Driving Revenue Growth with Web 2.0

by Troy Angrignon

Much has been written about Web 2.0 of late. Unfortunately, much of it is too conceptual, too utopian, too granular and technically detailed, or too basic in nature to be used by executives or IT managers to fuel their organization's success. In this article, I will attempt to fill that gap by clearly articulating a series of tactical applications of Web 2.0 that can be used today to create increased shareholder value for your company.

For the purposes of this article, a very brief definition of Web 2.0 is in order. There are many conflicting, overlapping, and somewhat contradictory definitions under development, but I will define Web 2.0 as the economic, social, philosophical, and technical transitions that are causing the shift from "personal computing" to "social computing," from a read-only Web to a readable/writable/mixable/hackable Web, and from the dominance of the desktop computer to the "Web as platform." That definition is both broad enough and simple enough to cover all of what I will discuss here.

Shareholder value is composed of three key drivers: ¹ revenue growth, operating margin, and external expectations. This article will discuss how to impact revenue growth through the acquisition of new customers; the retention of existing customers and the increased sales from an existing customer base; and, finally, the optimization of pricing to maximize revenues.

REVENUE GROWTH THROUGH NEW CUSTOMER ACQUISITION

There are two primary drivers of new customer acquisition: (1) marketing and sales and (2) product and service innovation. Companies can positively affect both of these using Web 2.0 tools and approaches.

MARKETING AND SALES

One of the first things one would normally be advised to do when looking at marketing and sales activities would be to focus on high-value/high-potential customers. This may be a mistake if your business has a digital product or could have digital/real product hybrids. If so, it may be subject to Long Tail economics, which dictate that sometimes millions of markets of a few may be more profitable than a few markets of millions. (Long Tail theory is beyond the scope of this article. Your best bet is to read Chris Anderson's book The Long Tail [1] and analyze your business against the Long Tail principles.) Instead, focus on your most profitable products and services -- and don't assume that they are your "hits" and "best sellers." If your venture is Long Tail-friendly, you may be making more profit off of the products you sell in smaller batches, and there may be an opportunity for you to push further down the tail to sell fewer products to fewer people and to make more money at the end of the day.

Next, you will want to explore more effective sales channels and advertising channels. This is straightforward. If your product can be sold in a self-serve fashion over the Internet and isn't currently being sold that way, start doing it. If your product is too complicated to sell in that fashion, then consider building a simpler version (if there is a market for it) and selling it in a self-serve fashion over the Internet. As for advertising channels, expand your use of Internet search as a channel. Pay somebody to execute an effective Internet search engine optimization campaign to maximize lead generation.

If your organization doesn't already have corporate blogs, it needs to start them. This is no longer optional when Web search is now becoming one of the primary ways that your prospective customers will learn about you. Blog postings have inordinately high Google rank and always sit at or near the top of the Google listings. If you don't want to suffer the fate of Kryptonite or U-Haul, both of which have found themselves with pages and pages of negative customer rants on their first Google pages, then first, identify what is great about your company and start telling that story. Second, if you do have problems, FIX THEM -- and then tell that story to your customers as well. It isn't bad products that people hate. It's companies that don't learn the lessons from bad products and then attempt to create better products. ²

PRODUCT AND SERVICE INNOVATION

There are many routes to product and service innovation that can drive new customer acquisition. Among many other options, you can:

• Broaden your offerings to appeal to more segments (by rapidly modifying existing offerings to better suit customers or adding new ones)
  
  
• Increase the quantity and quality of new offerings being launched ³
  
  
• Improve time to market, the product design process, or the innovation skills of your people
  
  

Following are a few suggestions for how to achieve some of the above with Web 2.0. By employing Long Tail theory, there is the option of creating more offerings that would appeal to the tail. You might:

• Move from providing mass-market hits to providing access to a much more "niche" product
  
  
• Drive down the cost of connecting your supply to the external demand
  
  
• Increase the number and variety of products you offer
  
  
• Understand and build "filters" that can weed out the mismatches and provide just the most relevant offerings to each user
  
  
• Consider the possibility of your customers creating the product you sell
  
  
• Potentially become an "aggregator" of your type of product (including those from other vendors)
  
  
• Move from an "atom-based" model to either a hybrid model (Web sales with shipped goods) or a fully digital model (in which you can have unlimited "shelf space")
  
  

By moving a software company from desktop-based software development to a Web 2.0 "light, small, fast, and cheap" development methodology, there will be more opportunity to get feedback from your customers, learn from it, and adapt the product, leading to more rapid product innovation. Finally, blogs, wikis, RSS readers, blog editing tools, and RSS aggregators could be deployed as a lightweight knowledge management system [4] through which to share innovation best practices, learning, and content. By opening this system up to a broad set of employees, partners, customers, and even competitors, innovation ideas can come from anywhere, not just from the core design team or business leaders. As an example of this, IBM recently launched an Innovation Jam [2], in which it asks its entire "ecosystem" to help the company innovate in public.

Another significant opportunity lies in creating Web services that access your systems, processes, and information. No matter what kind of business you are, there is probably some sort of opportunity to expand the number and type of customers that you serve by offering access to your data, services, and systems such that it makes it easy for a customer to interoperate without having to go down the outmoded and expensive EDI path. Lightweight Web services are quickly replacing expensive traditional EDI links. For example, Amazon.com rearchitected its entire operation around Web services, which allowed the company to build an e-commerce platform with over a million active retail partners [3]. Look at your operations. Think about how you could open them up to the world and make it easier for people and companies to do business with you.

CUSTOMER RETENTION AND REVENUE EXPANSION FROM THE INSTALLED BASE

Next, let's look at customer retention and revenue expansion. There are four levers that can be modified to increase customer retention and volume of business:

1. Product and service innovation

2. Account management

3. Cross-selling and up-selling

4. General retention practices

As I covered product and service innovation in the previous section, I will discuss the latter three below.

ACCOUNT MANAGEMENT

Traditional account management best practices would suggest that you focus on the high-value clients. Yet because of the Long Tail, you may create more value by paying attention to your low-value customers in aggregate. Another standard practice is to rationalize your customer base, weeding out the low-value customers and keeping the high-value ones. If you have a potential Long Tail business, though, this too would be a mistake. Do the opposite of what conventional wisdom would recommend and see if you can derive more value from the customers that are buying smaller volumes but that aggregate to a significant portion of your business. This requires that you drive your costs down as far as possible so that you can make money further down the tail. This means having a search keyword strategy, using blogs as cheap marketing channels, and moving to a self-service model so that customers can find, learn about, and buy your product or service without interacting with your staff.

Some other actions you could take under the general category of account management include improving your understanding of customer needs, customer satisfaction, and customer interactions in order to be more responsive to customer needs. There are quite a few Web 2.0 ways to achieve this, as we'll see in the following example.

ABC Widgets Meets Web 2.0

Let's look at an example company and see where it might apply some Web 2.0 tools and approaches. ABC Widget Co. makes consumer electronic devices, including toys and games. It is having a tough year after the exploding doll recall incident from last year, in which the company was hammered by bloggers for not recalling the doll sooner. ABC has some supply chain issues, but the biggest problem lately seems to be the fact that its products aren't really selling that well, even when it does get them to the store. Customer support calls are up because of some complex product designs, and the company has a vague sense that customers are frustrated, but it isn't sure how frustrated they really are.

This company needs to start blogging. Yesterday. The CEO has to get out there and tell the company's side of the story with a human voice. Apologize for the doll incident and ask forgiveness. This is not the job of the PR department or the legal department, the first of which will speak in corporate speak and the second of which will deny responsibility in order to protect against lawsuits. I will say it once again: people forgive companies for their mistakes. If a company screws up, people know it. Not talking about it only makes the company look worse. In The Corporate Blogging Book [6], Debbie Weil discusses how the Kryptonite damage control team did a great job of actually replacing its customers' bike locks. What the company didn't do was take the time to tell people about it, thereby leaving a big, blank, embarrassing hole in its blogosphere.

As for ABC, the next step would be to implement some RSS reading infrastructure to start tracking what people are saying about the company. When people say something negative, the company needs to admit it if it's true, or defend it if it's false. Engage those bloggers online and learn how to do it well. They are not the enemy -- they are ABC's customers, partners, vendors, and suppliers, who now have a forum for their opinions that ABC doesn't own or control. ABC's only two choices are to ignore that conversation or to join it.

Once it has begun to engage its customers, ABC should consider building out some online community for its users so that it can begin to find out what they really care about. The company could design and build a site that serves its customers' needs and that allows those customers to meet and interact. It should post community guidelines up front and invite customers to help build the community, generate content, and moderate the site. ABC will need to reward the good contributors, address the concerns of customers who are ticked off about something the company has done wrong, and sanction/isolate those who are harmful -- not to the company, but to the functioning of the community. ⁴

Now, ABC needs to invite its customers in to help design new products. The company could invite customers to be on a panel where they can provide both qualitative and quantitative feedback on ABC's plans. Fixing product design and development up front will cause fewer support issues later on. Failing that, the company could at least put up blogs and forums where customers can explain their support issues and maybe even help ABC to document the problems in an open wiki. After all, customers often know the product better than the vendor.

If there are any Web-based aspects to this business, then ABC must immediately begin to instrument its Web applications so that it can watch every single action that users take. There are nuggets of gold buried in that mountain of "usage pattern data." By watching its users use the Web-based systems and applications that interface with ABC's toys and games, it is possible to deduce needs that the users themselves cannot even articulate but that are obvious from the patterns. There are many more things that ABC could do, but that is a first sampling of ideas for supporting better account management practices.

CROSS-SELLING AND UP-SELLING

This leads us to the improvement of cross-selling and up-selling. Now it will become apparent that when we apply Web 2.0 tools and thinking in one area, it often has positive spillover effects in other areas. For example, when we look at our sales and advertising channels to identify opportunities to cross-sell/up-sell to existing customers, we now know to be aware of the entire tail. We can use low-cost models where appropriate to move further down the tail into potentially more profitable territory.

Back at ABC Widgets, there are a few things the company could do that seem pretty straightforward. It could examine its total customer experience and make sure that those experience touchpoints are fast and functional. People are getting used to Amazon, eBay, and Google, where the window between thinking of what they want and receiving what they want has shrunk, and the quality of that interaction has gone up compared to dealing with other companies. Revising heavy ERP systems doesn't count as Web 2.0 thinking, but there might be places that ABC could apply some lightweight application development to solve some particularly knotty issues, build out moderated forums for its users to improve support, and/or move CD-based software applications online where it can build, learn, and adapt them to the users quickly. This would give ABC a faster order-to-delivery cycle time, as the customer could search for the software/game, click a button, pay for it, and play it immediately.

One big area of weakness and opportunity involves brand strength and goodwill. With Web 2.0, there is no longer any place to hide. Companies that used to bury their customer horror stories in their online forums (or worse, delete them from the forums, as Apple Computer has done many times in the past) are now faced with the ugly truth every day when they search for their name. I discussed this above in the "Marketing and Sales" section, but it bears repeating. Chris Anderson said it best: "For a generation of customers used to doing their buying research via search engine, a company's brand is not what the company says it is, but what Google says it is" [1]. If ABC wants to retain its current customers and sell them more, then it needs to react to what its customers are saying. If its products stink, then the company should admit it, fix them, and then move forward in collaboration with its (remaining) customers.

GENERAL RETENTION PRACTICES

Traditional retention policies use a fairly heavy-handed approach whenever they can get away with it. This includes setting up barriers to switching. The telephone companies used to rest easy in the knowledge that people wouldn't leave, no matter how awful the service was, because they didn't want to give up their phone numbers. Once local number portability passed as a law in the US, people defected in droves (often, unfortunately, from one frying pan into another fire). The entire concept of creating barriers to fence your customers in is wrong-headed and disrespectful.

Here are some ways the management at ABC could improve retention. They could start by trying to get a grasp on what is causing their customers to defect in the first place. This is a lot easier to do if you are delivering some sort of hosted service. It has been suggested that the salespeople at Salesforce.com and JotSpot (hosted software companies that specialize in CRM and wikis, respectively) know within 24 hours if a new customer will become a real paying customer. They also know if an existing customer is declining in his or her usage and likely to stop paying for the service. They have achieved these insights by measuring everything and then looking in the usage data for patterns that predict buy signals as well as defection signals.

Because they lack the frequent touchpoints found in an online environment, most companies cannot take advantage of this approach. But for those who have frequent online interactions with their customers, this is a must. They can measure, recognize patterns, and then intervene before things go too far wrong and it's too late to retain a particular customer. Establishing customer communities, forums, advisory panels, and the like is a good way to solicit feedback and uncover issues that are causing customers to consider defection so that these issues can be addressed early and often.

PRICE REALIZATION

Finally, we come to price realization -- that is, how much can you charge for this product with this customer in this market? There are two key levers that can affect pricing. Hearkening back to Economics 101, it is easy enough to remember that if you want higher pricing, you can restrict supply or increase demand. And you can also optimize pricing in your market such that it maximizes revenues. Remember the old lesson: if you price your widget at $20 and sell 10 of them, you will make $200, whereas if you price it at $18 and sell 20 of them, you will make $360.

So where can you apply Web 2.0 to impact the price you receive for your offerings? Let's start, as we have with the other factors, by disabusing ourselves of some traditional thinking. Standard economic pricing theory dictates that you want to find price-insensitive buyers so that you can push the price higher. Long Tail theory challenges that assumption and states that you might find very price-sensitive customers way down in the tail that might still buy a lot from you in aggregate if you get the offering/pricing matrix right. Once again, review your offerings with Long Tail glasses and be careful not to be trapped by the old mode of thinking.

Back at ABC Widgets, in order to drive higher prices, the company could increase product innovation and work on its brand image (and related search results), both of which I have covered above. Next, by moving its software offerings from perpetual license CDs to a recurring revenue, software-as-a-service model, it can shorten time to market (using Web 2.0 development methodologies such as Ruby on Rails, Ajax, and general agile development principles) and improve the functionality of those offerings through rapid customer-driven iteration. To optimize pricing, ABC could run tests on the Web to see how prices affect prospect-to-customer conversion rates, with a view toward maximizing conversions and, therefore, revenues. And the blogs, customer advisory panels, and communities the company has already set up can be used to explore and better understand those benefits of its offerings that customers really care about. This will enable ABC to modify features and optimize the pricing for each of the offerings and customers -- in other words, striking a price elasticity balance between price and volume that will maximize revenue.

CONCLUSION

The examples and suggestions above are not encyclopedic, nor were they meant to be. They were intended as a general starting point for companies to begin to understand how the various Web 2.0 technologies and attitude shifts fit together and map to the shareholder value levers. We have seen how specific Web 2.0 approaches and tools can be used -- today -- to drive revenue growth in an organization by impacting the acquisition and retention of customers, the amount of revenue that is earned from those customers, and the prices that your company can charge for its products and services. As for next steps, map out your own business, read up on the various technologies, and see if you can fulfill any of your business goals using the tools above. Then prioritize them and start building. Test, learn, adapt, and repeat!

NOTES

¹ The fourth value driver in the Deloitte Shareholder Value Map, which was used as the basis for this article, is "Asset efficiency," but there were very few ways to impact that driver, so it was excluded from the discussion. The Deloitte Shareholder Value Map can be found at www.deloitte.com/dtt/section_node/0,1042,sid=59402,00.html.

² There are many books and Web articles written on corporate blogging. Two of the better books are Naked Conversations by Robert Scoble and Shel Israel (a good high-level overview of why companies should blog) [5] and Blog Marketing by Jeremy Wright (a detailed look at how to "do" corporate blogging well) [7].

³ For example, Zeiss, the German optics manufacturer, came close to bankruptcy in the 1990s. Then it started launching new, innovative products, and by 2004 the company was able to state that it generated 43% of its revenue with products launched in the prior three years. This can be a significant route to growth.

⁴ In one system, the inhabitants all ranked each other. And the "trolls" (those who were simply being

REFERENCES

1. Anderson, Chris. The Long Tail. Hyperion, 2006.

2. "Big Blue Brainstorm." BusinessWeek Online, 7 August 2006 ( www.businessweek.com/magazine/content/06_32/b3996062.htm?chan=tc&campaign_id=rss_tech).

3. Gray, Jim. "A Conversation with Werner Vogels." ACM Queue, Vol. 4, No. 4, May 2006 (www.acmqueue.com/modules.php?name=Content&pa=showpage&pid=388).

4. LaMonica, Martin. "Corporate America Wakes Up to Web 2.0." CNET News.com, 26 June 2006 ( http://news.com.com/Corporate+America+wakes+up+to+Web+2.0/2100-1012_3-6087566.html).

5. Scoble, Robert, and Shel Israel. Naked Conversations. Wiley, 2006.

6. Weil, Debbie. The Corporate Blogging Book. Portfolio, 2006.

7. Wright, Jeremy. Blog Marketing. McGraw-Hill, 2006.

ABOUT THE AUTHOR

Troy Angrignon has a day job as the Emerging Technology Strategist for Business Objects, where he is tasked with identifying new growth opportunities, offerings, and business models that arise from new and emerging technologies. He is currently focused on Web 2.0 strategy, software-as-a-service, and Web services strategy. Outside of that role, he also mentors and advises startups on business strategy, business planning, and market analysis. In addition, Mr. Angrignon is a passionate outdoor sports enthusiast and nonprofit volunteer who lives in Vancouver, British Columbia, Canada. Mr. Angrignon can be reached at troy.angrignon@businessobjects.com.