Everyone is talking about the tough economy in no uncertain terms. These are difficult times, and the general wisdom is that they’re going to get worse in 2009. What does it mean for Customer Service?

John Ragsdale has an excellent thought provoking piece on what to expect and how to deal with this economic climate. One of the best things about John’s analysis is that it harkens back to the relatively recent economic crisis of 2001 and gives us the experiences learned the last time around. As the old saying goes, those who do not understand history are doomed to repeat it, so let’s avoid the traps uncovered last time around.

Here are some of these traps:

It’s a mistake to view Support as a cost center . The trouble is that cost centers invite an unfair proportion of cost reductions in bad times because they’re viewed as not driving revenue. Unfortunately, we increasingly live in an age where service matters and cutting service leads almost immediately to reductions in revenue. As Ragsdale points out, service is no longer a cost of doing business, but instead has become a primary value driver, especially for technology companies. Many have even created a Chief Customer Officer or similar role to underscore the importance.

It was a mistake to assume short term cuts won’t have long term impacts . The experience in 2001 as John points out was:

We tried every conceivable way to cut support costs 5-7 years ago, and customers voted with their feet. Maybe I’m naive, but I think C level execs today understand the link between customer satisfaction and customer loyalty, and I’m hopeful they won’t make knee-jerk cost cutting moves that drive away customers.

It’s a mistake to trust your Customer Service Experience to the lowest cost outsourcing bidder . This is just another cost cutting measure that was tried and failed in the last go round. The Customer Service from these vendors was so bad that many companies faced costly publicity about how bad it got. This even led some companies to pull back from some of their offshoring initiatives.

It’s a mistake to assume self-service will solve all these problems . Traditional thinking has been that self-service can be the silver bullet. Let customers help themselves by accessing a knowledge base and all will be well. The process is popularly called deflection. Unfortunately, Ragsdale just finished another blog post immediately before the one we’re writing about that shows how far from reality this assumption can be. Call incidents are up in 2008, but the success rate using self-service is down. In fact, there has been a steady downtrend in the success rates for the self-service approach:

That means costs to service customers directly have been steadily rising, and at a time where satisfaction matters and companies can least afford to pay through the nose to deliver service because of the tough economy.

What’s the answer?

John ends on a high note when he advises Customer Service departments to push communities. At Helpstream, we’re all about the advantages of integrating communities with traditional Customer service tools like case management and knowledge bases for self-service. We like to say that deflection is bad, but engagement via community interaction is good. This should come as no surprise.

Customers need service when they have a problem. There is seldom a lonelier time than when you have a problem and don’t understand how to fix it. Being greeted with a blizzard of knowledge base articles is one answer, and if you know getting to a person that can really help is going to be hard, time consuming, or expensive, it may beat that alternative, but it remains a lonely business. In many cases customers can help themselves successfully. A lot of questions can be answered fairly simply. But in other cases where the customer is really lost or confused, they need help from a real human being to get back on track.

Communities deliver that help. They let people feel a sense of participation, get help from a real human being, and in many cases, talk to someone just like themselves who has already seen the problem before and knows immediately how to fix it. The other big advantage of communities is they throw off more useful information for the Knowledge Base in a timely fashion. Answer a question once, and that answer is there for the next customer who has the same question to find. Waiting for a Knowledge Base to be brought up to date for the latest crop of questions often means the answers are too late.

Are you pushing your customers to try your community? Do you have a community? Try Helpstream. We’ll make it easy for you.

As websites go, some are more valuable than others. Corporate websites communicate marketing messages, support sales, provide an entry way to service, and typically offer visitors valuable information. Sometimes they deliver a unique perspective or thought leadership, and usually they provide a glimpse into how the organization views itself.

This weekend Helpstream adopted a fresh new look and expanded content on our website . Among all other things our primary objective in doing this is to engage visitors in a conversation about Social Customer Relationship Management (CRM) and discuss best practices in customer service. Why do this now? Because it’s clear the market wants to know more about the value of integrating social Web technology with CRM. We needed a more effective way to support the volume of interest in Social CRM.

Last week the SSPA’s John Ragsdale raised the question about community and customer service in his blog post What’s missing from the Web2.0 ROI story . Industry heavyweight Oracle has moved aggressively in this direction by merging Community and Sales and by partnering with Helpstream for self service and community case resolution. Salesforce isn’t waiting either. Their Community and IdeaExchange telegraph a shift from traditional focus on process-oriented CRM to Community.

Suffice it to say, there’s an active debate about the role of social media in the enterprise ranging from customer intimacy via messaging platforms to recent market research rating corporate familiarity with a range of technologies including social networking, wikis, blogs and message boards. If you are a customer service practitioner this can make for a bewildering number of positions to consider.

This brings me back to our new website. It’s the latest, but by no means the first or last word on the subject from Helpstream. We set out in 2004 with a group of former Remedy engineers to build an innovative customer service application, and we wound up developing a customer engagement platform driven by a whole new way of thinking about customer service ( try it for yourself ).

You’ll be hearing more about the social Web and Helpstream soon as we launch our own community this Fall. This community will provide you insights directly from practitioners including our customers to whom we owe a debt of gratitude for their innovative spirit and financial support. Moving forward the Helpstream website will provide a gateway to this community. It will help you sort through the alternatives and select winning strategies to build your own vibrant customer community. You can be first to receive notice when the Helpstream community is launched by registering for your workspace today.

In the meantime you can join the conversation live. Please visit us at Oracle OpenWorld , the SSPA Leadership Conference , and Dreamforce where we’ll be talking with customer service practitioners in person to continue this lively conversation.

“Web 2.0” is one of those terms that is at an uncomfortable point in the hype cycle . It’s passed the Peak of Inflated Expectations where it could thrive on hope and passion alone. It’s headed into the Trough of Disillusionment where for a time, it seems like the new-new thing just isn’t going to work out so well.

The Trough of Disillusionment represents dangerous waters, but like the southernmost reaches of Africa and South America, making it through those waters opens the doorway to very profitable business. In fact, I see the Trough of Disillusionment as nothing more than the period during which real customers get real ROI’s going (or not, you may not get back out of the Trough) that prove the point. Indeed, a careful look at the Hype Cycle above shows that one of the things that happens is generic technologies like Web 2.0 are separated from actual solutions with an ROI, like Corporate Blogging and Wikis.

This brings me to the subject of this post: Where Does Web 2.0 Make the Most Sense?

First, let’s be clear about the meaning of “Web 2.0.” I’m using it here to refer to collaborative technologies on the web. Pretty straightforward, and there are a lot of things that fit—blogging (collaboration is via comments), Wikis (collaboration on documents), Social Networking, Forums, and all the rest that many of us have come to enjoy using on the World Wide Web.

So what makes for a successful Web 2.0 application? Which ones, in other words, will emerge from the Trough of Disillusionment to enter the Slope of Enlightenment? What makes sense for businesses?

Pretty clearly it is those Web 2.0 applications that can deliver a real ROI. In fact, as we read about how today’s economy is already impacting IT spending , we can see that ROI is more important than ever. I will add that delivery along SaaS lines rather than On-premises software is likely also critical to ensuring fast ROI during a tough economy.

One fruitful source of such applications is the very same markets and products that have produced significant ROI in the past. Beyond this, we have to look at what Web 2.0 brings to the table and choose those markets which can benefit most from a Web 2.0 spin. As Krissy Danielsson suggests , not everyone needs Web 2.0 all the time. Which categories thrive on collaboration? What are reasons to collaborate that will bring people back time and again for more?

At Helpstream we see this collaboration opportunity as being strongest for Customer Service and CRM. There are several reasons for this. First, these are inherently collaborative exercises. Having a “Customer Relationship” implies collaboration, doesn’t it? The same is true for Customer Service. Second, that collaboration has the ability to produce tangible benefits if done well. Everyone understands the value of high customer satisfaction through good customer service, and it’s hard to imagine a sales cycle going smoothly if the collaboration between seller and buyer is not going smoothly. Customers and prospects also get something out of the collaboration. In fact, we see this type of Community as a destination community that can help build participation for other sorts of communities over time.

How does Web 2.0 help? Pretty simple. First, it puts a lot more power in the hands of the customer. They tend to like that. It’s Genuine, and in this overly homogenized and highly produced world, Genuine is hard to come by. Second, it enrolls multiple customers and employees to work together. Whether that work consists of coming up with new best practices, helping one customer with a problem overcome it, or helping a prospect to understand their needs better, collaboration really works, especially when you can bring customers to that table and not just the folks doing the selling. It’s reference selling at its best and hard to beat.

Social networking through the Internet and the old fashion way (in person) is the best way to characterize day 2 from the Exhibition floor at TechCruch50. I’m here showcasing Helpstream’s social customer service solutions, but mostly having great conversations with some of the brightest minds in technology.

In the social web applications space there is Politics4all. I suspect they’ll help redefine the meaning of grassroots politics – at least here in the US. Delver is here with a fresh way to explore your social network. Want to analyze your blog? Watch out for Statzen. CTO Jackson Miller gave me a quick demo that rocked!

But there were also interesting companies and conversations outside of the realm of social computing. For example, Flypaper demoed their flash-like content generation tool. I’ll be taking it for a test drive very soon. Technology enthusiasts were everywhere -- Mark Cuban even stopped by the Helpstream booth and gave us a thumbs up for our brief demo.

It’s interesting to see here the number of ways people communicate electronically – blogging, chatting, emailing, texting, and tweeting to name a few. A few years back, we’d just send email and when we were on the road, we’d log on at the end of the day to check our inbox. Now, the inbox, messages, and tweets travel with us on smart phones. The PDA for the most part has come and gone, devices and communication channels have merged.

I get the sense from seeing so many new social computing solutions here that companies and innovators are trying to figure out what this trend in ubiquitous communication means for core elements of the enterprise. As individuals continue to evolve the way they communicate, organizations must follow. That’s what makes some of the innovations I’ve seen here so interesting. They have profound implications for the way marketing, sales and service teams will need to operate in the very near future.

From TechCrunch50 , Monday in San Francisco: I have been here for five hours and I have not seen a single person using a spreadsheet or word processor. The main computer tool being used here is a browser, and this conference is pretty much all about one thing...using the web socially. This is Helpstream’s second TechCrunch event in as many months so I am used to the idea that the average age of the founder CEO types is twenty-something, but beyond that, it’s clear that this conference is about the way they want the web to work. Not because it can or because new technology breakthroughs have enabled it to. It's simply because they want it to.

This is a group of software startups that beyond all else want to be connected on the Internet to interact in all types of ways. In general the business model is providing a service that either connects people with other people or with specialized content in areas of mutual interest. And these new businesses depend on the web. No web… no business. Most of these applications serve a lifestyle interest like finding a dog sitter connected to someone in your personal network, such as myJambi does, or publishing your own web magazine such as Openzine enables.

There are some with business services like Expensify ’s really cool expense management system that collects your reciepts with an Iphone camera and submits your expense account and pays your bill all automatically, to Zuora that handles online quoting and bill paying integrated to SalesForce.com. But business process is taking a back seat to social connectedness. This is an interesting trend and may be a leading indicator as to where a large percentage of future bandwidth will be used.

You don't need to look hard to see that building a robust community is a core feature of these applications as well. It's not clear if community is a byproduct or a requirement for these applications to work. But, if and when they do take off, they will have tens or hundreds of thousands of community members. This is going to drive another interesting business problem. How do these new companies answer the high demand for customer service and support without putting themselves out of business? Especially for those with monetization models ranging as low as “free” and the need to convert any service request to a positive customer experience, this will be a formidable challenge. If your’ curios and hanging out at TechCrunch50 this week, stop by the Helpstream booth and let us know what you think.