Immediate Gratification Matters

When your users access your service on the web, how fast do you gratify them?  Do you think about response time, or is your view that so long as it gets there before “too long”, it’s not a problem?

Google has made a business case for slamming down latency.  They invest zillions of dollars and IQ points trying to make their service respond faster when you hit the search button.  Why?  Because they’ve found it matters for the user experience.  Here is a graph of their recent experience with latency:

Fred Wilson recently tried Slideshare.  He liked it, but his primary complaint was that it took 12 hours after he uploaded his .ppt file to convert the slideshow to Flash.  As he puts it, “I went to bed before it finished.”  I had the same reaction to Animoto.  Loved the service, but I made one slideshow and then forgot about it.

The debate on whether startups have any business focusing on scalability rages in the blogosphere in the wake of the Twitter shakeup as we speak.  People like Ted Dziuba say essentially, “Scalability is not your problem, getting people to care is.”  The trouble is, as the two examples above show, getting people to care is at least partially a function of delivering immediate gratification from the software.  Scaling does matter for that.

Immediate Gratification matters most of all when selling.  If prospects can try your application out online, make sure it responds blindingly fast so they can get as far as possible in the evaluation while they are in the mood to look.  If a site doesn’t perform well on the trial version, my expectation is that it will perform poorly in production too.  That’s not what you want. 

Process matters too.  How often have you gone to a site, seen a white paper or demo you wanted to get access to, and had to answer 20 questions before you could get in?  Worse, how often did you answer 20 questions and then get told they’d get back to you?

They’re protecting the ability of their sales staff to control the process and making sure they capture your lead info.  But it’s a mistake because it just kills the momentum of an interested viewer.  What kind of customer wants to be kept waiting before they can give you their money?  It’s one thing to be kept waiting because of overwhelming demand for a private beta, that’s exclusivity.  It’s quite another to do one of these hurry up and wait sales wonders.

Gather the least information you can (name, email, and company?) and then give immediate access.  What are you doing otherwise, preventing competition from seeing your app and sales materials?  Balooney.  They’ve already seen it.  Trust me on this one.  Every customer that winds up choosing them instead of you, every friend of a friend employee that moves on, and a hundred other potential sources has eventually given them access to the 411 on exactly what you have.  If your lead is so fragile that the information you give any qualified process can sink your ship in the competition’s hands, you’d better get going on some radical innovation or you’re not going to make it.

I recently came upon Rally Development’s site.  Rally makes a SaaS tool for Agile teams.  I loved the site because of all the Instant Gratification.  In fact, it may be the best non-consumer startup site I’ve seen in a long time.  They touch every base– traditional product + marketing, education/learning, and community/evangelism –with a well-organized low friction and content rich offering that tells me what I need to know.

In an age of real-time scalability with services like Amazon.com, there’s no good technical reason to keep your customers waiting.  At the very least you should run some tests to see if faster response times improve your sales.  Once the scaling and infrastructure side is handled, the rest of it is in your hands in terms of the processes you force your customers to follow.

Immediate gratification matters!

Umair, Dude, Uh, What? (On Fixing VC)

Umair Haque responds to the conversation surrounding his original posting on fixing venture capital.  It’s a good post.  Umair wants to stick to his guns, so it’s a refutation post rather than a deepending of the conversation.  Let’s take a look at what he’s saying, because I think he’s weakened his case more than he’s helped it.  Recall that his original thesis is that the reason VC is in trouble is that there aren’t enough Googles, and that the reason for that is people simply are selling out too soon.  They lack commitment.

First, RE Paul Graham’s response that Google wanted to sell out but didn’t get a high enough offer, Haque says Graham has missed the “strategic richness” of the story.  He admits Google shopped Page Rank for offers in the millions range, but then suggests they changed their minds and stuck to their guns as proven by their refusal to take offers in the $3B-5B range in 2002.

I’m don’t see how Haque really refutes Graham’s point with that.  I guess he’s saying that anyone motivated by money would have taken such an offer, and so Google’s founders clearly were motivated by a desire to change the world. 

I’ve no doubt they do want to change the world and are doing so, though I do wonder slightly how that reconciles with having shopped their deal early on.   The shopping business sure sounds more like what Graham was saying about a value disconnect.  Just out of curiousity, let’s play the numbers the way the iBankers would be presenting them to Google and their investors. 

Haque says there were $3-5B offers in 2002.  Google’s numbers for 2002 were $347M in revenue (4x what they were the year before), and the earnings were $186M (17x what they were the year before).  Most investors suggest that a PEG ratio (PE/Growth) of 1:1 represents a good buy.  So a “good buy” for Google’s 2002 earnings would be 1 x 17 x 186M = $3B.  In other words, $3B would have been a bargain for that business.  Clearly they also had to know pretty clearly that Google was hugely more successful than the vast majority of startups in terms of dollars, not just hype, and so deserved more than a bargain price.  Whether you’re motivated by money and financial sensibilities or changing the world, I can’t see why they’d spend much time on a $3B offer.   

By comparison, as I write this, Yahoo is trading at a 3x PEG which doesn’t even reflect Microsoft’s full offer value.  That would imply that back in 2002, for Google to be valued as Yahoo is today, it should have been valued at 3 x 17 x 186M or over $9B.  That’s almost 2x the $5B Haque says was at the high end.  And recall Google would’ve looked a lot hotter then than Yahoo does today in term’s of its potential.

Dude, Umair, it looks to me like Google didn’t get an offer that a cold blooded iBanker would have told them was what they were worth.  I gotta think the advice was to let it ride, we can triple the business again and go public at a better valuation.  Graham called this one right: blame the acquirers for being arrogant enough not to value Google properly.  Imagine if Microsoft had paid $10B then for Google instead of $42B for Yahoo today.  Of course Google probably wouldn’t have survived the assimilation.

BTW, the wonderful thing is that everyone’s interests would’ve been aligned–the money men would’ve held out for more, and the world changers would get to keep building an even bigger agent of change.  It’s a beautiful thing, and it has spawned one of the world’s greatest companies.

Next up, very little seed capital available, also credited to Paul Graham, and my major refrain here.  See for example, Where Did All the Software Seed Money Go?.  There’s a lot of transactions available, but very small dollar amounts.  Haque takes the VC’s to task on this, and that’s what I’ve been saying as well.

On to his response to Ashkan, who said basically Google had an unbelievable string of lucky market breaks.  Umair says basically, sure, but 2001, when Google was climbing rapidly, was an even tougher economy than today.  I think Haque’s perspective that firms influence and shape their environments is worthwhile.  To that, I would add the piling on effect of success.  People want to be associated with success.  Ashkan talks about those “exogenous factors” like they were all just luck.  Some were, but others were a function of folks wanting to align with the new new thing, which Google clearly was in 2001 giving their financial traction.  We see this time and again where one minute we can’t get people to return calls, and then they hear about success and suddenly its us not returning our calls.  We’re in agreement.

SmoothSpan is next up, which I’m flattered by, as Umair responds to my remarks on the subject.  Thanks for the link love, bro!  And if others are wondering what all the “Dude” talk is, I picked that up from Umair’s remarks when he characterizes my post as, “Dude, the IPO window’s been closed, by SmoothSpan.”  There’s something else there about NINJA loans and how the whole world could do IPO’s so why not VC’s?  BTW, those NINJA home loan guys have liquidity issues too, not sure they’re the best refutational role model.  But, dude, Umair, maybe its just me who thought the window closed, or maybe the business world also thought the IPO window was pretty tenuous during those years.  People like, um, BusinessWeek?

Heck, I may not know too much, I only just went through the core of that period at one of the few tech companies that did have an IPO back then (2nd guy on the left, yay!).  I might have heard a thing or two about how iBankers and VC’s think of the IPO market, but I probably just misinterpreted it.  NOT!

But it’s okay, Haque essentially goes on to say just what I said in my post, with, “the IPO window remained closed because venture guys weren’t investing seriously in meaningful new business models and markets – just in features and add-ons.”  We’re on the same page in the sense that this is what my post was all about. 

But, I think we view the way we got there differently.  I get the impression Umair thinks they just aren’t smart enough to invest in something besides features and add-ons.  In my experience, most VC’s are very smart people.  Many have extensive experience outside VC, have built companies on their own, and know many many entrepreneurs who they’ll be the first to admit they’ve learned from.  The trouble is, they’re sold on a model that says they can’t accurately predict what will succeed early on.  Who can blame them?  Seeing enough good ideas fail and going through economic hard times can do that.  So, they came up with the plan to invest later, after the world at large had validated the idea, and just pay for a higher valuation.  Again, this is not a dumb move.  It’s the Wisdom of Crowds at its best.

The trouble is, it is a good idea for an individual firm and a bad idea for an ecosystem.  If every firm goes that route, the seed money dries up.  How you gonna build much but features and add-ins for $250K in angel money?  Google had friggin’ $25M before they made a dime!  That’s why I say the problem is in the beginning, not in the middle with conviction (ala Umair), and not in the end with liquidity (ala Fred Wilson).  I’m all about the IPO window closure being somewhat temporary and said so in my post.  Sounds like we’re close to what an old friend used to call “violent agreement.”  We just came at it from different angles.

Umair muddies the waters a bit by bringing up Mixi and Megastudy, which apparently went public overseas.  He says my criteria (stable earnings, >$100M revenues, yada, yada) are bogus and there is an existence proof in these two companies of that.  Now mind you, Google way exceeded my criteria before they went public, and I thought that’s what we were talking about, but let’s look at Mixi and Megastudy and see if we can learn.

Mixi is out on the Tokyo Exchange listed at $50M in revenues with $10.7M in profit and trading at a $1B market cap.  How is this a counter-example, Umair?  These guys track Google pretty well.  If anything, I’d wonder why they needed to “sell out” in your terms so soon instead of following Google’s track?  After all, they’re profitable on $50M in revenue.  These guys fit my profile exactly for being able to IPO in the US in a year. 

How about Megastudy?  They’re on the Korean exchange.   They are doing $163M in revenue, $46M in profit, and a market cap of $2.3B.  Again, they have scale, they’re growing, they’re profitable, how is this different than what I’m suggesting for US markets?  Why are these guys so revolutionary and why are these other markets so much shrewder?

I don’t see these two as, “an existence proof that’s not the case.”  You don’t have to look too closely at the numbers to see that it’s quite the opposite.  Both are on a very Google-like track, could have followed my criteria, and IPO’d on the US markets, but they “sold out” to use Umair’s words and went public overseas, perhaps a bit sooner. 

Haque concludes by saying:

Dude, it was obvious that Google was, well, special - a general refrain. I think it was far from obvious: in 2002, Yahoo’s revenues were more than double those of Google. Google’s hypergrowth was dependent on the continuing success of AdWords, etc – and though it seems certain to us today, the very real story is that Google took massive risks to make AdWords truly revolutionary – while Yahoo evaded risk, and continued to buy and sell media exactly as it been bought and sold for the last century.

No Umair, I think it really was obvious that Google was special.  They were breaking all the records for startups of their size.  It’s one thing when this happens with your first $10M in revenue, and quite another when you are a $300M plus company.  Yahoo did evade risk, and to their downfall.  OTOH, perhaps it wasn’t even so much evading risk as it was in not having any deeper insight in what to do next.  A lack of vision in other words.  They are certainly not demonstrating any risk evasion in their Microsoft dealings today (they’re taking a high risk road to keep going on alone), and it’s the same decision makers. 

I love the passion Umair communicates: it’s good to get all fiery and romantic.  Startups need that to sustain them through thin times.  There are startups that sell too soon.  There are startups and VC’s that sell too late.  But a lack of passion and commitment is not the problem with the industry.  I meet tons of great passionate entrepreneurs with fascinating ideas.  Let’s get started building some new stuff besides features and add-ons.  No more feed aggregators, ways to Twit, Twitch, or Tweet on 27 different lifestreaming services, or other Inane 2.0 innovations. 

Let’s change the world.  On that I bet we can agree.

Even Hardware Companies Can Be SaaSy

I guess it was predictable, but it’s still a good move.  EMC is now in the SaaS Enterprise Backup business.  They’ve combined their purchased Mozy technology with some more industrial strength underpinnings and rolled out a new service for businesses. 

I didn’t have good luck with Mozy when I tried it.  Everything seemed to be working well right up until I needed to restore the backups after a hard disk crash and then I couldn’t get at my data.  Consequently, I purchased a 1 TB NAS drive (they’re cheap!) this last Christmas.  Still, it’s nice to have offsite storage and EMC certainly has the know-how to have corrected the problems.  Perhaps I’ll try the service again.

EMC as a company seems to be very smart.  First VMWare, now SaaS backups.  What’s next?

Related Articles

HP printing hardware gets SaaSy too.  Why sell the printers if you can sell the printed material?

MySQL and BEA: Oracle and Sun Will Be At Each Other’s Throats!

Big news today is that Sun is buying MySQL and Oracle is buying BEA. This creates a couple of strange bedfellows to say the least. BEA is inextricably wrapped up in Sun’s Java business (is it really a business or just a hobby given the revenues it doesn’t produce?) which gives a reason for the two to get closer together. On the other hand, there is hardly a bigger threat to Oracles core database server business imaginable than MySQL, which has got to push the two companies further apart. What a tangled web!  Is Sun leaving Oracle to its own devices in order to pursue cloud computing?  Sure looks like it!

Let’s analyze these moves a bit. I want to start with BEA and Oracle.

As we all know, Oracle started that courtship dance not long ago and was rebuffed for not offering enough.  Amusingly, they closed almost exactly at the midpoint of the prices the two argued were “fair” at the outset.  Meanwhile, the recession is really setting in, stock prices are falling, and Oracle’s offer went up.  Since Cisco’s John Chambers mused about IT spending will slowing, it has become a widely accepted article that this will happen. So shall it be said, so shall it be written, Mr. Chambers. That’s a very bad thing for BEA, which is primarily selling to that market. The corporate IT market is their bread and butter for a number of reasons. Many ISV’s and web companies will look to Open Source solutions like Tomcat or JBoss with which to reduce costs. Corporate IT wants to superior support of a big player like BEA. The darker truth is that big Java seems to be falling out of favor among the bleeding edge crowd. Java itself gets a lot of criticism, but is strong enough to take it. J2EE is another matter, though there is still a huge amount of it going on. There is also the matter of the steady ascendency of RESTful acrchitecture while BEA is one of the lynchpins of Big SOA.  There is already posturing about the importance of BEA to Oracle Fusion.  If it is so important, Fusion may be born with an obsolete architecture from day one. 

The long and the short is that any competent tea leaf reader (is there any such thing?) would conclude that this was a good move for BEA to let themselves be bought before their curve has crested too much more. For Oracle’s part, its a further opportunity to consolidate their Big Corporate IT Hedgemony and to feed their acquisition-based growth machine. I am not qualified to say whether they paid too much or not, but if I do think the value curve for BEA is falling and will continue to fall post-acquisition. They are way late on the innovation curve, which looks to me like it has already fallen.  In short, BEA is a pure bean counting exercise: milk the revenue tail as efficiently as possible and then move on.  For this Oracle paid $8.5B.  Not surprisingly, even though it is a much bigger transaction, there is much less about it on the blogosphere as I write this than about the other transaction.

Speaking of which, let’s turn to the Sun+MySQL combination.  Jonathan Schwartz gets a bit artsy with his blog post introducing the introduction, which he calls “Teach dolphins to fly.”  The metaphor is apropos.  Schwartz says that MySQL is the biggest database up and comer news in the world of network computing (that’s how we say cloud computing without offending the dolphins that haven’t figured out how to fly yet).  What Sun will bring to the table is credibility, solidity, and support.  He talks about Fortune 500 needing all that in the guise of:

Global Enterprise Support for MySQL - so that traditional enterprises looking for the same mission critical support they’ve come to expect with proprietary databases can have that peace of mind with MySQL, as well.

That business of “proprietary databases” means Oracle.  Jonathan just fired a good sized projectile across your bow Mr. Ellison.  What do you think of that? 

I know what I think.  Getting my tea leaf reading union card back out, I compare these two big acquisitions and walk away with a view that Oracle paid $8.5B to carve up an older steer and have a BBQ while Sun paid $1B to buy the most promising race horse to win the Kentucky Derby.  What a brilliant move for Sun!  Now they’ve united a couple of the big elements out there, Java being one and MySQL the other.  They could stand to add a decent scripting language, but unlike Microsoft’s typical tactics, they’ve learned not to ply a scorched earth policy towards other platforms, so they are peacefully coexisting until a better cohabitation arrangement comes along. 

We talked a little about the Oracle transaction being a good deal for BEA:  it’s a lucrative exit from declining fortunes.  What about mySQL?  Zack Urlocker comments about the rumor everyone knew, that MySQL had been poised to go public.  Let me tell you: this is a far better move.  Savvy private companies get right to the IPO alter, and then they find someone to buy them for a premium over what they would go out at.  What they gain in return is potentially huge.  The best possible example of this was VMWare.  Now look where they are.  I will argue that would not have been possible without the springboard of EMC.  At least not this quickly.   Sun offers the same potential for MySQL.  It is truly the biggest open source deal in history.  It’s also a watershed liquidity event for a highly technical platform based offering from a sea of consumer web offerings.  The VC’s have been pretty tepid about new deals like MySQL.  Perhaps this will help more innovations to get funded.

What do others have to say about the deal?

 - Tim O’Reilly echoes the big open source and importance of database to platform themes.

 - Larry Dignan picks up on my rather combative title theme by pointing out that it puts Sun at war with the major DB vendors:  Microsoft, IBM and Oracle.  Personally, I think any overt combat will hurt those three.  The Open Source movement holds the higher moral ground and it just won’t be good PR to buck that too publicly.  Dignan sounds like he is making a little light of Schwartz’s conference call remark that it is the most important acquisition in Sun’s history, but I think that is no exaggeration on Jonathan’s part.  This is a hugely strategic move that affects every aspect of how Sun interfaces with the world computing ecosystem including its customers, many partners, and its future.  When Dignan asks what else Sun needs, I would argue a decent scripting language.  Since Google already has Python in hand, what about buying a company like Zend to get a leg up on PHP?  Last point from Larry is he asks, “If Sun makes MySQL more enterprise acceptable does that diminish its mojo with startups? Does it matter?”  Bottom line: improvements for the Enterprise in no way diminish what makes MySQL attractive to startups, providing Sun minds its manners.  So far it has been a good citizen.  With regards to, “Does it matter?”  Yes, it matters hugely.  MySQL is tapped into all the megatrends that lead to the future.  Startups are a part of that.  Of course that matters.

One other thought I’ve had:  what if Sun decides to build the ultimate database appliance?  I’m talking about order it, plug your CAT5 cable in, and forget about it.  Do for dabases what disk arrays did for storage.  That seems to me a powerful combination.  Database servers require a painful amount of care and feeding to install and administer properly.  If Sun can convert them to appliances, it kills two birds with one stone.  First, it becomes a powerful incentive to buy more Sun hardware.  This will even help more fully monetize MySQL, which apparently only gets revenue from 1 in 10,000 users.  Second, it could radically simplify and commoditze a piece of the software and cloud computing fabric that is currently expensive and painful.  Such a move would be a radical revolution that would perforce drive a huge revenue opportunity for Sun.  They have enough smart people between Sun and MySQL to pull it off if they have the will. 

Conclusion

Sun has made an uncannily good move in acquiring MySQL.  As Wired points out:

One company that won’t be thrilled by the news is Oracle, makers of the Oracle database which has managed to seduce a large segment of the enterprise market into the proprietary Oracle on the basis that the open source options lacked support.

With Sun backing the free MySQL option (and offering paid support) Oracle suddenly looks a bit expensive.

How else can you simultaneously lay a bet on owning a substantial piece of the computing fabric that all future roads are pointing to and send a big chill down Larry Ellison’s spine for the low low price of just $1B?  Awesome move, Jonathan!

Related Articles

VARGuy says the acquisition means Sun finally matters again.  $1B is cheap to “finally matter again!”

Unintended Consequences: How Market Forces Outmanuever Big Groups For The Collective Good

If you’ve been reading my blog for very long you’ll know I’m a believer that evolutionary forces are at work all around us.  The web behaves very similarly to an evolutionary system, even experiencing punctuated equilibrium as memes propogate throughout.  Free markets are another example.  There are at least three interesting big stories in the blogosphere right now that provide interesting examples to watch as they unfold.  Let’s consider each.

First, there has been much ado about the idea that pirates come into markets due to inefficiencies.  This is a theme for the new book The Pirates Dilemma by Matt Mason.  What the owners of the assets in pirate-infested markets have done to prompt the pirates is they’ve created artificial scarcity.  It’s an interesting concept, but there are examples of it all around.  Music and video are the most obvious.  The music industry has all but given up on DRM because of the success of pirates, and their next salvo looks to be an attempt to tax us through ISP’s.  This is not unlike the taxes that were levied on videotape when it first came out.  You have to figure the music industry never imagined the pirates would get this far.  Their market and empires crumble almost continuously as time goes by.  Is it fair?  Perhaps not, but it is a natural consequence of market forces outmanuevering a group that had stalled in terms of innovation.  They were too focused on lawyers and control. 

Imagine what might have happened if one of the big labels had somehow adopted a radically different business model.  What if they’d made all the music free in exchange for accepting advertising, for example?  Wouldn’t the record companies love to be as successful as Google?  Ironically, I’ll bet a huge number of digital music playback devices and software could accomodate video ads that would be able to convey quite a lot of information.  One of the smartest things George Lucas did around Star Wars was to insist on retaining control of the merchandising.  Just consider all the ancillary merchandise that any entertainment brand has the ability to sell.  Perhaps the creative article itself should have been free and the merchandise charged for.

Software suffers from the same thing, which is another reason to convert to Software as a Service if you can.  The Service piece is harder to pirate, especially since some of the software stays in the cloud.  There are bound to be many other examples of artificial scarcity, but the owners of whatever is being made scarce don’t really want us thinking about it too hard.  Now we hear that AT&T is thinking of introducing the equivalent of DRM at the ISP level.  What a PR and sales disaster that would be.  What was AT&T thinking to have sent a lawyer to CES to talk about that?  It would simply be another case where Market Forces would outmanuever this big player.

The next story along these lines involves the Hollywood screen writers strike.  The BBC reports that according to Nielsen Online, YouTube usage has grown 18% and some sites have doubled since the writer’s strike.  The US-based Pew Internet Project has reported similar results.  Men slightly outnumber women in the switch, but it is the young who are most prominent, accounting for nearly 70% of that switch.  I feel younger just reading this–I stopped watching so much TV as soon as I had a broadband Internet connection despite also having an elaborate home entertainment system.

Mathew Ingram adds more color:

• 15% of users visit video sharing sites daily, double what it was before the strike.
• Ages 18-49 doubled their Internet video consumption.
• Those 50-64 only increased 17% while those even older showed no increase.  Note that those older groups would have been in high school about 1975 or earlier–this is the first group for whom there were no video games or PC’s while they were growing up.
• Comparitively less educated folks showed more growth as did slightly lower income households.

Artificial scarcity again?  Perhaps.  If so so, it was an artificial scarcity of the ability to create video entertainment.  Apparently people are finding its more interesting to watch amateur videos on the Internet than to watch reruns on TV.  Techcrunch was prescient in suggesting that this could happen, as Duncan Riley points out.  But perhaps there is another form of artificial scarcity at work.  The writers struck over a desire to get royalties when their work appears on DVD’s and the Internet.  The artificial scarcity was apparently the control the big media companies had on where that work was published.  Market forces will see to it that Big Media’s control is diminished first by switching attention to alternate channels and second by alerting the talent that they too can bypass Big Media for those channels.  From my perspective, the biggest risk is that once people have tried the alternate channels they likely won’t come back.

The last story concerns Apple’s iPhone.  Wired Magazine kicked this meme off with, The Untold Story: How the iPhone Blew Up the Wireless Industry.  In exchange for a 5-year exclusive, Jobs talked AT&T into radically changing the cellphone experience.  Visual voicemail and no need to visit a store to sign up would be just two revolutionary aspects of the new device.  And I have to say, I was blown away with my own new iPhone to learn I didn’t have to go to a store to activate it.  The whole thing took about 3 minutes over the Internet using iTunes.  Vive la Self-Service!  I’ve written before about the virtues of self-service, but the iPhone has to be my personal best experience with it.  It has been a huge success for Apple, for whom it is probably their most profitable device, as well as AT&T, where about 40 percent of iPhone buyers are new to AT&T’s rolls, and the iPhone has tripled the carrier’s volume of data traffic in cities like New York and San Francisco.

But the real impact is yet to be felt.  There is an $11 billion a year mobile phone business in the US alone that is still feeling the shockwaves from the iPhone.  Why?  Because the iPhone shifted the emphasis from the infrastructure to the experience.  As Steve Jobs and others like to say, the user experience is everything.  It may be the only thing that matters, and the iPhone delivers in spades.  Ironically, this all started from humbler beginnings.  Jobs set out to create a three way partnership with Apple, Motorola, and Cingular to combine the iPod with a phone.  The initial result, called ROKR, was a dud.  As Wired put it, the ROKR failed because it came to “represent everything that was wrong with the US wireless industry, the spawn of a mess of conflicting interests for whom the consumer was an afterthought.” 

Artificial Scarcity at work again.  The wireless carriers were trying to control the consumer by limiting the infrastructure and the handsets, and it was a mistake.  The iPhone blew the lid clear off because AT&T was willing to gamble and follow Jobs, and what a brilliant move it has turned out to be in hindsight.  Motorola was the biggest loser because Jobs cut them out first and insisted on almost total control over the concept with Cingular (later acquired by AT&T).  Ed Zander is no longer with Motorola, though we can only speculate how much failure to participate in the iPhone’s incandescent success may have contributed to that.

For Cingular, now AT&T, the marriage was a beautiful thing.  It has given them a way out of the increasingly commoditized infrastructure wars with the other carriers.  Commoditization had led to price wars, and soon, loss of profit margins.  The answer was to create a new focus, and who better to lead that revolution than Steve Jobs?  Of course they would follow him. 

Does this mean Apple has taken over the wireless industry now as Scott Carp suggested?  There’s just one little problem with that theory:  now Jobs himself faces the spectre of dealing with artificial scarcity.  In order to get AT&T/Cingular to sign up, he had to promise a 5-year exclusive.  What could be more artificially scarce than that?  At the same time, his iPhone formula seems not to be especially well protected.  Every handset manufacturer on the planet is rushing to copy it.  Even Microsoft seems to have some iPhone like technologies up their sleeve.  And Apple has another artificial scarcity problem at hand since the iPhone is a closed ecosystem that Apple has yet to open up.  Meanwhile, the carriers have ceded the power to manufacturers, software developers, and consumers while they continue to deliver pipes.  Every boy and his dog is gearing up to deliver iPhone clones, and Jobs will need to think about the next move to retain his dominance.  He has time.  The iPhone has more web browser share already than all the Windows CE devices combined.

What’s next in the ending-artificial-scarcity game?  How about Zillow, which ends the artificial scarcity of MLS listings and evaluating what the value of real estate ought to be?  Fascinating stuff, this business of artificial scarcity.  It represents opportunity and risk.  It tends to be a dead end strategy in the long run.  Look for opportunities to exploit it, rip the cover off scarcity, and change the paradigm.  But be careful not to enter into your own artificial scarcity dead end while you’re doing that!

What a Recession Means for Tech: 10 Trends to Strategize On

Amid a weakening jobs outlook, Apple’s worst trading day in 32 months,  the NASDAQ had its worst day in nearly 5 years, and a variety of pundits predicting an imminent and severe dot com crash, it seems likely we’re looking at a recession to be declared some time in 2008.  There may still be time for the Fed to cut enough, and it certainly helps to have an election year where neither party really wants to terrible an economic scenario, but the economy is very much a momentum engine.  Currently that momentum is bound towards recession.  It will take a lot to reverse it.

Suppose we do get a recession, what does it mean for tech?  Below are my thoughts about strategy and trends to consider in a time of recession.

1. Choosing #1, #2, or #3?  Expect a flight to quality

People get conservative when times are tough.  This accounts for the normal “flight to quality.”  When things are already tough, people are dealing with too much uncertainty.  They want to improve their odds by going with proven quantities.  Bet on the sure thing.  Don’t get too close to the edge.  The Ciscos, Googles, Microsofts, Oracles, and SAPs can all benefit from this effect, although their numbers will often stink during bad times.  Nevertheless, they have the momentum and reserves to hang in when others suffer much worse.  If you’re #5, #6, or #7 in a market, it’s time to get realistic about your chances, and about how much you may have to change to survive.

We’ll see the flight to quality phenomenon manifest in a variety of other trends and strategies below. 

2. Experimentation by Business Buyers will go on hold;  Consumers will experiment more

Businesses will move away from starting new projects in tough times.  If nothing else it will be that much harder to get budget for something new.  Existing projects will be reviewed to see which ones may be cheaper to cut now than see through to the finish line.  Projects that offer near term ROI and especially cost savings will be prioritized over projects that largely offer softer benefits.

Curiously, as long as it isn’t too expensive, consumers may experiment more.  Many will want to take their minds off their troubles, so jumping on the Internet is a way to do that.  Don’t look for them to click through on ads very much though.  It’s a time to build mindshare not pocketbook share.  Save monetization for when the recession “all-clear”  has sounded and economic growth resumes.

The intersection of these two will be the grass roots.  Big IT projects will find it hard sledding.  Grass roots adoption of things like Enterprise 2.0 or SaaS will happen despite IT because Business Users can make it happen cheaply.  Now is the time for IT to get on board those trains or get left behind.  Projects that succeed in hard times have much higher visibility than those that succeed in good times.  The same is true of failure.

3. It’s an opportunity to gain share, so be hyper-competitive, sell like you’ve never sold before, and don’t forget customer satisfaction

Speaking of gaining share, it’s a well-known competitive move to double down your bets when times are tough and your competition are tightening their belts.  Whatever your company does best, you need to find a way to do it even better in tough times.  If you are the low-cost producer, find a way to cut costs further.  If you build the best product, take this time to widen the gap between you and your nearest competitor.  Share taken in markets like these is hard to win back when the pendulum swings and times are good.  The reason: the share taker picked up momentum in bad times that will only accelerate in good.  Those that hunkered down by the side of the road have to accelerate a lot further to catch up.

Selling in a recession is what will separate the players from the poseurs.  Negotiation becomes key.  Fewer deals will close, so maximizing the returns on the ones that do without losing them in the process will make a big difference.  Terms can really matter a lot.  At the same time, your customers will be under a lot of pressure, and they’ll smell fear if you show any.  If you depend on partners to sell your product, now is the time to find out which ones are really your friends and support the heck out of them.  Deepen those relationships even if it means cutting lose some of your weaker partners. 

None of this will work if you don’t have customer satisfaction.  There can’t be a worse time to have unhappy customers than during a recession.  Invest in your best customers, and invest in the people in  your business that keep your customers happy and who have the relationships.

4. Capital will be harder to come by unless you already have it: another flight to quality

For those starting up, or those raising funds from limited partners to invest with, capital will be harder to come by in a recession.  Depending on how deep the recession is, angels can often peter out as they become concerned about their own portfolios and stop investing further in speculative ventures.  Those companies that already have capital and are demonstrating good traction will be able to get more capital.  Those that are iffy are going to have a hard time.  It’s another flight to quality:  better investments and better investors.

5. Hiring will ease, but good people need never fear.  Plus, it may get easier to judge the quality of your employer.  Don’t forget to network!

The most talented software developers, engineers, salespeople, managers, and all sorts of other talented people suffer much less in a recession.  These folks are unlikely to get cut.  Plus, companies that do cut often look to make it up by using smaller teams of better people.  If you’re really good, you will find a position.  The good news is that the recession may help you to evaluate the quality of potential employers.  Companies that manage to grow during recessions are usually onto a good thing.  When times are good, it’s hard to tell whether sock puppets selling pet food on the Internet are truly a good idea or just lucky for a little while.

Tough times also help companies to evaluate their people and see who is committed and making a difference and who is not.

As Robert Scoble suggests, now is the time for maximum networking.  Get out and meet people.  The contacts will be easier to make because a lot of folks will be looking for one thing or another.  Make those contacts and they’ll pay off long after any potential recession has ended.

6. Exits will be less lucrative but possible: yet another flight to quality, and expect M&A more than IPO

If you’re hoping for an exit or liquidity event, the recession doesn’t help at all.  IPOs are much less likely, and the best companies will often choose to wait for better times so they can get a better price on their offering.  The Mergers and Acquisitions game shifts the advantage very much to the buyer, and especially to buyers with cash.  Such buyers will be more cautious and choosy.  It’s just one more example of a flight to quality.

7. The ad model will be tough unless you’re a proven quantity

Like everything else, there will be pressure on advertising.  Companies will have less budget to go around, and the dollars they have will be spent on areas that are known to work.  Experimentation will be minimal.  If you’re building a company on an ad model, now is probably not the time to push for monetization.  Focus instead on building mindshare and fine tuning your offering.

8. It’s not a bad time to start a company, but you should focus on bootstrapping and efficiency

It takes a long time to grow a new startup to a size where competition and many other things matter.  Starting when the chips are down means your company may spend its early developmental time when the competitive landscape is pretty quiet anyway.  All that talk about it being a bad time for experimentation and there being a flight to quality can be viewed as saying the world is even more sheeplike in bad times.  That can be a blessing, because it means your Big Idea may not be noticed or pursued by others until you are pretty far along.  And when the winds change to growth, you’ll have your product all tuned up so it flies fast and far.  The secret is to be as capital efficient as possible in lean times.  Focus on bootstrapping, pay with equity not cash, and hire talented driven individuals who are bought into the dream, not the paycheck.  Buckle up for a hard ride, but one that may turn out to be better than the usual boom time ride.

Also bear in mind that potential investors and customers will be extremely selective.  That’s a good thing.  Like the note on using tough times to evaluate employers, it also works to evaluate ideas.  If you’re getting traction in tough times, you have a winner.  Double down!

9. Any recession benefits recurring revenue and less friction:  think SaaS and other Services

Recurring revenue will be king in bad times.  Its revenue that comes without having to go resell the proposition all over again.  Yes, you can lose some of it too, but hopefully you’ve got strong enough customer satisfaction that this is unlikely.  Businesses that are focused on one-time revenue such as perptual-license software or hardware have to start every quarter from zero.  That’s a hard position to be in when times are tough.

While we’re at it, let’s think about lowering friction in our businesses.  Do it on the web.  Do it via telephone.  Make it easier than ever for customers to learn about, buy, use, and love your product.  This is what the web was made for.  If you still aren’t using it to its fullest, get going, you’re behind the curve and there’s an ill wind blowing.

And, as Seth Godin says, the time to change your business model is when you have momentum.  It may not hurt to also use a recession as an excuse to help customers and investors understand the need for change.

10.  Watch out for overseas competition

If you have competitors in markets that are not touched or much less touched by a recession, watch out.  This will be a prime time for them to double down while you’re belt tightening, and they’ll have a lot healthy business to help fund that strategy.  This is another reason the truly big stay big: multinationals get diversification across many markets to tide them over when one market is sickly.

Recession = Opportunity, But With Different Rules

I hope there is no recession coming, but I suspect most have already accepted that there will be one.  It doesn’t have to be the end of the world.  Yes, it is harder, but it also opens up new opportunities for those who are thinking ahead instead of worrying.

Making Enterprise Software Sexier: Repeatable Process Without Endless Boredom

I couldn’t quite get past thinking about the issue of “sexy Enterprise Software” that Scoble started us talking about a few days ago.  The topic was such a Rorschach Test for what people think of when they think Enterprise Software.  That in and of itself was quite interesting.  Seeing lots of new perspectives on a thing I thought was familiar is always food for thought.  After a few days of almost unconscious cogititation, an interesting new perspective or two often starts to take root.  My initial response to it all was to suggest that what was interesting about the software was perhaps not so much the immediate UI as the potential for business transformation that Enterprise Software offers, but there were wildly differing perspectives.  Michael Krigsman and Nick Carr got into a real snit over the whole thing.  Nick Carr, who often writes that IT is becoming irrelevant, was strangely passionate about the idea that there is nothing precluding business software from being engaging, while Krigsman was determined that it’s a complete non sequitor to even ponder the sexiness of Enterprise Software because it’s all about repeating a crucial business process:

I demand the system work every time without fail.

While I disagree with much of what Krigsman had to say (including his parting shot at Carr which asks where’s the revenue: compare Google and Oracle and you’ll see the revenue is very much there), the idea that it was all about perfecting process got me thinking. 

Stowe Boyd tickled my thinking further, when he says that Enterprise Software is about Groups not Individuals:

Enterprise software starts with the premise that the user is an employee, or member of the marketing department, or a minion in the IT department. The users rights and capabilities are tied to membership, not to individual identity.

Stowe gets a lot closer to the way I am thinking about making Enterprise software sexier, but not all the way.

My new thinking is focused around the idea that a lot of Enterprise Software is about implementing Repeatable Process.  Perhaps the ultimate incarnation and priesthood for Repeatable Process is Six Sigma.  Practitioners will point out that there is a lot more to it than repeatability, in the sense that one is supposed to continually improve the process.  Any defect that is identified results in a process change that eliminates the root cause of the defect so it can’t happen again.  It can be a powerful methodology: much of the success for companies like General Electric is laid at the alter of Six Sigmas. 

This is all fine and well, but I think it can be taken too far and applied in a manner such that the endlessly repeated process results in endless boredom.  That in and of itself can be a problem, because boredom leads to mistakes and lack of attention.  Boredom costs productivity, which is not what we’re about with Enterprise Software.  There is a further danger to Six Sigmas that has started to be heard more recently.  According to Wikipedia:

A Fortune article stated that “of 58 large companies that have announced Six Sigma programs, 91 percent have trailed the S&P 500 since.” The statement is attributed to “an analysis by Charles Holland of consulting firm Qualpro (which espouses a competing quality-improvement process).”^[15] The gist of the article is that Six Sigma is effective at what it is intended to do, but that it is “narrowly designed to fix an existing process” and does not help in “coming up with new products or disruptive technologies.” Many of these claims have been argued as being in error or ill-informed.^[16][17]

When Six Sigma is used as a cost cutting program, it has been shown to stifle new product innovation.^[18]

Of course this gets the High Priesthood into a fine frothy fit, but it sure seems to fit with everything I know and have read about innovation.  Even Deming advocates something shockingly similar to the choices I’m suggesting for our Enterprise Users.  According to Wikipedia, one of his principles is Semi-Automated, not Fully Automated:

Dr. Deming lamented the problem of automation gone awry (”robots painting robots”): instead, he advocated human-assisted semi-automation, which allows people to change the semi-automated or computer-assisted processes, based on new knowledge. Compare to Japanese term ‘jidoka’ (which can be loosely translated as “automation with a human touch”).

I like this concept of semi-automation, where everyone understands the ultimate goals and destination, but there is personal freedom about how best to get there.  If Deming, the Grand Pajandrum of consistent process execution can advocate choice, why doesn’t it make sense here?

What then to do about it?  In part, I think there is a problem in that we continue to carry over a lot of the old 3270 Green Screen approach to Enterprise Software.  We view that the job of the computer is to rigidly control the people using it and that this is the only way to ensure our perfectly concieved process will be accurately carried out.  Much of it has extremely rigid workflow.  Such user interfaces are extremely modal, and frankly, they feel awful.  They force their users to act in a pre-defined play like marionettes.  There are endless “screens” that have to be dealt with, and sometimes a key piece of information is on a screen that we can’t quite remember how to get to.  The track is extremely rigid, and usually make no sense at all to a newcomer.  It might also be less than ideal for achieving the best possible results.  After all, people are not marionettes.

Jason Kolb says this about Krigsman’s posts:

…his point is that enterprise software is to be stable, above all else, sacrificing the user if need be. 

Jason is not advocating this, in fact quite the opposite, but it is another way of saying what Enterprise Software is in many cases.  I take exception to the idea that we may need to sacrifice the user in favor of the process.  People are not at their best and most productive when treated this way.  There is a tremendous amount of literature about the value of offering people choices as they go about their tasks, but the rigid process brand of enterprise software doesn’t hold with that.

An awful lot of Enterprise Software is nothing more than moving database records and fields from one form to the next while some poor user is expected to do some menial task to the form that the computer can’t quite manage for itself.  Shades of Amazon’s Mechanical Turk.

What if there is a better way?  What might it be?

There are tantalizing glimpses out there.  One of the best comes from James Governor, who made a long post about some SAP demos he has seen.  It’s worth a read.  The essence of it is enabling the ad hoc to become a part of the process.  I think of it as self-modifying process.  It is modified if and when the users of the process need to change it to do better.  Such an idea places individuals back into control, at least a little bit.  After all, part of Six Sigma involves continuously improving the process to make it better.   When was the last time your Enterprise Software was malleable enough to improve on the fly?  I thought so.  Yet here is an example that shows how to give at least some of the users choices rather than locking them into an immutable process.

Perhaps it is simply a matter of providing choice that matters to the users about what to do next.  Choice that goes beyond the green screen menu.  It blinks at you and says smugly, “Figure out how to fit what you want into my world or you’ll never get there.”  No, we want software that fades into the background.  It has choices that are natural, make more sense to people than machines, and that any reasonable human being can fit together in the way that people are great at and computers are lousy at to make anything they need to have happen get done.  One of the maddening things about “workflow” and “business process” is that it’s so synchronous.  You have to follow a task to its completion or lose everything.  It’s like those annoying web storefronts where if you make one tiny little mistake on a form late in the process, it kicks you back and makes you reenter all of the information. 

Such choices might be more like Google’s system of project management.  They’re a very textual company, so they use a system based on email.  Folks receive emails asking them what they expect to accomplish next.  They respond via email.  The system then comes back at a later date and asks whether they got the tasks done.  Reporting based on these results is available to managers.  Wouldn’t such a system be tremendously more friendly than trying to fight through Microsoft Project or some other highly stylized project management system?  Given all the complaints about Sales Force Automation (salespeople often hate filling in the data), it made me wonder why you couldn’t create a CRM system around the same principles.  Maybe that would be the ultimate killer CRM that salespeople would finally accept as being worthwhile.

I wonder when the last time a workflow designer (Business Process Architect or whatever high-faluting title they use) actually thought about giving users more choices was?  Hmmm, probably depressing to consider.

Maybe users would be happier if the tasks were much more granular and the users could bounce around as they saw fit.  How do you maintain the integrity of a process in a world like that?  Well, it’s an asynchronous world, so you have to keep track of what’s left to do and let the users decide what to do next.  The email inbox. RSS feed, and Social Network newsfeed are such paradigms.  They’re worlds where users can open as many cans of worms as they like and work on them in any order.  It recognizes that people are people.  They get interrupted.  They change their minds.  They may forget or need to go back to something.  They get tired of doing one thing and need to do another for a while as a respite.  But despite all of that, they don’t want to be led around by the nose.  They want choice.

With choice comes responsibility.  Folks are accountable for their choices.  That’s okay.  Responsibility is a good thing.  People rise to the challenge more often than not and everyone is better for it.  But we need to help people make the best choices.  Give them feedback.  Give them a way to keep score on their choices.  Some form of analytics.  To choice and analytics, let’s add another valuable spice: collaboration. Consider a case that seems completely unrelated:  in Agile programming, a lot of productivity is gained by having programmers work in pairs instead of as individuals.  Collaboration is not only fostered, it is forced.  And it turns out to be a lot of fun once you get used to it.  Does anyone do something like that with Enterprise Software?  Is there no way to pair up users and benefit?  I’ll bet there must be.

Here is another crazy thought: what if we need to turn Enterprise Software inside-out to make it sexy?  Old school Enterprise has various user categories that are largely clerks locked into precise workflows based on how a particular company likes to operate.   HR and Finance are the categories where most of this stuff lives.  Enterprise Software has succeeded in making the clerks wildly more efficient, so we need fewer of them, but there are still many many clerks out there.  How can we turn Enterprise Software inside-out and eliminate the need for clerks?  Remember (or perhaps you don’t, there are fewer and fewer who do) how it used to be before the PC was common and there was such a thing as a Knowledge Worker?  Managers all had assistants who did things like taking memos and writing letters.  Go further back and we learn that CC meant “Carbon Copy”, which was literally the process used to send a memo to more than one person.  Word Processors on PC’s turned that task inside out in a relatively short period of time and there was suddenly much less need for everyone to have an assistant.  Now an assistant could take care of a relatively large department, and he could do so with day-to-day tasks that were at a much more interesting level. 

And then I had the craziest idea yet.  What if the software was designed in a way that its users actually wanted to follow the best process?  What if they actually enjoyed it, or perhaps at the least overlooked that it was repetitive and boring for some reason?  Think about it for a minute.  Isn’t most of what goes on with Social Networks repetitive and boring if you strip it down and just look at what you can do?  All that newsfeed reading and poking and messaging, it isn’t as if this is the world’s greatest game.  Yet people seem to stay engaged.  Some would say addicted even.  What’s needed here?  An incentive would be my first thought.  A reason to move forward and do the next thing well.  A reason that is more compelling, more immediate, and more under the user’s control than just the promise of their next paycheck.  Incentives are a powerful force, and often, they need not even be monetary to be effective.  I mentioned the idea of keeping score above.  I’ve used score keeping many times to get competitive people working above and beyond the call of duty.  It’s a way of life for salespeople, and they love it.  It’s tantamount to turning work into a game, albeit with more serious consequences.

Let me give one last example that ties all of this together.  There is more choice, there is scorekeeping, there is self-service, and at the end of the day everyone benefits.  A friend recently suggested a great application for businesses that have lots of part-time help.  My brother manages a retail store, and his situation is not unique.  He has available 90 part-time hours for the store, and 5 or 6 employees to spread those hours around to.  Nobody is ever happy about it.  They all fight constantly for more hours, and this places my brother as manager into the role of the “heavy” who has to say “no” more often than “yes.”  You can just imagine some heavy-handed Enterprise Software arbitrating this fight with an obscure HR-derived algorithm that is deemed fair to all but annoys everyone and is almost opaque to understanding.

Enter this other friend’s idea.  He wants to turn the whole thing into a Dutch Auction.  People would hop onto a web application and bid what hourly rate they’re willing to take for a certain number of hours.  Lower rates get more hours.  He sees this as a win-win.  Management is no longer cast in the role as heavy.  If you an employee really wants a lot of hours, they can bid to get them.  Chances are that a slightly lower hourly rate is more than offset in gross dollars by gaining more hours.  The company was going to pay for 90 hours (in my brother’s case) anyway, so it wins by getting a lower hourly rate over those hours.  Management is happy because they’re no longer in the middle of a no-win dispute.

It’s a case of self-service, offerings choices, and loosening up a process until people can participate and imporve the situation for everyone.  By completely rethinking the problem instead of paving the cowpaths (i.e. automating existing manual processes), it’s possible to provide radically better solutions.  Enterprise Software can be sexy, but only if you think of the people more than the process.

The IT Perspective on Bloated Unfriendly Enterprise Software: More Reason to Buy SaaS

I recently responded to the free-for-all Robert Scoble started on unfriendly Enterprise Software.  Now George Ou writes about IT’s perspective, and had this to say:

• Enterprise software generally has lower usability and more bugs than commercial software.  That’s sort of counter intuitive to the word “enterprise” but the name is a joke in IT circles since enterprise software is typically painful.
• Enterprise software is designed for and sold to IT departments so the expectation is that you have trained people supporting the software whereas commercial off-the-shelf software has to more or less be self explanatory.  Enterprise isn’t sold to the end user and the end user doesn’t sign the check so their considerations are secondary to enterprise software makers.
• Enterprise software requires a lot more interaction between multiple systems which makes it fundamentally more complex to develop, deploy, and support.
• Enterprise software also typically addresses a much smaller user base than off-the-shelf software like Microsoft Office so the development budget to user ratio is smaller.  This means programming shortcuts like Java are often taken which makes the software horrendously bloated and inefficient.  You’re not going to see enterprise software developed in light-weight C++ like MS Office any time soon because that level of skill is too rare and difficult and expensive to acquire.

George sure sounds like an IT guy to me, and a card carrying member of the Old School.  That’s not necessarily a good thing, I’m afraid.  He’s written a doozy filled with misperceptions and I had to respond point by point to clear some of the fog away: 

• Enterprise software generally has lower usability and more bugs than commercial software.  That’s sort of counter intuitive to the word “enterprise” but the name is a joke in IT circles since enterprise software is typically painful.

I presume George is trying to compare Enteprise Software to packaged software like MS Office (which he refers to in another bullet), but he really doesn’t say.  Having been on both sides of the fence (I built Quattro Pro for Borland and have done several Enterprise gigs), I don’t see any reason to agree with George’s broad brush statement.  I found the recent release of MS Office 2007 to be surprisingly buggy, very unfriendly to someone that already new the prior version, and Vista is not exactly setting new standards for quality or end user satisfaction.  OTOH, Vista was designed primarily to appeal to what Old School IT cares about, so maybe that makes up for it with people like George.

• Enterprise software is designed for and sold to IT departments so the expectation is that you have trained people supporting the software whereas commercial off-the-shelf software has to more or less be self explanatory.  Enterprise isn’t sold to the end user and the end user doesn’t sign the check so their considerations are secondary to enterprise software makers.

George, you could not be more wrong in my experience.  I’ve sold multi-million dollar Enterprise Software to a variety of Global 2000 companies.  In the majority cases (nut not all), we found that the business users were completely driving the need to purchase, not IT.  In terms of training, yes there was some, but a part of every sales cycle was sitting the likely trainee down at the keyboard without said training and trying to see whether they could get comfortable enough to endorse purchasing the package.  This doesn’t even consider the raft of Enterprise Products that people use without training such as Expense Report software or HR Focal Review software.  Very few of our seats sold were occupied by trained users.   There were certainly a few guru admins that needed the training, but the majority had to be able to walk up and use the software unaided.  In the case of my last company, this included salespeople who wouldn’t sit still for a lot of training anyway.

There is no end of categories for Enterprise Software that require usage with minimal training.  I think the real problem is that IT is often very isolated from the user expderience.  Their focused on tasks like Database Administration of the newly installed Enterprise Software and often have little idea what their end users are going through except by anecdote.  This doesn’t have to be the case, and shouldn’t be the case if IT will be supporting the software, my only observation is that it often is the case in many real organizations I’ve dealt with.  Further, IT often doesn’t really understand the business needs or requirements.  I have frequently had business users come to me very concerned that IT is solely focused on their own needs (which have to do with minimizing the package’s impact on their IT organization) and wanting to make sure the Business side is heard.  When I hear IT folks like George say things like, “Enterprise isn’t sold to the end user and the end user doesn’t sign the check so their considerations are secondary to enterprise software makers,”  I really begin to feel these user’s pain.

• Enterprise software requires a lot more interaction between multiple systems which makes it fundamentally more complex to develop, deploy, and support.

This is true, but it’s an IT consideration that has little to do with end user friendliness or with whether the code is “bloatware”.  If the latter is a problem, it’s usually because IT has a bunch of poorly maintained Legacy systems that are hard to integrate with.  Whatever the case, this is very much secondary to the discussion.

• Enterprise software also typically addresses a much smaller user base than off-the-shelf software like Microsoft Office so the development budget to user ratio is smaller.  This means programming shortcuts like Java are often taken which makes the software horrendously bloated and inefficient.  You’re not going to see enterprise software developed in light-weight C++ like MS Office any time soon because that level of skill is too rare and difficult and expensive to acquire.

This is some very bad Old School thinking, and many comments on George’s column call him to task over it.  I’ve got several reactions.  First the obvious one for anyone who actually develops software:  the myth that C++ is lightweight and fast compared to Java was laid to rest a LONG time ago.  George may be technical, but this reflects a profound lack of understanding of the tools involved.  Moreover, it makes no sense to think that “programming shortcuts” lead to bloat.  If we’re building software with less budget (this is another myth I’ll get to), less people, and less time, who had the time to write the bloat? 

These interpreted languages lead to less code, not more.  In fact, it’s tempting to advocate ditching Java for many projects and moving even further towards the scripting language world.  George’s views on this raise one important commercial issue in doing so:  IT won’t necessarily understand what it means and may think less of the software if it is written in PHP or Ruby On Rails.  They’d be wrong for the most part, but it could factor into sales. 

As regards smaller development budgets, I have two reactions.  First, SAP and similar companies spend as much developing their modules as Microsoft does building MS Office.  Second, having these huge teams and spending so much is the wrong way to build great software no matter what area you’re focused on.  I’ve talked before about the virtues of small teams.  They can make a huge difference in the final software and in the overall productivity of the team.

It’s been fun to get all this off my chest.  There are some classic old chestnuts of IT thinking here, evidently still doing harm in various ways.  What this really brings home to me is that the SaaS model is fundamentally better in the face of these kinds of attitudes.  Rather than try to fight through these entrenched viewpoints, SaaS sidesteps most of it entirely.  The Business does make the decision on SaaS software in most of the cases.  They do so with minimal IT intervention.  Evaluation cycles are shorter as a result, and a lot of practical IT interests just don’t matter.  The details of the care and feeding of the software, for example, go away.  IT is often very concerned about platforms because they have to live with the care and feeding issues and their people are trained on particular platforms.  With SaaS, IT is not responsible for care and feeding, so it need not concern itself. 

Lastly, the SaaS vendor is on the hook month-by-month for keeping the customer happy.  This is probably the most important part of the whole equation.  SaaS is just a better way to do business with you software vendor.

Enterprise Software Too Boring: Oh do come along…

Once again Robert Scoble has the blogosphere all atwitter (no pun intended, but it probably is a reasonable pun given Scoble’s predilection to Twitter).  This time its about how Enterprise Software is just not sexy.  I didn’t mind Scoble’s post too much.  In his characteristic way, Robert is not critical, he is quizzical.  But after reading through a raft of posts that picked up on this bogus meme, I became more annoyed.  All I can say to many of these writers is, “Oh please, do come along and get over it.”  For the most part, Enterprise Software is not sexy because most of these folks writing about its lack of sex appeal have no idea what it does.  It’s easy to pick up on consumer software: it is designed to appeal to almost anyone.  To really get Enterprise Software you have to understand and care about the problem it solves.  And in the end of the day, how many people are in a position to do that?

Scoble gets pretty close to this issue when he says:

…how many people in the world actually buy business software? For instance, back when I worked at NEC, a company that had more than 100,000 employees back then (more employees than work at Microsoft, actually) we used SAP. But I didn’t have any say in that matter. Some CIO somewhere else made that decision and forced us all to use SAP.

But it isn’t how many people actually buy business software, it’s how many people actually understand how to turn it to strategic advantage.  This is the real reason it isn’t sexy and people don’t write about it.  Most writers don’t understand the problem it solves, and even those that do can’t find enough readers who understand well enough to care.  And yet, if you were to take the time to understand, you might discover something hugely valuable to your business.  You might see a new perspective on a problem that leads you to a perspective on some other problem you’d never considered. 

The usually clever Umair Haque says this about Enterprise Software:

Enterprise software is lame because it offers little potential for revolutionizing anything - market space, value propositions, industry economics, strategies, etc. Enterprise software is lame because it offers little potential for revolutionizing anything - market space, value propositions, industry economics, strategies, etc.

Umair, do come along, you’re speaking through ignorance if you see no potential for Enterprise Software to revolutionize anything.  Just in Time Inventory completely revolutionized many companies.  Dell and Wallmart would be impossible without it, and while they seem long in the tooth today, they were revolutionary when they got started and for many years after.  JITI is the very essence of edgeonomics.  Just because you don’t know yet what today’s (or tomorrow’s) equivalent of JITI will be, don’t assume that Enteprise Software can’t revolutionize anything.  Someday you’ve got to realize that while edge is good, it isn’t the only thing.  Edge is all about doing what your competition hasn’t thought of yet.  It’s about getting inside their OODA loop.  If you think that getting inside the OODA loop on something that is core to an entire industry isn’t valuable, you’re too sold on being on the edge for the sake of being on the edge.  Think harder about what being on the edge really means.  This is precisly “what’s really wrong with the economy/industries.”

Many of the writers seem to think the problem with Enterprise Software is somehow about UI, or they take offense at the very idea that Enterprise Software should be graded on sex appeal.  Michael Krigsman, for example, says, “Scoble’s question is irrelevant and meaningless.”  Okay, call me a business geek or a Gordon Gecko-style capitalist, but I love hearing about some essential business insight that gets turned into software.  Some days I think Enterprise Software is nothing more than bottling some really clever business best practice insight as software so that those not fortunate enough to be able to have such insights can install the software, turn it on, and get the same benefit.  Towards that end, I think Michael Krigsman is wrong when he says:

Enterprise software is all about helping organizations conduct their basic business in a better, more cost-effective manner. In software jargon, it’s intended to “enable core business processes” with a high degree of reliability, security, scalability, and so on. These aren’t sexy, cool attributes, but are absolutely essential to the smooth running of businesses, organizations, and governments around the world.

Using Enterprise Software purely to achieve a little bit of cost savings is what I call “paving the cowpaths.”  It’s automating what we used to do so we can do it more cheaply.  More on this below, but that’s such a short sighted view of the potential that I hate to see it voiced as the reason d’etre for Enterprise Software to exist.  Michael, go back and think about it some more, you can do better. 

Nick Carr does a better job (and takes Krigsman to task along the way) when he says:

I’m sorry, but I think Krigsman is the one who doesn’t understand enterprise software - or at least doesn’t understand what it could become. The distinction he draws between business and consumer applications is specious. Are we really to believe that making software engaging is somehow incompatible with making it reliable and secure? That’s just baloney.

He’s absolutely right about that, and I would venture to say a lot of these writers have spent little or no time with Enteprise Software if they think otherwise.  I guess Krigsman was stung by Carr, because he wrote another column in his own defense.  In it, he claims that Enterprise Software is hard to use not because the writers set out to make it that way, but for other reasons:

1. Priorities.
2. Legacy support requirements.
3. Product cycle times.
4. Technology limitations.

To this I can only repeat my earlier admonition, “Do come along!”  That phrase, BTW, I intend to mean, “Oh come on!”  It’s hogwash.  I would argue those 4, or at least the last 3 are strong arguments to adopt newer SaaS solutions and leave behind all that intertia.  The reality is that a lot of Enterprise Software, especially that sold by the biggest players, is pretty darned old.  It’s written in technologies that came along before Java for crying out loud.  Once again I will stipulate that I believe the real problem is in paving the cowpaths.  Many Enterprise Vendors and Customers take far too literal a view about automating old manual processes when instead they should use the software to completely reinvent the processes.  Imagine if all a word processor could do would be to faithfully emulate a typewriter in every detail.  It would be such a pathetic shadow of what modern word processors do that we’d still see a lot of mechanical typewriters around. 

I think I like Vinnie Mirchandani’s column the best.  Vinnie gets how cool a business insight can be, and the power that Enterprise Software can offer to completely reinvent your business.  Take my last company, Callidus Software, for example.  This was a dyed in the wool Enterprise Software company.  We built software that calculates sales compensation.  Sounds boring as heck, right?  I had engineers I’d worked with for years tell me they couldn’t come to Callidus because the problem didn’t excite them.  Worse, we had customers who bought the product and weren’t exciting.  The reason why is really at the crux of a huge problem with most Enterprise Software consumers.  These particular customers I refer to were using Callidus to do what we called, “paving the cowpaths.”  They weren’t trying to do anything fundamentally new with the software.  They were simply trying to do the old stuff more efficiently.  That’s the real problem with Enterprise Software.  Too many are paving the cowpaths.  When you buy Enterprise Software, you have to ask how you can use it to fundamentally change the way you do business.  Many of the categories out there afford you the potential to do that.  Supply Chain Management, ERP, CRM, Incentive Comp, and so many others let you transform the way you do business.  Don’t buy these packages to pave the cowpaths, buy them to enact the transformation.

Now there were some really innovative customers who bought Callidus to radically change how they were paying their salespeople.  They viewed compensation not as an entitlement that one receives for doing work, but as a mechanism to change behaviour.  Those companies achieved astonishing ROI in very short time frames by using compensation to change what their salespeople had been doing.  If you doubt this is possible, just read my interview of Steve Singh at Concur to see how he changed his salespeople’s behaviour, and consequently his customer’s behaviour in terms of whether they selected SaaS or On-premises versions of his software.  There is profound power here.

I do think there is something about many Enterprise vendors who go out of their way to make the software boring.  I used to joke that at the University, User Interface Design and Database Design are taught at exactly the same time.  Hence, Enterprise Software, which is very database intensive, has few UI experts to make sure there is a measure of user friendliness.  I think this is changing for a variety of reasons.  For one thing, as many such as Ross Mayfield point out, the current crop of employees have grown up with better UI, and they won’t stand for anything too terrible in their Enterprise apps.  The days of 3270 green screen operators are drawing to a close.  That’s a good thing. 

37Signals wrote a post entitled, “Why Enterprise Software Sucks.”  Their point is that the buyers aren’t the users.  Translation: Enterprise Software, and especially its suckiness, is a vast conspiracy perpetrated by IT who choose the software but are not the eventual users.  I don’t think it’s quite as bad as all that.  It’s more due to paving the cowpaths and also to not designing Business Process.  That’s right, Business Process needs to be designed just like software or api’s.  If you just let it grow up organically and then try to automate it, don’t be surprised if the result is really gruesomely ugly.  Why wouldn’t it be, given how it came into being?

So let’s get past this issue of whether Enterprise Software is sexy.  Being able to radically change how a business operates is sexy to a lot of folks.  It certainly is to me.  Perhaps it doesn’t involve all the cool UI bells and whistles.  But then again, what does Twitter really do that’s all that sexy if you don’t “get” the problem it solves?

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SaaS Network Effects Start Charging Up…

One of the things that makes Social Networks exciting is their network effect.  Each new user adds more value to the network than the prior user; the value is in the connectedness of the thing, not the software.  This means it gets easier the larger such networks grow because they deliver more value as they get larger.  It’s easier to roll a snowball down the hill than a heavy rock up the hill.  Crossing the chasm is all about the heavy rock.  A startup gets a great idea that only appeals to early adopters, and it gets harder and harder to roll the rock up the hill as later stage adopters become the target audience.

Perhaps the best example of the awesome power of network effects I’ve ever come across is eBay.  Once upon a time there were many auction sites, now there is essentially one because of it.  The dynamics worked something like this.  Each additional buyer meant more bidders on each item for sale.  That meant the item was more likely to sell and at a higher price.  This attracted more sellers, because they could make more money.  That meant more of a selection for buyers, and it limited how high prices could go.  So more buyers came to bid.  That’s what I call a virtuous cycle, and eBay rode it fast and furiously to the very successful place they’re in now.

SaaS is now starting to show signs of similar network effects.  Salesforce is rolling out customer data sharing, which it hopes will generate this sort of advantage.  The idea is to make it easy to securely share information from your Salesforce application with other companies who are (presumably) your partners.  For example, you could share sales leads.  Given that Salesforce will shortly have 1 million users, you can see where the eBay analogy starts to fit in. 

Larry Dignan sees this as Salesforce “creating a moat around it’s customer base” to create a competitive advantage and barrier.  Given that the pricing is $100 per month per company users invite to share, I think Salesforce is couching this more as a revenue opportunity than a competitive barrier.  It’s hard to believe that adding a few database records within their multitenant system to allow information cross pollination could be remotely that expensive.  George Hu, Salesforce’s EVP of products and marketing says they’re pricing it for mass adoption, but that seems a stretch when you consider each company you share is the equivalent of a very expensive salesforce seat.  Given their average customer has 20 or so seats, each partner they want to give access counts as another seat.  Nevertheless, it may still be a valuable enough service to be well worth the price.  I’ve been surprised before at how expensive some Salesforce offerings, such as Force, are.  People tell me this is an artifact of their Oracle-based culture.  Certainly Oracle has never been a low cost provider of anything!

Another example of network effects for SaaS was mentioned by Zoli in his blog.  He was talking about the value of benchmarking information.  This is an area that is hugely valuable, and the information is very hard to get.  Whatever it is you do, imagine being able to get benchmarks on how your industry does the same thing.  The most obvious is benchmarking on salaries and other compensation.  We all want to track that information down when it comes time to agree on a pay rate!  But almost everything could benefit from some benchmarking.  Take corporate travel.  It would be interesting to know how your company fares (no pun intended!) relative to others in terms of whether you are getting good deals on air fares and hotels.  What about meals?  What would you do if you learned your s