High-Impact Entrepreneurship

7 lessons my $1.8 billion competitor, Omniture, taught me over the last 7 years

Reprinted from Quick Sprout. Original article here.

By Neil Patel

Over the last 7 years I’ve been in the software as a service space. More specifically I’ve been in the web analytics space. My first analytics startup, Crazy Egg, helps you understand how people interact with your website. And my second one, KISSmetrics, helps you understand your customers so you can maximize your lifetime value.

In the analytics world the biggest player in the space, by far, is Omniture. And although they aren’t a direct competitor to either of my startups, I’ve had the privilege of watching them go from being just another analytics company to turning themselves into a 1.8 billion dollar company.

Here are the 7 most important lessons I’ve learned from watching my competitor, Omniture, dominate the analytics space.

Lesson #1: Best Product ≠ Biggest Company

By no means does Omniture have the best product out there. And no, I am not just saying this because I own 2 analytics companies…

Their product is hard to use, it’s slow, they’ve had a ton of instances of data loss, and they constantly get customer complaints. If you don’t believe me, just Google “Omniture Sucks”.

That’s actually the main reason I got into the market. Years ago I used to own a consulting company and we used to help our customers use Omniture… and they hated it, although they kept on paying for it.

So what did I learn exactly? Well you of course want to try and have the best product out there, but even if you don’t that’s not a valid excuse for not making money. Before Omniture sold to Adobe their revenue’s were well into the 100s of millions. In 2008 (they sold in 2009) they had $296 million in revenue. Which brings me into lesson number 2…

How I applied this to my business: Although we focus heavily on product at KISSmetrics, we hired a VP of Sales a bit more than a year ago to build out our sales team. You can’t just focus on product or sales, you have to focus on both.

Lesson #2: Sales is the quickest way to grow a software company

I’ve always had the belief that you need a finished product before you start selling. The reality is, you don’t. I didn’t learn this until I sat on a sales call from a rep at Omniture. Here are the specific things I learned from digging into their sales process:

PowerPoint presentations can be more effective than real product demos – if you have an incomplete product the last thing you want to show someone is a half working product because it’s really hard to convince someone to pay for something that isn’t built. And if your product is built, but has bugs, it’s also a bad idea to show someone a demo of a product that doesn’t work 100% of the time. Through PowerPoint presentations Omniture was able to dance around all of these issues because they were able to show you the problem they were going to solve for you. And if you happen to close a deal before your product is done, you can always tell a company you won’t be able to start till X date as you are backlogged from customer demand.
Always sell with case studies – the more case studies you include in your pitch, the more validation you bring to your product. Case studies show that your product does what it is supposed to do. If you can’t use case studies, try to use data and facts to back up how your product will make a company more money or at the very least save a company money.
Don’t forget to score leads – if you are an ideal candidate for Omniture you can expect one of their sales guys to constantly hound you. If you aren’t you’ll notice that their sales reps won’t bother you too much. It’s not because they don’t want your business, but it is because they are lead scoring. They know that if you aren’t ready to buy, it’s best to throw you back to marketing where they can continue to educate you until you are ready to talk to a sales rep. This is smart because sales reps are really expensive and you don’t want them talking to people who aren’t ready to pay.
Educate first, sell second – just like the lead scoring example above, Omniture has a tendency to educate first and then sell. It helps drive up the demand for their product, which makes the job easier for sales reps. They do this through webinars, whitepapers, conferences, booths, and countless other forms of marketing. But if you look closely at all of the methods I mentioned above you’ll notice 1 thing in common… all of their marketing methods involve collecting your contact information so their lead qualifiers can follow up with you later on to figure out when you are ready to buy.
The bigger the pitch the bigger the money – Omniture doesn’t sell you analytics, they sell you a solution to your problem. And the bigger the problem they can solve, the more money they can charge. A good example of this is that they don’t help you with just your SEO needs or PPC needs, instead they help you with your digital marketing strategy. They know large corporations are shifting their budget towards digital marketing and if you look at Google Trends, you’ll notice that more and more people are interested in digital marketing. In essence, they are riding the wave of what’s popular, as that tends to be where the big bucks are.

How I applied this to my business: Throughout the last year we’ve been building out our sales team at KISSmetrics. We are now at the point were we are adding a new sales rep each month.

Lesson #3: The more you integrate the higher your lifetime value

Although Omniture doesn’t have the best product, one of the main reasons companies keep on paying them is because of integrations. Their product integrates with Salesforce, Extact Target, Double Click, and dozens of other large software providers.

At a quick glance this may not seem to be a big deal, but their ideal customer uses a lot of those other services. And if their customers are reliant on those other services, they are also going to be reliant on you as your product integrates with them and passes over valuable data.

So even if people hate your product, it’s going to be harder for them to cut you as you are deeply integrated into other software solutions they need to keep their business up and running.

Plus, if a new comer comes into the market with a better product than yours, that is also cheaper, and it integrates with other software solutions, you are still likely to keep your customers. The reason being is the cost to rip out your software solution and switch at this point will typically cost a lot more than the savings a company is going to have by switching.

If you want to boost the lifetime value of your customer, integrate with all of the major software providers your customers use.

How I applied this to my business: KISSmetrics now integrates with other software providers that our customers use, such as SalesForce. This has helped us boost our average selling price and our lifetime value.

Lesson #4: Mindshare = sales

The one thing Omniture did better than any other analytics company is that they got mindshare really fast. They spent more money on marketing and they were much more creative with their marketing, which helped them capture more mindshare than their competitors.

For example I was at a conference, called Search Engine Strategies Chicago, which was held during winter. Omniture was at the event and they were handing out Omniture branded scarfs. This was very effective as most of the audience was traveling in from other destinations and they weren’t used to the cold weather. Within hours thousands of people were walking around wearing Omniture scarfs.

In addition to this they also did all of the other marketing campaigns that their competitors did such as pay-per-click advertising, seo, speaking at conferences, creating white papers, and banner advertising. But the one thing that they did better than the competitors is that created most of their mindshare by partnering up with thousands of the ad agencies in the U.S.

So if an ad agency had a customer that needed analytics, Omniture made sure they were always recommend. They did this by providing ad agencies a referral fee on each deal they brought in.

If you want to grow your business, you have to capture as much mindshare as possible. And yes this will require advertising… and although you may not be getting a good ROI in the short run, remember that there is value in branding as well.

How I applied this to my business: With both Crazy Egg and KISSmetrics we try to capture mindshare through our blog. It’s worked well for us over the years and it has been cost effective.

Lesson #5: If you can’t beat them, buy them

Although Omniture had a ton of the mindshare in the market place they didn’t have all of it. For a long period of time there were 3 big competitors in the space: Web Trends, WebSideStory, and Omniture. There wasn’t a clear winner in the space, so what Omniture decided to do was to buy out some of the other players in the space.

Omniture ended up buying out WebSideStory, Offermatica, and Mercado. Through these acquisitions they became the leader, which was a very smart move as the value your company drastically increase if you can become the leader.

For example, a company in the analytics space maybe worth 4X revenue, but if they are the leader in the space they could be worth 7X revenue. Omniture was buying companies at a lower valuation and by combining all of them under the Omniture brand, they were able to skyrocket the valuation of their company because they became the leader.

And in the end Adobe bought them for 1.8 billion dollars and paid a premium of 25% per share.

How I applied this to my business: With Crazy Egg, we recently acquired Hellobar to increase our market share.

Lesson #6: It’s better to have short term pain and long term gain, than it is to have short term gain and long term pain

As Omniture continued to grow they ended up with a handful a products. And although these smaller products didn’t account for the majority of their revenue, they did account for a good portion.

A good example of this is Hitbox. It was a product that they owned through their WebSideStory acquisition and they could have continued to run it as it was making good money. But they decided to cut it as well as other products so they could focus on their main Omniture suite.

By cutting these products they were decreasing their revenue in the short run, but this allowed the whole company to focus on the big picture, which helped boost their revenue in the long run.

If you want to create a large company like Omniture you need to focus all of your efforts on one product instead of your trying to create dozens of smaller ones. Even if this hurts you in the short run, you’ll benefit from it in the long run.

How I applied this to my business: At KISSmetrics we sold KISSinsights and Sharefeed. Both of those products are doing well financially, but we wanted to focus all of our efforts on KISSmetrics.

Lesson #7: Location matters

Where do you think a 1.8 billion dollar tech company would be located? In most cases they would be in San Francisco, California, but that wasn’t the case for Omniture.

Do you know where they are based? It’s Orem, Utah.

Most people try to start companies where everything is happening… and in most cases that is San Francisco. But what was smart about Omniture is that they started where their ideal employees were located… Utah.

Utah has a large population of Mormons. And many of them are missionaries, in which they travel the world and go door to door convincing people to switch to Mormonism. Because Omniture is a sales driven organization, being based out of Utah was perfect for them. They were able to recruit a ton of these missionaries and turn them into sales reps as they already had the basic sales skills. This allowed them to grow their sales team at a rapid pace and at an affordable rate as the cost of living is lower in Utah.

In an ideal world your potential employee pool would be located in San Francisco, but that’s not always the reality. So if you want to setup a company, don’t just go to where everything is happening, instead look for where all of your potential employees are located and setup shop there.

How I applied this to my business: We ran Crazy Egg as virtual company, but with KISSmetrics we setup shop in San Francisco because that is where a large portion of our talent pool is located. We do have some virtual employees, but most of the team is located in San Francisco.

Conclusion

Just because someone is your competitor, it doesn’t mean you can’t learn from them. And although Omniture isn’t my direct competitor, we do share some of the same clients and every once in a while we fight for the same deals.

If you want to create a successful business, don’t ignore your competitors. Whether you think they are dumb or smart, it doesn’t mean you can’t learn a thing or two from them.

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