to our customer support portal is free and open to all.
Empowering Sales with up-to-date contact information on contacts and interested prospects is essential in this day and age of high-volume, low-touch sales processes. LoopFuse OneView offers Sales organizations deep integration with a great number of common 3rd-party business directory and news sites, easily accessible from any visiting Company’s analytics page.
The current integrated 3rd party directories and news sites are pictured below, and include direct-linking to information providers such as Hoover’s Business Directory, Jigsaw, Google News, and ZoomInfo.
Because the level of integration is “native” and presented as a hot-link, LoopFuse is able to provide the added value and information to sales organizations at no cost to us and therefore no additional cost to LoopFuse customers… and sales people are much happier for it all. 
Today, our friends at Drupal announced the release of the LoopFuse OneView integration module for Drupal. The module, now available from the Drupal website, allows for pluggable integration between the Drupal CMS and the LoopFuse OneView Marketing and Sales Automation platforms. This is a natural pairing for two technologies that are widely used throughout the internet – Our products have a considerable overlap in who they appeal to… Marketing and Sales executives.
The original impetus for this module, was started by Chuck D’Antonio under the Acquia umbrella. Much of it came about as Acquia became a LoopFuse customer and felt a tighter integration that would benefit the community would be fruitful. This is OSS, as it was meant to be. I couldn’t agree more.
Taking the press release at face-value would be a mistake, as there is an important message here, regarding the future direction of both companies. I believe it is evident that Drupal has continuously set itself apart from other Web CMSÂ by appealing to a more sophisticated crowd. The same is true for LoopFuse. At the same time, however, I would state that both companies have a fair understanding of what it means to have mass appeal… allowing a simple user to get up-and-running in minutes, yet enabling high-end users with unlimited flexbility and scalability. This is a delicate balancing-act for any company, but one that I believe our friends at Drupal/Acquia know very well how to master.
Being a former member of the JBoss ranks, I can’t help but laugh when I read folks from Sun and IBM endlessly pontificating in the blogosphere about OSS business models and “The Community”’s role. This focus on OSS and “Community” seems to be a new M.O. for both of them, after years of being proprietary vendors, and outright Anti-OpenSource.
So What exactly makes this so funny, and why the about-face?
Sun: You’re great at building hardware – Fantastic and trend-setting hardware that blows away just about everything on the market. Your software has generally sucked. We can’t even measure the amount of suck, its so large. At some point you decided that JBoss was hammering away at your software and figured it would be in your best interest to fight fire-with-fire. ie. throw the software over the wall in to OSS-land and hope for the best. (I won’t even comment on how the (JCP) Java Community Process, is akin to the World Bank, with vendors talking behind closed doors, NDA’s, and little active input from the Java community.)
IBM: You’re a consulting company… err…. “Global Services” Company. Just because you bought that mess Geronimo and throw some developers in the Apache ranks, doesn’t make you a carrier of the OSS torch, but keep blogging and we’ll keep laughing at you.
So how did we all end up in bizarro-world… where Sun and IBM are now the mouth of OSS?
The JBoss impact
JBoss took a big bite out of the industry. BEA (as much as they won’t admit it) crumbled largely because they could not compete with JBoss’ innovation, price, and adoption rate. IBM had their hand forced in to buying Geronimo – a fight fire-with-fire approach. Sun’s organization has always lacked and simply couldn’t compete with JBoss at all, and so it was slowly dying.
… and now the deck is shuffled. Red Hat buys JBoss and proceeds to let the fruit rot on the vine, thereby creating a vaccuum for these two to dive in. Of course, they’re diving in without any clue on how to run an OSS business. Remember, these are the same guys that were on the losing end of the OSS fight for years, and have zero talent in their executive ranks on how to run an OSS business.
There is a vaccum in Java OSS, as Red Hat leadership has been largely impotent – not knowing what to do with JBoss. The JBoss “mouth” in the community is gone and so is their drive. I have hopes that the new leadership inside of Red Hat can clean house – Leave JBoss alone, give it more money, energize the ranks, and PLEASE clean up the mess within Red Hat mangement. There is no reason why Red Hat could not be bigger than Sun and maybe IBM one day, given the proper vision and execution. Red Hat has a large bulls-eye painted on its back, because of its own doing and now has IBM, Sun, Oracle, Canonical, and others aiming at it.
I don’t have a dog in this fight, but I do get annoyed listening to blow-hards talk about “The Community” and how to run an OSS Business, when just a year ago they were both large megacorps intent on fighting OSS (and getting their butts handed to them). I tend to ignore the public discussions they fuel, as they’re largely wrongheaded, and their opinion on OSS business models is backed by zero experience and education. My only advice to the “New Leaders of OSS”, is to perhaps hire some proven OSS talent. Sun did well buying MySQL – perhaps MySQL’s vision can infect Sun. IBM is just utterly clueless as usual, and trying to find a way to push more bus-loads of $400/hr consultants – things never change at Big Blue.
So who should you listen to on OSS Business Models and Community issues these days? The companies that aren’t sucking up all the air in the room, but are quietly making it happen: SugarCRM, SpringSource, Hyperic, Zenoss, Alfresco, Zimbra, MySQL, and Zend. These guys have it right. They’ve been at it for years and have learned how to grow a community and execute on the OSS Business Model (which isn’t a one-shoe-fits-all).
Thats my $0.02. Now grab some popcorn, sit back, and keep reading the Sun/IBM dynamic-duo expouse their pearls of wisdom…
UPDATE: The looniness gets loonier with the IBM guy now advising Sun on how to pull together “like” products in to a “family”. He’s citing WebSphere CE as a success story. Maybe the guy from Sun will respond on the success of JavaDB and we’ll truly have an idiot convention on our hands.
LoopFuse has been invited to attend a panel on “Converting the Open Source Lead Funnel” at this year’s Open Source Business Conference (OSBC). Although I would never pass up a chance at listening to Matt Asay blabber on about the wonders of OSS, backed by a slide deck with such OSS visionaries as Homer Simpson, this year’s OSBC aims to provide a wealth of information beyond that to any and all OSS companies; from competitive advantage topics, marketing essentials, community relations, and legal issues. This is a must-attend conference for any OSS entrepreneur and OSS executive.
The panel I will be taking part in, is similar to last year’s “Downloads to Dollars” panel, where OSS marketers discussed what works/doesn’t in OSS marketing initiatives. The 451 Group’s Raven Zachary will be moderating the panel. I will be joined by some heavy hitters in the OSS world – from Alfresco, Zend, and SugarCRM.
So if any of you are wondering, “Can LoopFuse crack the open source conversion conundrum?“, as the 451 Group’s Matthew Aslett asks, this is the place to get answers. Attendees are always free to ask me how we “cracked” it at JBoss, using a dysfunctional marketing automation product, and how our current OSS customers are leveraging our knowledge with a superior product/service offering today.
© 2010. LoopFuse,Inc.
All Rights Reserved.
