Yesterday salesforce.com announced its intentions to acquire social performance management vendor Rypple and launch a new HCM (Human Capital Management) unit led by John Wookey.
Yvette Cameron at Constellation Research has some analysis here from the HCM vendors, customers and partners perspective, from their exclusive debriefing from Rypple co-CEO (and Influitive Advisory Board member) Daniel Debow and John Wookey, EVP of Advanced Applications at Salesforce.com.
My point of view on this landmark acquisition is that it illuminates important trends in business software. Companies on the right side of these trends - vendors, users and partners - will profit handsomely in the years to come. I will expand on these trends below.
Rypple is one of the most innovative business software companies that I have seen in years. It is one of the inspirational companies for us at Influitive, a pioneer in gamification of business processes and in a leveraged freemium model (high proportion of free customers upgrading to a paid model).
I see the acquisition of Rypple by salesforce.com is a validation of these concepts, because salesforce.com is one of the most skilled and visionary acquirers in business software today. The last few acquisitions - Koral (now Salesforce Sites), GroupSwim (now Chatter), Jigsaw (now data.com), Radian6, Heroku - have transformed salesforce.com into a one-stop-shop enterprise powerhouse. Salesforce does not overpay, and they don’t go after “blockbuster” deals like SAP’s recent $3.4B acquisition of SuccessFactors. These acquired companies are notable for being somewhat under the radar, having very good technology, and a lightweight business model that allowed them to win new customers quickly and expand their footprint inside those accounts quickly.
The acquired companies also have another important thing in common, they have simplified and democratized the process of getting important business processes done. Koral made it easy for anyone to build web content, GroupSwim made it easy for people to collaborate inside the company in a natural way, and Heroku - which we use here at Influitive - makes it easy for developers to build highly scalable web applications in Ruby.
Marc Benioff, CEO of salesforce.com, understands how transformative social computing is and this is reflected in the recent acquisitions, including Rypple. Here is Marc on the acquisition of Rypple: “The next generation of HCM is not just about a cloud delivery model. It’s about a fundamentally better way to recruit, manage and empower employees in a social world.”
Let’s look at some of the important trends illuminated by the acquisition of Rypple:
Gamification is the application of game mechanics to non-game functions. Some common examples are challenges, points, levels, achievement badges, leaderboards and redeemable rewards. Unlike traditional enterprise software, which is so often mind-numbingly boring, hard to use, and uninspiring, games are engaging and motivating. When we play a well-designed game, we feel empowered, have a sense of achievement, a feeling of being part of the team (if it’s a social game).
Just as storytelling - when done well - is a natural, more human and effective way to transmit complex information, gamifying - when done well - is a natural, more human and effective way to motivate people. Militaries have employed these principles for centuries, perfected in the past 100 years by organizations like the Boy Scouts, political parties and sports learning and mastery. I see these as the prototypes of social gaming motivation - game elements combined with social elements can create an addictive experience, which can have tragic, wasteful or remarkably successful results depending on how it is used.
A lot of people under the age of 40, myself included, have grown up with video games and enjoy playing them. People under the age of 25 have grown up with social media and probably cannot imagine life without it. Work should be just as engaging, and GenX/GenY is demanding it, so it is not surprising that Rypple has been successful, and why salesforce.com wants the concepts infused in its own applications. What Rypple has done for motivating and aligning employees, we will see in many different business processes, because users will demand it.
There is no shortage of gamification vendors out there - Gamification analyst R “Ray” Wang of Constellation often lists “The 3B’s”, Badgeville, Bunchball and BigDoor, CrowdTwist and iActionable. These players have a more mature, deep and flexible game mechanics system than Rypple, and some already have integrated with salesforce.com. The pitch for these vendors is “we can gamify anything, you can build any game you like, and have the prettiest badges too.”
As gamification is still quite new for many business executives, creating the perfect game is not on their minds. They want best practices around a focused use case, not a bag of gamification tools. Rypple has tremendous insight into two classes of users, GenY workers and new managers, and built their toolset around this insight. As there are more GenY and new managers who need to manage them every year it is a natural growth market. The game mechanics are applied in a natural way that motivates these users. In a sense, salesforce.com acquired the best gamification company, even though it is not called a gamification company. I think that we are going to see a host of companies in the next few years, also with a deep insight about a set of users and a business problem, apply the principles of gamification effectively, and build a few exciting companies.
The Rypple product was not offered as a free trial, which some business software companies employ to speed their sales cycle. It was potentially “free forever,” with some proportion of the user base upgrading to a paid model. This model has been very effective for social gaming, and for very lightweight software applications. Human Capital Management is a “serious” enterprise application, with workflow, process, analytics, best practices. Predecessor apps could easily run in the millions of dollars, and provide a cushy living for hordes of rolex watch-wearing, BMW-driving sales reps. Conventional wisdom would say that HCM delivered in a freemium model would not be successful.
But the CW was wrong and we are seeing more and more software apps delivered this way into the enterprise, including Yammer and Asana for collaboration and Solarwinds and Spiceworks for IT management. Salesforce itself has its own freemium offering in Chatter, and is also backing do.com, a competitor to Asana.
My fellow Canadian entrepreneur Krista LaRiviere, CEO of gShift Labs has said in an interview, “I personally feel that the freemium model undervalues software in general.” I can understand the sentiment - people often devalue things that are free. At my last company, we had one of the highest selling prices among our peers, and always made sure clients had “skin in the game”, even for the most prestigious prospective customers who were looking to do a pilot. But times have changed, and these days having a freemium model can actually enhance the perception of value.
Let me explain. The biggest problem with enterprise software today is that it is not effectively used. A freemium model makes the statement that “our software is so effective, so easy to use, that the cost for us in giving you a base model is negligible. We are willing to bet that many of you will enjoy using it and will pay to have an even better experience.” This level of confidence highlights a critical value that enterprises want - and will one day demand from enterprise software vendors. Many of the enterprise freemium vendors, Influitive included, are able to extract a significant amount of investment from customers, once the value is proven.
The benefit to the vendors is also considerable, as it dramatically reduces the #1 cost item, which is the sales and marketing expenditure required to convert prospects into happy, paying customers.
With superior economics both for customers and vendors, expect to see a lot more freemium enterprise software vendors in the next few years.
Do you agree - are enterprises ready to invest in gamification? Will focused use cases win over the general gamification toolkit? Is the freemium model “for real” at enterprises?
And one more question - who will salesforce.com buy next? 500 points and a level up for the right answer!
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