52 Bicycles

Brad Burnham at Union Square Ventures has a new post up called Customer Service is the New Marketing. Here’s his take on how this is true for “lightweight web services”:

Customer service is the new marketing because you can realize the radical efficiencies of the web only by enlisting the users of the service as co-contributors. The best web services provide bandwidth, cpu, storage and a governance system and then their users create the service. This is certainly true of Craigslist but it is also true of more commercial implementations like YouTube, Flickr, and del.icio.us. So if your users are your co-contributors, your co-creators really, what does it mean to sell them?

I agree with a lot of what he says, but argue that this goes beyond his targeted market, and is true of software more generally. A few points:

1. Software is the productization of knowledge - the more relevant that knowledge is to the customer, the more valuable the software. And the more that knowledge comes from the customer or those like the customer, the more relevant it will be.
2. Ongoing revenues are the key to profitable software businesses - either continuously as ongoing maintenance or annual subscriptions, or punctuated by upgrade purchases. And people keep up these contracts (or buy the upgrades) because they perceive continuous and increasing value from the effort put out by the company. So showing that effort through responsiveness, content etc is the sales process for the most profitable revenue. Sounds like a good place to put the money!
3. There is a key difference between recurring value and recurring effort. The former should be the result of all software, but does not justify a recurring revenue stream. For example, Microsoft Word is great, adds value every day, but I bought it once and have no expectation of having to buy it again or pay for upgrades/support/etc (at least for a good while.) The onus is on Microsoft to improve the value proposition of the next version such that I want to open my wallet again. The latter, recurring effort, justifies the ongoing outflow from the customer’s wallet. Frequent upgrades that add value, telephone access, the feeling of someone at the other end who cares are all reasons to continue to pay.

This means recurring costs for the software company as well, so it’s not free money, but it is fair, and the basis for a self-sustaining business.

This entry was posted on Friday, November 10th, 2006 at 3:14 pm and is filed under Technology Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. Reddit This