By David Sims
[email protected]
The news as of the first coffee this morning, and the music is
one of the better covers of an obscure Bob Dylan song, Jennifer Warnes’s “Sign
On The Window:”
As I was writing to a friend earlier this morning, it’s part
of my business philosophy that almost
any business concept or truth can be best illustrated in a coffee shop.
So let’s look at what salesforce.com, RightNow Technologies, NetSuite
and other pure on-demand CRM vendors are
facing with SAP and Microsoft announcing they’re going to swagger onto the
on-demand turf, kick some butt and take some names.
The situation reminds me of something I’d read in The Wall Street
Journal a few years ago, at the height of the anti-Starbucks fervor. Hey, I
take the retail coffee shop industry pretty seriously. As I said, it’s my
personal metaphor for American business in general. You tend to keep tabs on something
like that.
I can take or leave Starbucks personally, I’m not one of
these yo-yos who think it’s the Antichrist, a Wal-Mart with better cappuccino, but
their coffee’s not as good as it could be either. Their muffins and whatnot are
overpriced and bland, but overall I don’t mind meeting there – the one here in
Istanbul’s actually better than most of the American ones.
But the Journal
talked to proprietors of a Kansas City coffeehouse called
Broadway Café. When Starbucks announced in 1998 they were opening an outlet
next door, the Broadway’s customers and owners went hyper, ran around like
Chicken Little screeching that the sky would fall in on Broadway, “collected a
thousand signatures on a petition asking city leaders to thwart the plan.”
Starbucks opened anyway, and four years
later when the Journal paid them a
visit the Broadway Café was not only still open, but “sales at the 10-year-old
coffeehouse have grown stronger since Starbucks arrived. With reluctance, Jon
Cates, a co-owner of the Broadway, concedes that that might not be a
coincidence. ‘Starbucks helped our business, but I don’t want to give them any
credit,’ he says.”
Next door now, folks, and business
increases. What was that about a rising tide lifting all boats?
That’s one problem with neighborhood coffee
shops, they are generally run by the least business-friendly people in
business, the kind of 1960s refugee greenies who think Wal-Mart is the devil
incarnate and that customers should actually care about things like “fair trade,”
“rain forests” or “organic” when it comes to coffee.
“Nice, Dave, but the point is…” The point
is that the conventional wisdom (which as historian Paul Johnson noted is
almost always wrong) says “Starbucks is clobbering the independent – invading
its turf, stealing its customers, bankrupting its owners,” as the Journal puts it.
And as they found, conventional
wisdom is… yep, dead wrong again:
In
fact, most independent are doing fine – and not just in spite of Starbucks, but
perhaps because of it. Here in Kansas City [in 2002], nearly all of the
coffeehouses operating before Starbucks arrived in 1998 remain in business.
Since then, other independents have opened, pushing their numbers well beyond
the 25 stores Starbucks has on the market. Like Broadway Café, many of the
independents operate within a store’s throw of a Starbuck’s outlet.
Nationwide,
independents accounted for more than half of the industry’s growth between 1996
and 2001, when the number of U.S. coffeehouses doubled to 13,300, including
Starbucks, according to Mintel Customer Intelligence, a Chicago market-research
firm. Moreover, the large majority of independent coffeehouses started within
the past decade have survived, industry experts say. By comparison, close to
half of the country’s sit-down, slow-food restaurants are less than two years
old, according to D&B, another research-market firm.
It’s like if Starbucks came into East Slingshot, where
nobody had really thought much about coffee other than the potburn you buy to
wash down the doughnuts from Dolly’s Diner, or the Maxwell House to get revving
in the morning.
Andre’s Coffee Shop, opened by that weird guy who moved here
from San Francisco last year and selling stuff like “Kenyan AA,” “Guatemalan
Dark Roast” or “Hazelnut” – what the hell’s a “hazelnut?” – does subsistence
trade, mostly on the strength of his wife Carla’s to-die-for carrot muffins. Folks
just don’t see why they need to pay $3 for a cuppa joe when Dolly’s Diner
charges buck-fifty, I mean coffee’s coffee, right? The only option you need is “Decaf or
hi-test?”
And when Starbucks rolls into town and opens in the old
stationery supply store’s corner space on the mall downtown, well, goodbye
Andre, everyone thinks. Shame about the carrot muffins, but at least Carla
contributed the recipe to the Methodist Church’s cookbook.
So because of Starbucks’s trustworthy, well-known brand name
East Slingshot goes to sample the lattes, cappuccinos, espressos (no Turkish
coffee, unfortunately, that’s still the great untapped market in America). And
over time the town develops a taste for fine roasts, hazelnut lattes and double
espressos. Folks could tell the difference between French Roast and Sumatran in
a blindfolded taste test six times out of ten, and come to realize that in the
morning you go for the darker roast, whereas in the evening a nice, crisp
Colombian will do.
Then they twig that hey, this is the stuff Andre’s been
selling. So they start dropping in a bit more often and hey, guess what, this
guy knows what he’s doing. More and more people, their taste awareness having
been raised by Starbucks, realize that yeah, Starbucks is better than Maxwell
House, thanks for getting us off Dolly’s ditchwash, but Andre’s got the truly
righteous bean. Starbucks gets their share of the market but Andre’s business
goes up, thank you, Starbucks.
That’s how I see Microsoft and SAP’s long-term effect on the
on-demand market. It raises the general awareness and acceptance of on-demand,
stamps the imprimatur on it (because we all know that if something’s really
worth doing Microsoft’s doing it, right? Right?) but it won’t put anybody out
of business who knows what he’s doing in the first place, it’ll just create a
bigger market for on-demand in general.
Back to the Journal’s analysis of the Starbucks phenomenon: “A third of
Americans who drink coffee away from home order gourmet coffee from a specialty
shop… Many people believe that Starbucks increases the overall market,
attracting new customers to the product who then patronize the independent
provider next door. ‘When a Starbucks
opens, it educates the market, expanding it for everyone,’ says Bruce Milletto,
president of Bellissimo Coffee InfoGroup Inc., a Eugene, Ore., company that
provides consulting services to independent coffeehouses.”
Educating
the market in the benefits of on-demand will certainly be a favor Microsoft and
SAP will do, one the dedicated providers can reap the benefits of. Because
folks who have a good experience with on-demand don’t say “Hey we’re really
into this on-demand model, let’s buy this company’s installed stuff.” They say
“Hey we’re really into this on-demand model, can we find someone who does it
better?”
And
hey, it might improve the salesforces and RightNows as well. Again from the Journal:
“For
one thing, sheer terror goads many independent owners to improve their shops
when Starbucks enters the neighborhood. Kansas City’s Broadway Café banned
smoking and began roasting its own beans when Starbucks opened next door.
Similarly, the arrival of additional Starbucks in Long Beach, Calif., prompted
the five-store It’s a Grind chain to spend thousands on cosmetic improvements
as well as staff training, customer service and quality control. Sales have
been rising by 8 percent to 15 percent since Starbucks moved close to the It’s
a Grind stores in 2000.”
A little competition never hurt anything, not a girlfriend’s
attitude or a high-tech company. It’s when you get into monopoly situations –
marriage, Microsoft – that the, ah, innovation and attention to detail begin to
suffer.
So Microsoft and SAP’ll get their share of customers, but as
far as on-demand goes, the rising tide should lift all bytes.
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