Analysis: On Cloud 2: making fans of customers on social media

By @ibtimes on

In May 2008, a blog post caught computer maker Dell Inc by surprise: popular tech blog Gizmodo had broken news about Dell's Inspiron 910 mini-notebook -- months ahead of its launch -- after seeing CEO Michael Dell toting the notebook at an industry conference.

Instead of staying mum, Dell saw an opportunity in the frenzied online buzz to track what was being said about the notebook and gauge the level of potential users' expectations.

And it paid off.

Dell realized potential customers were planning to pass up a competitor's projects for the new Dell Mini 9; the social media chatter was extending the buying cycle and driving demand. (http://www.slideshare.net/Radian6/dell-social-media-case-study)

A combination of social media and traditional customer relations management -- social CRM -- is allowing companies like Dell to track customer conversations, react swiftly to issues they raise, gain insight into their needs and interact with them.

The (social CRM) market is over $1 billion in social business solutions this year and is growing at 30-40 percent, said Michael Fauscette, analyst at research house IDC.

Companies that provide customer relationship management services on the Internet, or 'cloud' services, are alive to the opportunity and are snapping up firms that offer social media monitoring services.

This marriage of social media, such as Facebook, Twitter, and blogs, with the 'cloud' -- a term that refers to the shift to providing software, computing power and data storage on the Internet -- has been dubbed Cloud 2.0.

Last month, Salesforce.com bought Canada-based Radian6, which counts Dell, Kodak and PepsiCo among its customers, for $326 million. Smaller rival RightNow Technologies bought HiveLive in late 2009, and SuccessFactors last year bought out CubeTree.

CRM vendors' spending on social software to support sales, marketing and customer service processes will top $1 billion worldwide within two years, IT research firm Gartner estimates.

That figure compares to a forecast of more than $12 billion for overall spending on CRM software in 2012, meaning social CRM will account for around 8 percent of total CRM spending next year, double this year's level, Gartner said.

Given how so-called cloud stocks have performed, investors appear receptive to companies making these acquisitions to accelerate growth in new areas like social media. Shares of Salesforce rose 6 percent after its Radian6 news, and Successfactors gained 8 percent after buying CubeTree.

Industry analysts say cloud computing projects tend to generate quick returns, allowing companies to quickly recoup what they spend on the projects and see tangible benefits to their businesses.

INTEREST IS THERE

I bet a lot of Salesforce's peers are looking at this as well ... it looks like a lot of them are slow or are confused about social CRM, which they say is still in its infancy, said Lyle Fong, CEO of Lithium Technologies, which provides similar social media monitoring solutions to Radian6, and is cited by analysts as a potential acquisition target.

Lithium, which used to provide Internet traffic monitoring, bought Scout Labs last year and transformed itself into a social media monitoring service.

IDC's Fauscette sees Oracle and Salesforce -- which was founded by CEO Marc Benioff in 1999, when he left Oracle -- as potential buyers for Lithium Technologies.

I'm not sure Salesforce's acquisition of Radian6 indicates a broader trend of consolidation in the industry, said Subha Rama, senior analyst with ABI Research. However, it does demonstrate that companies are looking to understand the return on investment from their social media initiatives.

As this capability is better delivered from the cloud, you might see software-as-a-service (SaaS) providers buying smaller analytics firms to fill a skills gap, Rama said.

I don't think IBM will do a buy ... they already have an in-house solution, but Oracle is definitely going to look to acquire some products in this space, she said.

Lithium Tech's Fong reckons all the social media monitoring companies will be bought out in the next year.

All the big ones are already gone ... that space will disappear as a stand-alone space very shortly, he said.

(Reporting by Siddharth Cavale in Bangalore; Editing by Unnikrishnan Nair and Ian Geoghegan)

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