On-Demand Helps Put the Customer in the Driver’s Seat: An Interview With RightNow’s Greg Gianforte

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When Greg Gianforte started RightNow Technologies in 1998, on-demand was a simple way to get people to try the product. Now, on-demand has buzz, and RightNow is turning its delivery mechanism into a new way to help its customers become more customer-centric, to the tune of high consumer ratings and big profits. In this edition of Inside Scoop, CRMGuru founder Bob Thompson talks to Gianforte about what makes the Bozeman, Montana, company different from other industry players. This interview, which took place Oct. 28, 2005, was edited for clarity.

Bob Thompson

I’d like to welcome to today’s Inside Scoop program Greg Gianforte, who is founder and CEO of RightNow Technologies. Welcome to our program, Greg.

Greg Gianforte

Hi, Bob.

Bob Thompson

Today, we’re going to talk about RightNow Technologies, about its background and what they’re doing now. We’ll also focus in on the results that they obtained in CRMGuru’s recent study of how customer-centric CRM software vendors are. RightNow finished No. 1 out of the 20 vendors we analyzed.

Greg, I’d like to kick off by just asking you to briefly describe your background. And what is it that RightNow is focused on? How is it positioned in the market as a company?

Greg Gianforte

Sure, Bob. I’ve been in the software business a long time, starting my career all the way back at Bell Laboratories and being involved in starting a number of different software companies. At RightNow Technologies, we’re really focused, always have been, on helping our clients better interact and service their customers. Over the last 2½ years, we’ve been building bridges between our customers and their customers that have supported over a billion customer interactions, whether they be on the phone or through email. And we do that through software, primarily delivered in an on-demand model.

Bob Thompson

I think, in prior times we’ve talked, you’d said it’s a pretty high percentage. Is that right?

Greg Gianforte

Yeah. Over 90 percent of our new customers do choose to host with us. That’s really the future of the enterprise software market. We’ve seen a huge shift. We’ve always offered our software on premise or hosted, but as I said, over 90 percent of our clients now do choose to host with us.

Bob Thompson

Let’s go back to 1997, when you founded RightNow. What was the reason you started the company? And as a follow-up to that, did you think it might turn into what it has today, a public company in the midst of this so-called on-demand revolution?

Greg Gianforte

Well, the genesis was really the disruption that the Internet was causing in the way companies touched their customers. We were finding that companies were starting to receive additional customer inquiries through the web, either over the web or through email, and there really were no products on the market. So we started helping companies provide a higher quality of service and, as a way to reduce cost in delivering service, electronically.

Bob Thompson

Did you think at that time that this was going to be primarily an on-demand model?

Origins of on-demand

Greg Gianforte

Well, we started on-demand. I did start the market research in ’97. I hired the first employee in the spring of 1998. And we delivered, initially, on an on-demand model. It just seemed to make sense. People didn’t want to have to wrestle with all the hardware. We were trying to convince people to try this stuff, from a small start-up company. It was just easier to say, “Hey, put this link on your web site, and why don’t you use it for a while and let’s measure the results?” That was convenient for our customers and just an easy way to get started. And it certainly wasn’t called on-demand back then. But really, we were one of the first companies to start delivering software this way.

Bob Thompson

Did you think it was going to turn into, ultimately, a multi-function, multi-channel type product, like you’re putting out on the market now? And if not, in 1997, when did the light bulb go on, where you said, “Hey, this has got a lot more legs to it than just doing FAQs on the web”?

Greg Gianforte

That’s certainly where we started, but our strategy has always been to kind of use the resources we have available to us, to get on top of the next adjacent hill. The first adjacent hill was web-based self-service. And then, it was complete e service. And then, it was the complete contact center. And then, it was a full CRM suite. So we’re always in a position, in terms of growing our business, of looking for that adjacent hill and then trying to climb on top of it. We’ve always known that this is a really big problem. When we go out and talk to people and ask consumers, like myself, yourself, everyone, “Have you ever had a bad customer service experience?” well, that’s everybody. So we feel pretty good about being gainfully employed for a long time.

External impact

Bob Thompson

Let’s talk about your status as a public company. Remind me when RightNow went public.

Greg Gianforte

Just over a year ago. August of 2004.

Bob Thompson

What’s been the performance so far as a public company, in terms of sales or earnings growth?

Greg Gianforte

We just announced our Q3 ’05 results this week. It was our 31st consecutive quarter of revenue growth, so this means that we’ve been growing almost eight years, consecutively, quarter over quarter. This past quarter, we added 92 new customers.

I think one of the biggest changes that has occurred is that more and more of our business is being done with large corporations. And much broader than our roots, originally just in e-service, we’re finding people are turning to us more and more for complete CRM solutions. In particular, this past quarter, we announced that we had replaced Siebel in quite a few large installations, up to 1,600, 2000 seats in the large call centers. So the business, itself, has grown 47 percent year over year, and we’ve been at about a 50 percent annual growth rate for all of the recent history.

Bob Thompson

Well, it seems to me that those are pretty darn good numbers. We don’t handicap the performance of the CRM software industry at CRMGuru, per se, but RightNow’s profile is still pretty low, compared to some of the other players like Siebel or salesforce.com. What I’m saying is that there is an awful lot of marketing and, in some cases, hype that’s pushing the market along. How has that been a help or a hindrance to RightNow’s success, as you’ve moved forward? Clearly you are growing. But I’m not sure that people really see RightNow as this high-growth company.

Greg Gianforte

If you make a list of every public enterprise software company that’s been growing 50 percent or more, it’s a very short list. There are probably two companies on that list, us and salesforce.com. So we have had great growth. I think one of the things is, because we tend to focus on larger enterprises, we know who those people are. The industry analysts certainly know who we are. And we can go to them directly, unlike an on-demand vendor that might be addressing a broader segment of the market. That really requires a brand-led strategy, requires a lot more hype, but it is really selling to a different customer at much smaller dollar amounts. So part of it has to do with our selected market and who we’ve chosen to go approach.

Bob Thompson

You’ve said in prior interviews with me that you believe that on-demand is going to be the “dominant” mode of delivering enterprise software. Why do you think that’s going to happen? What do you mean by dominant?

Greg Gianforte

I think the on-demand delivery or hosted delivery of enterprise applications is so advantageous for customers. And it’s advantageous along three lines. The first is just the economics. The IT plumbing that you need to put underneath an application tends to be 80 percent of the ownership cost. In the on-demand model, we eliminate that. So essentially, it’s an 80 percent discount for consumers in buying enterprise application. That’s a pretty compelling reason alone.

Secondly, it’s interesting, we talked to a large account where we displaced Siebel here in Q3, and the customer said to us, “You’ve done more for us in deploying the 1,600-seat contact center in India and North America in 45 days than Siebel was able to accomplish in 2½ years. That’s a compelling benefit.

But thirdly, and one that doesn’t get talked about a whole lot, is when you operate these systems on behalf of your clients, you get tremendous insight into the applicability and aggregation of best practices. So we can be a better partner with our clients. When someone—a software vendor—ships a CD out to a client and stuff gets deployed on premise, the vendor doesn’t have any insight into how they’re using the application. We can go back to an airline, for example—we work with 15 airlines—and say, “Geez, you’re doing it this way. Everybody else in the industry does it this other way. Do you have a good reason for that? Or maybe, if we bring you in line with the rest of the industry, we can actually increase the value we deliver.” An on-premise vendor just doesn’t have that kind of insight and can’t deliver that kind of result.

Bob Thompson

Let’s talk a little bit about this recent report we published. We collected data for more than a year and then spent several months crunching the numbers. RightNow came in No. 1 out of the 20 vendors that we were able to analyze. The cut was based on being able to have statistical validity, which is basically a function of sample size. The index was based on, not only the solution you put in the market—where RightNow is ranked quite highly—but also the health of the relationship, which we based on several different questions about satisfaction, loyalty and project success.

Were you surprised by this? Do you have any thoughts about how RightNow was able to get this kind of performance in a very competitive industry?

Greg Gianforte

First, I’d say we’re honored because the report is very thorough, and it’s based on what our customers actually said, which is, at the end of the day, the only thing that really matters because that’s the only reason we exist. But surprised? I don’t think so. We are the only CRM vendor that is actually focused on the external impact of CRM outside the company walls. Every other CRM vendor has really focused on internal process improvement, that is, making customer service agents more productive or making sales agents more productive. And as the world has flattened in all industries, the customer has become the person who’s in charge.

Bob Thompson

It’s a nice thing to say, but is that really happening? Another thing I had on my list for you, Greg, is this idea of push vs. pull. On CRMGuru and other customer-oriented web sites and publications, it’s fashionable to say, “The customer’s always right; the customer is king; the customer has the power; and we should be doing things that customers care about,” and so forth and so on. Yet, while we may all nod our head in agreement, we find that there are plenty of examples of companies, notably in the software industry, where pushing things on the market—being innovative, doing heavy marketing and trying to get into a dominant market share position—does, in fact, seem to be the winning strategy, at least while the market is growing.

Greg Gianforte

I think there’s two things you’re mixing together there. One is that it is absolutely the case in software that you need economies of scale to continue to be a market leader, just because of the economics of software. But the separate thing that’s going on is that it is true, as the Internet has flattened the world: Consumers have more choices. Historical CRM has focused on what a company can do to customers, not what they do for their customers. It sounds like a subtle difference, but it makes a huge difference in the way we work with our clients and, ultimately, the quality of service they can deliver to their clients. We ultimately judge our success, not based on how much software we sell but on whether or not our customers’ customers are more loyal and buy more products.

Bob Thompson

Let’s poke at that just a little bit, then, because you’re describing a kind of culture that you have at RightNow. Also, you’re trying to operationalize it. How do you go about that, Greg, so that you have that kind of culture where you’re not providing tools just to automate but to really help create these relationships?

Greg Gianforte

As a founder and a CEO, it’s one of my primary jobs to create and then protect and preserve a culture within a business. I talk very explicitly about the three reasons why we exist as an organization. I think they’re noble and worthwhile endeavors. The No. 1 thing is that the primary purpose we exist is to help companies better serve their clients because, ultimately, in every market—whether it’s consumer electronics, financial services, travel—products and services tend to commoditize over time because competitors copy what you’re doing.

And, long term, the only form of differentiation any company can ever sustain is quality of service. That’s our mission as a company: to build tools, business process, services to help our companies better serve their clients. In the process, we’ve got to model those behaviors to our clients because it’s kind of hard to preach about how somebody else ought to be doing this if you’re not doing it, yourself. I just think that’s a worthwhile and noble endeavor, and that’s at the heart of what we’re trying to do in this business.

Bob Thompson

Let’s shift gears and talk about the industry in the time we have remaining here, Greg. I’ve talked to some analysts, and I agree with what you said earlier: They are certainly aware of RightNow’s success. I think it took them a while to get up to speed, quite honestly. But they’re certainly now aware that RightNow is a force in the market. But there’s also another player that you’ve already mentioned, salesforce.com, that’s on quite a rapid growth trajectory, focused on the sales part of the business. Both salesforce.com and RightNow have multi-channel or multi-function CRM solutions. You’ve expanded to add sales and marketing, and they’ve expanded to add marketing and customer service. You’re both trying to get those products out to market. The analysts are saying that it’s looking more like a shootout between the two of you. Do you agree with that?

Greg Gianforte

Not today. We are the two companies that are growing more than 50 percent on an annual basis in the enterprise software space, so we’ve both been seeing success. But keep in mind that, according to Datamonitor, this CRM marketplace right now in ’05 dollars is about a $5.5 billion marketplace. So if you add salesforce.com’s revenue and our revenue together, you’re not even at $500 million, you’re not even at 10 percent.

And there is a changing of the guard that’s going on. These on-premise products don’t work. Customers aren’t happy. They’re focused on the wrong thing. In addition, salesforce.com has done a nice job at the low end of the sales automation marketplace, and they’re starting to climb up. A significant portion of our business is in customer service automation. The big losers here are SAP and Oracle.

Salesforce.com

Bob Thompson

Right. We definitely did see that the more focused vendors—and in particular, the on demand vendors—performed noticeably higher than traditional software companies.

I want to come back to salesforce.com for just a second. In a prior exchange that I had with Marc Benioff, the leader of salesforce.com, he’s out marketing salesforce.com as the global leader in CRM and on-demand CRM, particularly. In fact, he refers to RightNow and other companies that are having some good success in this market, like Netsuite, as “followers and wannabes.” That’s a direct quote. How do you respond to that?

Greg Gianforte

Marc kind of grew up in the Oracle culture. There’s a lot of chest-beating. It’s not really about us. It’s about helping our clients better serve their customers. I feel very comfortable with the growth we’ve seen and what’s going on in the marketplace. I think it’s kind of interesting that one of the problems that’s existed in traditional markets has been all of this focus on technology and platforms. We see now that salesforce.com has introduced their AppExchange as yet, another platform. That might make sense at the low end of the marketplace, but we don’t work with many large corporations who are looking for additional relationships with under-funded remote developers. They want accountability for business results. And one of the primary benefits of the on-demand model is our ability to stand in front of a customer and say, “Yes, sir” or “Yes, ma’am, we’re going to do this for you, and we’re going to measure the results, and you don’t pay us unless we give you the results.”

When you start introducing third parties, whether they be SIs or third-party developers, onto a platform, essentially, what you’re saying to the marketplace is, “Here’s a wrench set and an erector set. Go ahead, why don’t you get somebody else to go put it together for you?” And what happens in the process is you abdicate responsibility for actually delivering results, business results. I think that’s a big difference between us and salesforce.com. Now they’re serving a different market, given it’s mostly SFA at the low end. Over 65 percent of our revenue last quarter came out of companies with greater than $1 billion in revenue and large government organizations. They’re not asking us for a directory of applications or platform tools. They’re asking for business solutions.

Bob Thompson

Fair point, but Siebel systems, which, of course, will soon be part of Oracle, also has a heritage in the large enterprises, and they have an on-demand solution. Although we didn’t have data specifically about their on-demand solution, analyst reports have been fairly positive about the breadth of it. So why not think about Siebel as a key competitor in these large enterprises?

Greg Gianforte

Oh, absolutely. We have traditionally seen Siebel’s on-premise products—not the on-demand products but the on-premise products—more than any other vendor. Yet, they’ve just gotten gobbled up into Oracle. I think the real issue there is one of the things that does not get talked about a whole lot, that the on-demand model really commoditizes all of the infrastructure technology. And $7 billion of Oracle’s revenue comes from databases. I’m proud to say we run an Oracle-free shop.

We’ve been able to implement on top of open source using Linux and mySQL, and Oracle’s core business grew only 1 percent last year. It’s not a growth business. So I think the real challenge that the Oracle organization has is that this $7 billion cash cow is starting to dry up. That’s going to be a problem for them, and if they get on their little Siebel on-demand bicycle, it’s going to be hard to pedal hard enough to replace $7 billion in revenue fast enough to actually maintain a growth status. So there are other issues. I think you have to look at each one in the marketplace and where their thing is. Honestly, I’d rather be in our shoes than in their shoes.

Bob Thompson

Last question. What keeps you up at night, Greg, trying to keep RightNow going?

Greg Gianforte

Well, I think you pointed to it. We could do a better job in terms of raising our visibility. The engagements that we’re privileged enough to be involved in with our clients, we win. We win way more than our fair share because of our approach to the marketplace and the way we go there. So one thing we need to do is raise visibility. The second thing is we do have a unique culture in the way we touch, in the way we interact with, in the way we are accountable for business results. It’s really critical that, as we continue to grow as rapidly as we are, that we don’t lose that culture because it’s critical to our continued success.

Bob Thompson

Greg, thank you very much for being on our Inside Scoop program today.

Greg Gianforte

You’re very welcome.

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