Social business powers Ninefold cloud while competitors fold

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Social business strategy creates such a profound shift that the competitive effects can be devastating. But you don’t usually see it so starkly, and in your own backyard.

On the same day that Melbourne IT shuttered it’s SME cloud offer “Melbourne IT gives up on SMB cloud” – subtitled “Not worth the investment” – competitors were ramping them up:

  • Melbourne IT has told its small business customers that it is no longer interested in providing them infrastructure-as-a-service, versus
  • The micro is a highly reliable, highly redundant, small memory virtual server — in an Australian cloud — for less than the price of a lunch-sized pizza a week! Ninefold release.

Why? What is the difference in strategy?

Melbourne IT chief technology officer Glenn Gore said that “the company intends …only to offer a commercial IaaS product to large customers… Small businesses, by contrast, were not particularly interested in provisioning their own virtual servers – and in any case, the market for such customers was already dominated by large scale American offerings such as Amazon Web Services and Rackspace“.

That doesn’t offer much hope for Ninefold, or does it?

I was curious so I tweeted @kimota (Jonathan Crossfield), Community Manager at Ninefold who launched their cloud business in March 2011 and has seen it growing strongly since. Ninefold launched Micro Instances on the same day Melbourne IT switched off their SMB cloud service.

Ninefold’s growth in this same market segment that Melbourne IT says don’t want the service points to someone getting it wrong. Or at least a mismatch of business models with the segment.

Jonathan and I discussed some of the hygiene factors about success and self-service, that technology was only half the story, that you needed a complete digital engagement model, low cost of acquisition, self-management, multi-channel support, advocacy, word of mouth, low churn and simplicity. That’s the true SaaS model, rarely understood so I was impressed, but not too exceptional. Ninefold_logo1-100x95

On the other hand Melbourne IT’s cloud efforts most likely started with the technology, and certainly didn’t progress to showing any signs of a business model, let alone a SaaS business model, and missed social totally.

Melbourne IT isn’t an old company, or large, but it is a stereotype old mindset: inflexible, low agility, and a kind of mini bureaucracy. They do things the old way, and customers have to do things their way. That sounds very harsh, but it’s not that Melbourne IT has “failed”, they are more the norm e.g. a very recent HBR study showed that 61% of companies “have a significant learning curve to overcome” before they can utilise social media.

I also expected Jonathon to refer to a clearer strategy, better messaging and positioning, agility, flexibility, customer engagement and superior support.

Least prepared for the shock

What I DID NOT expect to hear was that Ninefold had been built from the ground-up to embed “social” into it’s whole business model and ethos. During 2010 the founders of Ninefold studied the best business models of cloud computing providers, and the best ways to embed social into everything they did.

I was dumbstruck. Not only was I ignorant of this model new enterprise being in Australia, but it was in my own industry under my nose.

The key is social media, said Jonathan, and it paid off.

What does “social media” mean – it means having a human face – people want more from a technology brand these days, they want the human face, the wider audience wants a bit more warmth, in what ever channel they choose to communicate, he added.

In contrast, it you look at AWS, people never get to speak to a human.

We don’t compete on price alone, because our social business strategy offers more value than simply price savings.

We have one team handle every communication channel. For example a customer sent us a ticket from our website, we replied by email, he twittered us back as he was on a train, and we answered with SMS. Same team, same access to all the same information, communicating in the channels as chosen by the customer.

We know that customers won’t communicate only through “your” set channels, unless they have no choice. To force them to do so is the old mindset, and doesn’t respect them. They want to communicate through their chosen channels, and they want a consistent response from any channel.

For us, we know social media works. We launched our whole business only with social media, in online and offline communities (the offline communities being organised online). For example we launch our beta in January 2011 with a target number of customers in mind which we hoped to acquire over a two week period. Thanks to our social media strategy, we hit that target in the first 2 hours, and went on to exceed our 2-week target by 10 times.

We aim to be in the same social spaces and places as our customers. At the moment that means Twitter, Youtube, Facebook, and Linkedin, plus a company blog to which everyone contributes, using social media to organise offline community meets, and using other social media aware outlets to publish and share content.

Jonathan explained that although his title was “Community Manager” his real job was more about content creation and marketing – creating “scalable shareable artifacts” as he put it.

Is this a winning strategy, where Melbourne IT failed?

Absolutely, because it is founded on the power of a winning SaaS business model plus social business. This means self-serve, lower cost of customer acquisition, scalability, lower operational costs, higher retention through better service (lower churn), and leveraged word-of-mouth. It all becomes self-fulfilling to an extent, although at the same time it has to be worked on every day.

Support is a key, and that’s how the social business strategy really works. It’s not the multiple channels, it’s the building of relationships on the customer’s terms, and supporting customers to the hilt. We all know that people will praise great support, which generates word of mouth and then lower acquisition costs and higher retention rates.

On the other hand Melbourne IT has many strikes against it competing successfully. It appears to be slow, expensive, a high cost of customer acquisition, and a mindset of making things hard for customers to do for themselves. Their theory is that less self-serve means customers have to call, and in the call Melbourne IT has another chance to sell. It’s perverse that organisations still think this way, but I know first-hand this is their tactic.

Not to say that Melbourne IT does not have some individuals who are very tuned in to social media and the concept of social business. Unfortunately the wisdom of these few only serves to highlight the gap between them and the leadership. The plain fact is that social business is foreign to their culture, it does not underwrite their business strategy, and they have a lethargic and expensive operation. In a word – they’re uncompetitive in this context.

How about more nimble competition?

We’re not welcoming competition with open arms, stated Jonathan, but we’re expecting the global players to come here. We’re not focused on them. We’re focused every day on learning from our customers and in providing value beyond price, to have them totally appreciate the value of our relationship. We suspect that the global entrants will focus on price, and that’s why we are shifting the conversation to the relationship, to being human, and to providing exceptional value. As I said before, social media is key to that, he added.

Fantastic! This is an exciting business story for all Australian businesses. Think about social business, from the ground up, and you have new opportunities. And it’s a warning to those businesses who are “the norm” – like Melbourne IT. In this case Melbourne IT was attempting to enter a new market and failed. That’s a marginal failure. It’s when a more nimble social business sets out to capture a competitor’s core business that the tears will really flow.

Cloud prospects

In wrapping up, I asked Jonathan about the prospects for cloud computing, and the impact on internal IT, and he told me:

  1. the prospects continue to exceed our expectations, they are far broader than even we first thought, we’re excited;
  2. IT departments are facing a choice – to pretend that the cloud isn’t happening, with certain consequences, or to embrace it to provide a better, more responsive service. We’re seeing the progressive IT groups and business units rapidly adopt cloud for development and for testing.

Social business has definitively arrived in Australia, and it’s a pleasure to find one built from the ground up on these principles and demonstrating real competitive success.

What social business success stories do you know of, that are not well known?

How has social business led to competitive success?

How can you change a lethargic old-mindset company into a social business?

PS Except for the quotes the views expressed here are uniquely my own and weren’t discussed with any other party with whom I am associated. I don’t own shares in Ninefold or any company associated with it, nor in MelbourneIT.

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