Summit Strategies: Anatomies of Profitable Software-as-Services Providers: Secrets for Success

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Anatomies of Profitable Software-as-Services Providers: Secrets for Success

This section on EchoMail is an excerpt from the Market Strategy Report, Anatomies of Profitable Software-as-Services Providers: Secrets for Success, which was originally published in June 2002.

EchoMail
Many first-generation IBSPs struggled to develop compelling offerings for their target market. Some seemed far more interested in the gee-whiz aspects of their technology than in solving customer's real-world business problems. In contrast, EchoMail came to market with a solution designed to address a particular problem: large companie's corporate e-mail overload.

Under its former name, General Interactive, EchoMail entered the market in 1995 with a suite of e-mail relationship-management tools designed to ease the pain of large companies' e-mail overload.

Solution and Pricing

The EchoMail Digital Refinery (see Figure) enables customers to use e-mail strategically to improve customer service, build one-to-one marketing programs and derive business intelligence. For example, Kmart implemented EchoMail to help handle the more than 20,000 customer e-mails it receives each month. Using the system, Kmart has been able to reduce the number of customer-service representatives assigned to handling e-mail, and has cut its customer-service expenses by $60,000 per month. Calvin Klein Cosmetics, on the other hand, has used EchoMail to handle inbound and outbound e-mail communications for its cK One campaign.

As discussed in Summit Strategies' May 16, 2001 Summit UpFront column, EchoMail: Quiet, Steady and Profitable, EchoMail's platform also helps clients manage inbound, outbound and archival e-mail. EchoMail's inbound module automatically classifies, routes, tracks and responds to e-mails to reduce the time and cost of handling them. EchoMail can distinguish among e-mails containing sales leads, requests for information, or complaints. It can even detect the sender's sentiment or the tone of the e-mail, to identify whether a customer is satisfied or disgruntled. Taking the process one step further, EchoMail can generate an automated response that takes into account the subject matter, context and sentiment expressed by the sender.

The EchoMail Digital Refinery

The vendor also offers a range of e-mail campaign-management services, such as access to outbound e-mail templates, campaign design and strategy consulting, creative assistance, production and transmission services, and even full business-process outsourcing (BPO) of e-mail campaigns. This is a lucrative practice for EchoMail: More than 40 employees serve about 50 percent of EchoMail's outbound e-mail customers with these services.

EchoMail is also adding new services that complement and/or provide natural extensions to its core offering. Its next release, for example, will include a CEO dashboard, brand-management functionality, and video and sound capabilities. EchoMail believes that these additional services will enable it to create added loyalty with existing customers, and to develop new revenue streams.

EchoMail prices its solutions for three types of delivery scenarios:

1.	In-house delivery, selected by 30 percent of its customers, in which customers pay EchoMail professional-services fees, a licensing fee and maintenance charges;

2.	ASP delivery, selected by 70 percent of its customers, in which customers purchase the software license and pay professional-services fees, as well as a monthly maintenance charge that includes hosting services; and

3.	BPO delivery, selected by a subset of its ASP customers, in which customers buy the software license and pay related professional-services charges (for which EchoMail usually bills at an hourly rate for developing full-service e-mail marketing campaigns, including design, production, transmission, reporting and response management).

EchoMail derives additional revenues when it meets prescribed service levels. Each time EchoMail accurately characterizes and responds to an e-mail in the appropriate manner (as based upon predefined conditions), EchoMail receives an extra bonus. Though, on the surface, this performance-based pricing model may sound pricey, when juxtaposed against the cost of pre-EchoMail-managed e-mail, the add-on fee is easily digestible.

The vendor also draws approximately 40 percent of its income from its BPO practice. EchoMail expects that number to grow over the coming years.

Basing its pay on the quality of the service it delivers to customers is part and parcel of EchoMail's services philosophy. EchoMail has built a business model around delivering value that can be easily quantified to customers; it reaps rewards when its customers see increases in productivity, revenues and customer satisfaction. The vendor is also committed to giving customers a choice as to how they run its service, who manages it and how quickly they scale it.

EchoMail goes the extra step by providing complete BPO services for e-mail marketing campaigns for customers that want EchoMail to take on this task, and many of its clients take advantage of this service. The vendor's service commitment shines through to customers, many of which have opted into larger enterprise-wide contracts based on positive experiences.

Target Market and Customers

Many companies struggle to keep on top of the mountains of e-mail that they receive on a daily basis, and find it difficult—if not impossible—to answer inbound e-mails in a timely and effective manner. Furthermore, few have been able to effectively get their arms around outbound e-mail, and have struggled with issues such as production design, quality assurance and reporting. As e-mail moves to become a primary mode of communication, companies that fail to figure out how to solve the e-mail overload issue efficiently and accurately now will lose their competitive edge.

Companies across the spectrum can relate to this problem, but EchoMail has focused its attention on those companies with the greatest pain and deepest pockets: large enterprises. The IBSP has targeted Fortune 1000 companies across a number of industries, including financial services, consumer packaged goods, pharmaceuticals, government and high-tech—all industries that must cope with an overabundance of e-mail.

EchoMail's message hits the mark with individuals within large companies' customer-care and marketing organizations who feel the pressure to deliver tactical solutions quickly—and effectively. To accomplish their goals, many of these individuals first looked to their existing customer-relationship management (CRM) systems; but most found that these systems, although tangentially related, just weren't up to snuff for handling massive e-mail responses and campaigns. Meanwhile, others hoped that their IT groups could create more specific solutions, but found their internal IT organizations simply too overburdened to lend a hand.

EchoMail's e-mail-automation value proposition has found a home with a variety of gold-plated companies, including customers such as Allstate Insurance, American Express, AT&T, Citigroup, Los Angeles Times, Gate-way, Calvin Klein Cosmetics, Salomon Smith Barney, GEICO and Warner Music Group. In total, EchoMail supports more than 200 customers. Most deals start with a divisional sale, but EchoMail has been able to up-sell nearly all of its clients into larger, enterprise-wide contracts.

Go-to-Market Strategy and Partnerships

By appealing to the right decision makers within an organization—typically a director or vice president trying to wrestle the e-mail problem down to a manageable size—EchoMail is able to easily get in the door at target accounts. The vendor has found that it only takes a few discussions to relay its value proposition to prospects, and the company typically closes deals anywhere from 10-90 days after discussions begin.

Like the other vendors profiled in this analysis, EchoMail relies heavily upon its installed-base customers to serve as references and to provide testimonials on the strong returns they've seen from the EchoMail solution— such as in the dramatic case of one customer, which was able to reduce its cost of e-mail processing from $18-30 per e-mail to less than $3.50. EchoMail also illustrates the type of cost savings companies can reap with its solution via a digital calculator that computes ROI and a pay-back model for each individual prospect.

Remarkably, the vendor has closed all of its deals to date over the phone, and has done little outbound marketing. As EchoMail has expanded, it has begun to augment its inbound telesales team with feet-on-the-street sales representatives and appointment setters.

The vendor is also beginning to court smaller, regional systems integrators as a channel for its solution. Because EchoMail solutions can be rapidly deployed—customers can be up and running in as little as 48 hours—the company hasn't had a big need for large systems integrators that typically look for longer-term contracts. There is still room for professional-services work, however, in areas such as setup, customization and integration; and the vendor believes that smaller integrators will be attracted to the opportunity and the revenue stream.

Solution Architecture and Implementation Methodologies

EchoMail has written its solution in C and Java and has based it on a multi tiered architecture. Because it was designed as a multi-tenant solution based on a single software platform, the vendor gained incredible economies of scale and skill.

After several years of co-locating at Exodus Communications (recently acquired by Cable & Wireless), EchoMail decided to bring its data-center operations back in-house. Cost was a significant driver in EchoMail's decision; the company simply believed it could run its own facilities less expensively than could a partner. To whittle down its operational costs, EchoMail has farmed out the data-center's network operations center (NOC) and data-replication services to its field office in Chennai, India. In doing so, and by making smart decisions about equipment and space requirements, EchoMail is confident that it can run its own data-center operations less expensively than the premium data-center providers.

Regardless of the deployment method clients select or where the solution lives, all customers run on the same set of code, allowing EchoMail to easily send out patches, conduct routine application maintenance and quickly roll out new versions of the solution.

EchoMail does not allow customers to make modifications at the source-code level, but has extracted data-customization capabilities to a separate set of tables, enabling customers to easily make modifications to the presentation layer. If EchoMail believes that there is broader appeal for customization, however, it does the necessary development work to accommodate the request, and then rolls it into the product suite.

Most customers need to integrate EchoMail with at least some of their internally deployed solutions. To facilitate these connections, the vendor integrates at the data layer, either through database replication, patch processing, XML or another method. By integrating in this manner, EchoMail is able to significantly streamline professional services.

Profitability Equation

Several key factors have helped EchoMail get on a sustainable profitability trajectory. These include:

	Building its e-mail relationship-management solution from the ground up on a flexible Web-based architecture, allowing EchoMail to quickly and efficiently bring new customers live in a matter of days;

	Using telesales to keep sales costs spectacularly low. As mentioned, EchoMail has closed all deals to date over the telephone, using a powerful payback calculator and stellar customer references to demonstrate its solution's return on investment;

	Reining in costs by running significant chunks of its operations and BPO services out of its office in India;

	Gaining greater efficiencies and reducing its overhead costs by bringing its data center back in-house, and farming out part of its operations to its Indian division;

	Generating additional revenue sources by up-selling customers into BPO services and agency-related work; and

	Structuring its pricing model to ensure it gets extra compensation every time the service delivers on predefined expectations.

As a young company, remaining profitable is extremely important for EchoMail. It will continue to invest, however, in areas such as sales and bringing on board sales professionals that understand the complexity of e-mail management, as well as in nurturing partnerships that can bring the company into new deals. The vendor will also spend in research and development and making improvements to its product.

Amy Levy
alevy@summitstrat.com