Communication Hubs Are Redefining Relationships Globally

The fact that instant messaging, e-mail and chat are rising much faster as a combined approach to communicating supports the scenario of communication hubs redefining customer relationships in the next three to five years. Yahoo claims that 10 percent of all instant messaging sessions end with a telephone call. While small in total percentage, the growth rate is accelerating for this combined approach to communicating. There are many other research projects underway on this dynamic and its implications for changing how people and business relate to one another in the future.

For the purposes of this article, communication hubs include MSN, Google, Yahoo, eBay, Amazon.com, AOL and MySpace, along with their instant messenger/Voice over IP (VoIP) divisions. Each of these hubs is focusing strategically on combining both audio and video instant messaging, VoIP, mobile IP and voice, and chat into a single bundled package attractive enough to businesses and consumers to turn the majority of their communications needs over to these hubs.

The reason that these companies and others like them are not incrementally launching these services is to avoid the inevitable churn when there isn’t enough value to keep customers loyal. The issue of customer loyalty for communications services is admittedly a complex subject, yet one of the basic assumptions about this market is that when customers subscribe to three or more services, there is a 70 percent reduction in churn. This statistic comes from Cox Communications’ annual report, and its fanatical customer services division, which often wars with sales over alleviating churn versus adding more customers to just replace the ones churned out of the company.

Why This Matters to Relating With Customers

Thinking in terms of these hubs redefining customer relationships, it makes sense to see each of them following a roadmap that includes mergers, acquisitions and internal development to build out the service divisions necessary to support this pervasive hub strategy. EBay/Skype is a prime example, and Google’s investment in AOL is another.

Once the build-out of these communication hubs is complete, each company will no doubt start offering attractively bundled total communication solution sets to both businesses and consumers. What all this means is that the services and tools layered on top of these hubs will resemble what Salesforce.com has created with AppExchange. There could literally be tens of thousands of applications sitting on top of these hubs for lease as a service, just as AppExchange works today. AppExchange is on a small scale compared to where the global communication hubs could potentially be in three to five years.

A Services Revolution Is Coming

Credit Salesforce.com with its very open architecture and the publishing of its APIs for anyone who wants them. That alone is fostering innovation. Software companies that frankly wondered where to go next with their platform strategies rushed to SaaS, partnering with Salesforce.com, Siebel and others in an effort to broaden their online product strategies quickly.

While it is premature to speculate on just what technologies will populate these communication hubs’ application exchanges, it is possible to get a sense of where all this is going by looking at AppExchange and the distribution of applications by area.

Order management, channel management and PRM all have the most applications, which points to the fact that Salesforce.com users — and likely hub users in the future — will want a tightly integrated process flow from customer quote, to order, to fulfillment. The quote-to-fulfillment workflow is where many small companies are putting their development efforts on the Salesforce.com platform.

It stands to reason that when communication hubs launch their exchanges, there will be SAP, Oracle, Microsoft and IBM integration solutions available for these processes as well.

Why This Makes Sense

The fact that SaaS vendors of all types have occasional outages is just going to fuel the demand for relationship tools from these larger, enterprise-class hubs as well. Think of the Service Level Agreements a Google or Yahoo could write and stand behind. If and when these communication hubs do move into redefining what customer relationships are all about, expect to see SLAs with teeth.

The strategic planners in these hubs must be watching what’s going on in SaaS right now, thinking that the occasional outage is just another differentiator for them. Still, delivery of innovative new services and applications that will redefine what customer intimacy is online has got to be at the core of their service strategy.

Other factors playing in favor of this growth path for communications hubs include the following:

• Google’s infrastructure spending starts making sense in this scenario. From $177 million in 2003, to $319 million in 2004, reaching an estimated $797 million in 2005, Google’s infrastructure spend is showing 180 percent growth by most estimates. Clearly a pervasive communications hub strategy is emerging, and the populating of services on that hub could have a business model comparable to AdWords, where even the smallest software companies can get a SaaS offering available for sales globally.
• Communication hubs in China could be Google’s path out of trouble there. Google’s strategists have tried to be good world corporate citizens in China, as Yahoo has, and in the process ironically invited even greater legislation of themselves in the U.S. The purpose of this column isn’t to even try and figure a path out of that challenging mess. Yet, Google sees 363 million cell phone users and over 100 million Internet users in that country. Many of China’s citizens see Internet access as more important than transportation, according to a recent Chinese government survey. For Google, a happy ending to all the problems they have regarding this nation is to create, quickly, a Chinese communication hub that consolidates instant messaging, VoIP, cellular service and Internet access. The key to China for Google may very well be to accelerate their hub strategy there.
• Google the global development platform. Given the fact that most econometrics firms are predicting the majority of value in both manufacturing and services will occur outside of the United States within ten years, the strategists at Google and other communication hubs have got to be thinking about how to capitalize on the billions being spent on R&D offshore. It’s a sobering thought to realize that the U.S. spent more on tort litigation at $205 billion than on R&D at $184 billion. This comes from research prepared by the Manufacturing Institute of the National Association of Manufacturers. Venture capital dollars are chasing innovation offshore partially as a result of the US’ heavy reliance on tort litigation to solve problems.

Bottom line: Changing how companies interact and communicate with each other is what is slowly happening today. Watching the build-out of communications hubs, it’s feasible that the Google platform could happen sooner rather than later. AppExchange has been a great role model and trial balloon that Google, Microsoft, Yahoo and others will respond to on a global scale.