Mark Cuban’s Simple Plan to Unseat Google Won’t Work

Mark Cuban has a plan.  He wonders what it would cost to deny Google access to the best search results.  What if you pay the top 5 results for the 25K most common searches NOT to be accessible by Google?  What if you paid the top 1000 sites $500K apiece not to be on Google?  It’s only $1B, which is doable for the likes of a Yahoo/Microsoft.

Here’s my problem with this.  Aren’t some of those most popular sites so popular that $500K means nothing to them?  Is it worth $500K to the world’s Global 2000 companies, for example, not to be seen in Google searches?  No, of course not.  What about the 1000 most important trendy and best selling brands?  I can’t see that $500K being attractive enough.  Would Nike or Apple stay off Google for $500K?  Would George Clooney, Madonna, or Britney Spears accept $500K to go dark on Google?  Maybe, but I’d think you need to go much further down the celebrity food chain before they’d opt out for that money.

People say that Google is the Internet’s front door.  What is it worth to your business to force people to go to the back door instead of the front door they’re used to?  How do you get enough businesses to switch to the back door when there is no history to show them it will be okay?

BTW, lest we forget, Google can monetize traffic better than anyone else to date.  Translation?  They can afford to pay these site owners more than Yahoo/Microsoft or whomever else Cuban has in mind to do this deal.

Google has the luxury of forcing all the risk onto the would be implementors of this plan, and then jumping in at the last minute to take it away from them if the plan works.

I am reminded of conditions in the oil industry during my youth in Texas.  There is a ton of oil in Texas to this day.  But for a time, it was shut down and manipulated until the oil patch practically turned into a ghost town.  How?  Well, a good Texas oil well produces about 100 barrels a day.  To get that out of one, you’ve got to pay to drill it, the well may be fairly deep, you have to pay for a pump on top, and you probably pay for a fair amount of “reservoir engineering” to help the oil to flow freely.  In Saudi Arabia, by contrast, an average well is shallow and flows perhaps 1000 barrels a day.  No pumps needed, just a valve on top.

What do you do if you become annoyed at competition and you are the Saudis?  You just open the valves, drop the oil prices, and wait until rigs have all rusted and the oil operators have gone out of business.  Then you crank the prices back up again.  What’s it today?  Well over $100 a barrel.  The oil business is back to gangbusters in Texas, and they’re even drilling new wells like crazy.  Not sure this time if it’ll work to crank open the valves.  There’s a lot more demand today than there was then.

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Raganwald gives us a vintage 1977 speech by Carter on the energy shortage posted just as I finished this post.  This would be the point just before those valves were opened and the oil industry in Texas shut down.  Today there is not so much talk of a shortage (we should’ve run out by Carter’s estimation and usage is far in excess of what was predicted then).  Rather it is an issue of too much consumption leading to Global Warming. 

Of course then there are the various scuffles over sites that don’t want Google to have access to various aspects for various reasons.  I agree with Om Malik, this one is hilarious.

Let Customers Try the Good Seats

In a sense, software companies and airline companies are at completely opposite ends of the spectrum.  Airlines sell a perishable resource: seats on flights.  If the seat doesn’t sell, the flight goes anyway, and most of the cost (fuel, personnel salaries, etc.) is incurred with no offsetting revenue.  Software, by contrast, can manufacture as many “seats” as demand will bear, with the occasional hiccup due to scalability concerns if demand is too fast and furious.  Traditional manufacturing is somewhere in between.

Imagine my amusement when I read a recent tail (sorry for the pun!) of United Airlines by Ed Cone, which Jeff Jarvis elegantly calls “an airline’s exquisite stupidity.”  United offers “economy plus” seating for an extra $30 on the flight Ed Cone was on.  Curiously, on this particular flight, economy plus was empty and the rows behind were packed.

Passengers started out asking if they could move and were quickly told they had to pay for the seats.  Then, enterprising passengers wanted to take United up on the offer.  Immediately.  After all, Cone muses, you can buy a drink for $5 on the spot, why not a seat for $30.  But no, the attendants were not amenable to that either, saying they were not set up to take reservations.  Heavy dose of disbelief here.  There is no “reserving” involved really.  The doors close, the plane rolls down the runway, the wheels come up, and nobody else is getting on that flight! 

So what could United have done?  Lots of obvious choices.  At the least, they could have agreed to sell the seats for $30.  While I’m sure there are complex pricing algorithms in United’s reservation system and the airline may not always offer those seats for $30 more, offering people a chance to upgrade “in flight” for a fixed fee on any United flight would seem like mighty nice customer service policy to have in place. 

A step beyond that would have been to offer to upgrade frequent flyers before the plane was boarded.  Airlines have tons of miles racked up and getting them off the books is beneficial or you could just give it to the customer for even more impact.  I have actually been fortunate exactly once in my years of business travel to be offered a free upgrade without asking, but it sure put a smile on my face to be called up to the desk and offered the upgrade to First Class. 

In my mind, even better would have been to have the attendants empowered to parcel out the seats without strings attached once it was clear they would not be needed.  When was the last time an airline did something that thoughtful?  Yes, there are potential problems.  There may not be enough seats for everyone, but surely there was a strategy that would make people happier than staring at a big block of empty seats they were barred from using.  Perhaps offering the poor sods seated in the middle seat the first opportunity would have a certain fairness.

But as I think about this, the software world comes back to me, and darned if there aren’t times when we do exactly the same thing to our customers.  Consider the area of self-service.  Do you make it easy for your customers to self-service their way into everything you sell, or do you insist on your equivalent of the “reservation system” these attendants were so worried about?  I remember trying to get more disk space from my ISP for my family web site.  They’re not set up for self-service.  All of their self-service is focused on new customers.  In fact, it turned out to be quite an odd ordeal to add disk space.  Few people had evidently ever needed more than the standard package allowed, so they weren’t set up well for it.  I had to spend a lot of time on two different phone calls to get it taken care of.  Nothing more annoying than businesses who make it hard for you to give them your money for a service they clearly sell.

Contrast that with a conversation I had with 3Tera.  They related that if you make it easy for customers to provision, they will provision a lot more.  Things it may not have occured to you they would even be interested in will suddenly be selling.  I’ve heard this sort of story from multiple places.

And what about the customer experience?  What if you have a many-tiered collection of services, and you were to go to some of your best customers in the lower tiers, and offer them a chance to try the better tiers for a time at no extra charge?  Isn’t that the exact analog of these seats on an airliner?  If you were that customer, wouldn’t that make you happy?

I remember Seth Godin saying one time it’s worth stopping and thinking about the one thing of value you could give your best customers without their having to ask or do anything.  Just take it and give it to them, with your thanks that they’ve supported you.  It’s not for everyone, and it doesn’t happen often, so it leaves an impression.

The biggest thing the Web brings us is choice.  What is scarce in a world of endless choice?  Real customer service.  A great experience.  Choice is all about the going in, but experience comes after the choice.  What are you doing to deliver an exceptional customer experience?

Interview With Rally Development’s Tim Miller and Ryan Martens

I had the pleasure recently of interviewing Rally Development’s CEO TIm Miller and CTO Ryan Martens.  I’ve mentioned Rally before as a company who I think does an exceptional job (particularly for a startup!) of leveraging the web.  In the wake of my recent Steve Singh interview, I wanted to continue to follow up on how SaaS companies are doing customer acquisition, and what they’re doing that really sets them apart from the crowd by using the web.

Give us a little background on  yourselves and on Rally Development

Ryan and I have worked together for 17 years and this is our third startup together.  Rally Development is a company focused on delivering a workflow product for Agile Programming.  Agile Programming is an engineering lifecycle process that is analogous to Lean Manufacturing.  We’re helping companies using traditional waterfall development to make the big step forward to modern Agile software development.  Companies today need to deliver in real time almost, and this is particularly true for SaaS companies.

We’re 110 employees, and we’re hiring 25 employees a quarter, so we’re aggressively expanding.  We’re at the tail end of closing another round of financing.  We have 375 customers and 15,000 users.  We’ve been growing 40% quarter over quarter for the last several quarters and expect to keep doing that into 2008.  Our largest customer has over 1000 seats.

Wow!  You guys are really growing. How did you manage that?

We modeled our company after Salesforce.com in every conceivable way.  The exception is we don’t have a Marc Benioff, but that’s appropriate.  We sell to engineers, not sales folks, so we need to be a bit quieter.

Like Salesforce, we’re multi-tenant from the ground up, we have nearly the same Average Selling price, same revenue per customer, same seats per customers, and we’re both workflow oriented products.  The difference is our product implements workflow for an engineering lifecycle–Agile Programming.

<At this point we talked a bit about Agile.  I shared that I have some background there since James Coplien wrote one of the papers that led to Scrum based on his study of my Quattro Pro team at Borland and how we were achieving enormous productivity.  For this interview, I wanted to keep going on the customer acquisition theme though, so that’s where we focused.>

Tell Us How You Go About Selling

Up until recently, we had a traditional inside sales model.  No outbound calling, very reactive to leads we created.  Over the last 3 years we’ve consistently reduced our cost per lead from well over $50 to about half that now.

We’ve been very successful selling to ISV’s, and started with almost all our customers being ISV’s in 2005.  In 2006 we started reaching large corporate IT departments, and such customers became about half our business in 2006.  By 2007, we were 2/3’s IT.  We haven’t gone head on into IT or changed our selling process yet, but we anticipate doing that soon.  This may increase our cost per lead given the publications IT read.

Over the last couple quarters we started getting out in the field more.  Unlike most companies, we’re not trying to turn an Enterprise sales force into a volume inside sales force.  We’re doing just the opposite.  A big deal for us is any deal with more than 50 seats.  Over the last 3 quarters we did 15 big deals, then 30 big deals, then 45 big deals.  Such deals require more face time, and we’re not shy about getting on an airplane to go visit someone.  We have both East and West coast sales people.  Eventually, we’ll get to Europe.

<At this point I mentioned how many SaaS companies I talk to are going through this evolution.  At one time, nobody wanted feet on the street.  Now companies are pushing hard up market and finding they need a real sales force.>

What are your thoughts on Sales 2.0?

You can’t just use feet on the street.  You need a volume business that lets you hit your number even if you don’t close any big deals.  You need both, and you have to feed them both.  Traditionally, half our business is big deals, but last quarter we didn’t do a single one and we still made our number.

When you sell to engineers, they don’t want to be hounded by a sales guy.  They want to download and try it and get educated, and then have sales come in and answer any remaining questions or help them scale and roll out Agility more broadly in their organizations.

<At this point, they made a passing mention of some “secret sauce”, so I had to follow up!>

What’s your secret sauce?

Agile is an open source methodology.  We can help scale lots of small teams onto 2-4 week cycles, ultimately distributed around the world.  We have users in 35 countries although we have only ever sold in 3 or 4 countries.  That’s the great story around SaaS–the reach it provides.  Worldwide, big deals, small deals, it all works for SaaS.  Selling to small customers scales to big customers because that’s how we grow incrementally and it’s how we make sure the product works for everyone.  That’s how we get to do the whole long tail.

Walk me through your customer acquisition and download model

We started with a single edition of the product, with demand generation driven lead acquisition, feeding those leads to volume reps, and now most recently we added a tier that feeds the leads to territory reps. 

We added a lower price point version than the core, called the Team version.  It worked okay, but wasn’t the right fit.  We needed a free version to take all the friction out of the initial acquisition.  So, we created the community edition, which is limited to one project.  Because SaaS lets us precisely target who uses our software, the free version didn’t have to be a bastard step child that was bad because you took out all the features and got something that didn’t work for anybody.  With SaaS, we can offer customers all the modules, but focus them to just a single development team, up to 10 seats.

That was a huge deal for us.  We launched last summer and it has been a rocket for growth and our sales organization then converts the free users to paying customers.

How do you talk customers into converting to the paid version?

We encourage customers to take as many community editions as they want.  In fact, we almost insist they start there and understand how Agile works for a single team.  As a result, we take all the selling barriers out and then we have upgrade incentives to convert.  We make it easy to migrate to the full-fledged product.

We know a customer is ready to convert when they have multiple community editions in use.  They get near their 10 user limit, and so then we call.  When they’ve already gotten a lot of use out of it and learned the value, they’re ready for a sales call.   A hard sell would be counter-productive, and it isn’t needed at that point anyway.

How do you guys do customer support?

Agile Commons is our support piece.  It’s a Web 2.0 community site providing expertise around Agility.  One of the top level menu items is Rally Community.  You don’t get to see a lot of that if you aren’t a customer.  Inside, we have things like an idea voting system similar to Salesforce’s IdeaStorm, we have dialogs with customers on features under development.  Customers get to see actual prototypes.  And, there is single sign on between our application and the Commons.

It’s been amazing the level of feedback we garner, the attention before shipping, and the way that gives us the ability to prepare and educate the installed base on what to expect from the next release.  We can instantaneously form beta groups this way and make customers a part of the product development team.

It builds trust, loyalty, and helps customers get what they need.  Customers can create their own topical areas and comment as well.  We’re about to let any member invite other members too.  Also, if you go through Agile University you get to join the Commons.  Many of the materials you need for University are found in the Commons.  Partners get to have sites in the Commons too.

<It’s clever to use community access as a way to drive upgrading to paid versions of the product.  What’s even more clever is the way they’ve tied together all of these ingredients to create virtuous cycles.  Customers help out with new version feedback, and beta testing, and in the process get educated so they’re better users of a product.  The University/education piece is tied in.  To get your “degree” in Agile programming, you have to learn to function in the community.  Lastly, letting members invite others to the exclusive club is very much along the lines of Social Networks.  I don’t remember seeing it done this well by a business before.>

That’s so creative, how did you guys come up with this?

We use HiveLive, another Colorado-based company, and that helped us grasp what was possible.  Their innovation was to remove all the admin problems with creating groups and permissions by empowering users to do that.  All the templates are configurable.  You take the IT resource out completely and push it to the users.

Once we saw that we were able to leverage that product.  We sell CommunityManager.  it takes the Hive Live platform, which is sort of a Ning/SocialText competitor, and we added on top of that all the templates needed to run the support org for a software company.  We added voting capabilities to that and built it into our Product Manager module.  PM’s love being able to access the voting feature.

It’s very powerful to integrate all these platforms.  Software is going from a linear product release business to a continuous flow service business.  Agile is the methodology that enables that.  SaaS is the delivery vehicle, and it is sold more as a continuous flow.  Community Manager brings this continuous process mentality to support.

Who else does this?

Salesforce has some of this in SuccessForce and IdeaForce.  We have a better community system, but theirs is a bigger community.  We’re in a completely different niche though.  We’re really tied to the operational flow and the product side of software driven organizations.  Salesforce is so CRM focused with little brand extensions off that core.  We work well with SFDC.  They’re a good partner more than a competitor.

Do you see this whole ecosystem as a way to do Viral Marketing for SaaS?

We sell ourselves as the experts in Agility.  We do that through content, white papers, webinars, and all those traditional pieces.  We push that first, rather than product, and that’s a key differentiator.  The content leads the product.  In fact, we give away the product for your first 10 seats.  We totally cannibalize that end of the market.

While we push being the experts, we dont’ charge for it.  But, when you retrieve our content, we get a warm lead and it builds our house list.

<This, I think, is their real secret sauce.  Content, and specifically being the experts at the best practices, sells the product.  Every company has the opportunity to be the experts with their own products, but how many really take the time to do so and give that expertise back?  What a powerful selling and community-building tool!>

How do you get good at producing content?

We’ve had since day 1 a services arm on our staff that produce this kind of content.  We have some of the world’s best Agile coaches, so we have a ton of content produced for keynote presentations or training.

But, even so, it was hard to keep the see rising.  To keep the sea rising around Agile is too much work for Rally alone.  So, creative commons open souced the content, we share it, and we let others use it for their own businesses so long as they don’t compete with us.

Now many people are incented to help create and disseminate content around Agile programming in our community.

<And here is the other half of the secret sauce.  Using open source for content gives them tremendous leverage over having to create all the content themselves.  Plus, it aligns a bigger ecosystem around their product offering.>

What else should we talk about this interview?

We’re going through the Geoffrey Moore lifecycle process  with our first product.  Now we’re starting to look at the platform space.  Not a wide horizontal SaaS platform, but one that our customers can develop on and mash up.  We’re not ready to announce anything, but we’ll be in touch!

<Despite a radically different scale of company and a totally different market they are very much on track with what Concur’s Steve Singh said about his public software company’s approach to customer acquisition.  Lots of interesting lessons to take away from these guys:

- You can use the web to take a prospect all the way to highly qualified status where there is little question they’re ready to buy.  It takes a free version of the product to get started with, a community, and a best practices university offering content.

- High value content is the starting point.  Some of it you have to develop.  Once you get a critical mass, a community and open source can help you crowdsource content for your company or cause.

- There are a number of virtuous connections and feedback loops between product, community, content, marketing and sales.  Make sure you’ve got them all wired together to emphasize this!

- Lots of ways to incent desirable behaviour, but they key here is incentive.  Rally uses exclusivity (only paying customers get full community access), free valuable content, referrals, partner incentives (you can use our content and you can plug into our community), and I would bet a variety of other incentives.>

Is There Still A Chasm?

An interesting post by Leigh has popped up on Techmeme.  She wonders, as I have, whether the fundamental notion of Moore’s Chasm has changed.  Leigh’s question is whether the generation that grew up on Technology still even thinks of it as early adoption, or if the behaviour has become so widespread that there really is no Chasm any longer.

It’s an interesting question, but I believe there will always be a Chasm of some sort.  My question is whether the Early Adopter crowd is now so large, and the Internet so effective at reaching them, that perhaps it is possible to build a business without the painful dislocation that is Crossing the Chasm.  Perhaps there are enough on the Early Adopter side to make a tidy business after all.

Sun Sees Amazon Changes the Game Even for Hardware Vendors

The announcement that Sun has partnered with Amazon to make Open Solaris available on Amazon Web Services is fascinating.  It’s free, so Sun sees no revenue from it.  One wonders if Amazon has charged them for the inconvenience, so it may carry a cost.  In fact somebody somewhere paid a cost to at least cover the testing and development of whatever provisioning is required to get it started.  So why do it?

At the moment, Amazon is running away with the cloud computing show.  Last I heard there are over three hundred thousand developer accounts there.  It’s a thriving ecosystem, and if Amazon sold no more new customers, one has to suspect that just the growth centered around those existing customers would be significant.

Suddenly, this is a platform that matters for everyone that is trying to establish their own platform.  If you want your OS (Open Solaris) to have a chance, you’d better look into Amazon Web Services.  There is no Microsoft equivalent yet, so that’s a problem.  As I’ve said, Ballmer would’ve done better to buy Amazon than Yahoo, so perhaps now he’ll give that a try.  If you want your database or application server (hello Larry Ellison) to thrive, you’d better look into Amazon Web Services.  If you want your language (hello Python, Ruby is already there with Heroku) to be ubiquitious, you’d better look into Amazon Web Services.

In fact, as if to underscore this realization, the Amazon partnership is just one aspect of Sun’s official launch of Open Solaris.  But, it is a critical one.  It will be interesting to see how well it does, and whether there are aspects of the Cloud Computing world’s needs that give it any special advantages.  I’ve heard of a few things, but it hasn’t really sounded compellling so far (see Jason Perlow for more).  There’s an awful lot of momentum behind Linux already.

The availability of Amazon Machine Images does another thing.  These are freeze dried snapshots of a particular collection of software installed on a machine.  This makes them easy to propogate.  The best practice combination of various pieces of software can be combined, converted to an image, and made available for broad consumption.  This lowers operating costs and helps ensure that the “good” combinations are more prevalent in this ecosystem.

Sun’s announcement is a fasciniating indicator of just how important Amazon Web Services has become.  Look for more indicators as we go forward.

What Now Yahoo? And What Now Microsoft? It’s Pretty Clear What Now Google…

By now you must have heard the news that Microsoft has walked away from the proposed marriage with Yahoo.  I got the first scoop on this from Michael Arrington.  Apparently Yahoo wanted $38 a share in the end and Microsoft would go no higher than $33.  That’s quite a gulf. 

Per Ballmer’s letter to Yang (which Microsoft themselves published), the Microsoft offer was a 62% premium to Yahoo’s stock initially, and rose to 70% later.  That’s a hefty premium: about twice the premium Oracle offered BEA, for example.

What’s next?

Yahoo’s response to the news focuses on the idea that, “The distraction of Microsoft’s unsolicited proposal is now behind us.”  Piffle.  The trouble is just beginning and that roar you hear is an oncoming freight train with the Yahoo bus stalled across the rails.

Scoble calls Yahoo, “a bleeding animal. Left lying, gasping for its breath, after a larger animal (Microsoft) struck and then walked away after it proved too difficult to eat.”  He goes on to list daunting challenges.  They’re mostly perception–perception that Yahoo is a wounded animal, perception inside and outside that Yahoo isn’t worth the $37 Yang asked for.  But perception counts at a time like this.  It’s very hard to rally the troops if they think the leadership did the wrong thing. 

The prevailing view is that lawsuits will fly, and it isn’t hard to see why.  Mathew Ingram flat out says, “Jerry Yang should be fired.”  He won’t be the first one to echo that sentiment, especially among shareholders.  Om Malik sees the offer withdrawal as Microsoft proving again that it is still the Prince Machiavelli of Technology.  The drama has proven that Yahoo has no real suitors to merge with and that its best option to remain independent is to give its online advertising to Google.  Surely that is a dreadful one-two combination for any company to face.

Fred Wilson, who thinks Yahoo did the right thing, started a poll to vote on how low Yahoo’s stock would go Monday when the markets open again in the wake of this announcement.  His vote is for a close at $26, since he feels Microsoft has shown the real value of Yahoo.  I voted $20, because I don’t think Yahoo is worth what Microsoft bid to anyone but Microsoft, or perhaps Google, but the latter isn’t going to happen for anti-trust reasons.  As I write this, the poll is focused on the $20-24 range and there are more betting it’ll fall below $20 than that it will hit Fred’s $26 target.

Will the Google deal still go through?  Most pundits think Yahoo has to pursue it to placate shareholders by increasing profits.  Certainly Yahoo has talked up the efficacy of the trial to the point where it seems hard to back down.  If they do, one would expect their excuse will be the regulatory issues both they and Microsoft have alluded to that are involved with giving Google that much more of the business.  Meanwhile Yang, Filo, and the Board will face a barrage of shareholder lawsuits.  Hard to see how the shareholders lose either.  The premium that Microsoft offered sure seems like the sort of thing that fiduciary responsibility would have compelled them to take.  In retrospect, they will seem unforgivably greedy.

Microsoft is not without angst either.  There had been a story that Microsoft’s MVP’s were pushing to kill the deal.  That reflects a lack of faith in Ballmer, whose baby this deal was.  It can’t have been comfortable for him to back down, although it does let him play the, “I’m more reasonable than you thought, after all,” card.  Techcrunch goes so far as to suggest Ballmer might need to go.  As critical as I’ve been of Microsoft, and of this deal, that’s just ridiculous.  I’ll chalk it up to link bait, although if there’s not some progress made on the Vista debacle over time that may change.

I think something a little different went down here for Microsoft.  I suspect Ballmer and others at Microsoft were genuinely surprised that Yahoo would fight so hard to avoid being assimilated.  These guys love Microsoft, and basically grew up with it.  I know from a lot of friends that there is tremendous loyalty there–just as much as at places like Google.  So I suspect they were genuinely puzzled, and a little bit hurt that Yahoo would spurn them.  After all, Microsoft is a great home for Yahoo, which in their minds was stumbling badly, and they had given Yahoo an incredibly generous offer to go fight mutual enemy Google.  Couldn’t Yahoo see that Google was eating the industry up alive?

Many say that the Yahoo deal was set up to define Ballmer’s career.  Don’t forget–Ballmer’s had a career for years and years at Microsoft.  I doubt he sees this deal as career-defining as others may.  In fact, his walk away seems to me to be a great sign of a mature leader not willing to win at all cost.  It’s a great counter-example to the volatile reputation that he’s developed over the years.

Ballmer’s letter to employees leaves the door open to pursue other partnerships and investments to realize the competitive avantages that come with scale.  Don’t be surprised if there isn’t more news at some point.  My own personal suggestion was that Amazon would make a better acquisition than Yahoo for a variety of reasons.  After all, Microsoft wants to own the cloud, and Amazon is rapidly selling lots for builders there.  Also, Ballmer is all dressed up and left at the altar.  He’ll be looking for another big date.  Who will it be?  MySpace?  AOL?  Someone else with scale?  $44B goes a long way.  A stumble from Facebook and it could land in the spider’s web.

I’ll go firmly on the record as saying Microsoft, and Ballmer, did absolutely the right thing here, and Yahoo has badly erred.  I never liked the Yahoo deal to start because I don’t believe it offers real value.  The bloom has been off the Yahoo rose for some time, and the company is in decline.  The premium offered was generous, and it has been rejected.  Time to move on.

How do others benefit or suffer from this outcome?  You have to figure Steve Jobs and Eric Schmidt think it’s all good.  At worst Google can continue to take share from the weak and disorganized, and Apple need not fear a suddenly resurgent Microsoft.  At best, Google gets the deal to take Yahoo’s advertising and they win big.  I just don’t see how they can lose on this outcome.  Even if Microsoft comes back later to try again, Yahoo is badly mauled and unlikely to be anything but weaker by then.

Whatever else happens, if either Yahoo or Microsoft seriously stumble from here on out in their fight against Google, this event will go down in history as the day the two sealed their fates.

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Amazing.  Here it is Monday morning and Yahoo has no announcement of an ad deal with Google nor any others news save vague platitudes from Yang.  The stock is getting hammered.  It’s epic and sad.

Meanwhile, guys like Jim Cramer (sorry, you have to pay to hear it, so I won’t give a link) have started ranting and raving about the hubris of Yahoo’s move to spurn Microsoft.  It’s going to get a lot worse!

Startups Buying Startups…

Lots of news lately about startups buying startups: Strands acquires Expensr,  Zyb bought Immity, BuzzLogic acquires ActiveWeave, yada, yada.

Why do it?  Why would a startup want to be acquired by another startup?  Where’s the liquidity in that?  Why would a startup want to acquire a startup?  Isn’t that eye off ball?

Increasingly, one hears about these transactions, and the VC’s are quite interested in talking too.  And why not?  Startups are companies too, and they can use acquisitions to gain most of the same advantages big companies gain through buying other companies.  Let’s look at just a few of the reasons it might make sense:

Liquidity

Let’s dispatch this issue up front.  Immediate Liquidity is usually not on the agenda for a startup acquiring another start up, but it may be greatly accelerated and it may beat the alternative.  If a struggling startup is having a hard time getting to the next stage, it may be easier to merge with a stronger startup than to keep going it alone.  This is particularly true in this age when many companies are building products that are more like features or modules of a larger suite.  If their market is hot, they can make it all the way to buiding their own larger suite.  If it isn’t, or if they’re too late to the party, they may have to join someone else’s game.

From the acquiree’s perspective, it’s all about it being better to have a smaller slice of a much bigger pie.

Talent and Technology

When I was working for Borland back in its heyday, this was the number one reason we acquired so many little startups.  Our ideal profile was to identify a team of brilliant technologists who had built a wonderful product but just couldn’t manage to develop the sales and marketing chops needed to hit it big.

Finding great talent was hard, and building out a great product even harder.  Acquiring a little startup that had already gotten critical acclaim from customers was a way to shortcut the need to start from nothing. 

Often such acquisitions make it possible to tackle new markets that weren’t in the original plans, or they may simply make it possible to accelerate the plan of record by not having to build everything from scratch.

Market Share / Critical Mass

This is another motivation for acquisitions that I’ve seen taking shape.  Momentum is everything, and if a couple of strategic applications can rapidly pyramid the momentum, it’s well worth it. 

Filling Out the Story

Very often customers are telling the larger firm they’re missing an important piece of the puzzle, and some smaller entity may already have the piece in hand.  It takes a lot of work to build out a big vision and all of its pieces.  If a smaller firm is available that answers a question your customers are asking that you can’t currently answer, why not do a deal so you can give it to them?

Expect More Startups Acquiring Startups

Expect to see more startups acquiring startups, it makes sense for many of the same reasons bigger transactions have made sense.  The real issue will be getting all the parties aligned on the transaction.  The critical issue in every acquisition is valuation.  Nobody wants to acquire a company that everyone agrees is worthless.  But, will the acquirer have an over-inflated sense of its own worth relative to the acquiree?  Can the respective Boards of the two companies grasp the vision for synergy and figure out how to do a deal that makes sense for everyone?

That’s the real challenge, and those who are good at it will have a powerful new tool to grow startups faster at their disposal.

Integration and Expertise Matter More for SaaS

I recently had lunch with an executive one of the more successful SaaS startups in the Valley.  Our conversation ranged far and wide over many topics, but eventually I wanted to understand their product differentiation.  There are several players in the space, what had these guys been successful in emphasizing?

The answer was a surprise to me:  integration with other SaaS apps.  As he put it, “Our customers care a lot more about this than they used to when I worked for a perpetual software company in the same space selling to bigger enterprises.”

This was completely at odds with my logic before the lunch.  SOA and fancy integrations had seemed entirely a feature that catered to giant Enterprise IT that had to have things their own way and were willing to boil the ocean to get there.

After a bit of further questioning, it became obvious why the SaaS customers might care even more than their big company counterparts.  SaaS typical sells to SMB’s.  These smaller organizations have minimal IT staffs.  I once talked to a SaaS company whose professional services group had to deal with the CFO being the only IT staff that could answer questions and help get the software going.  That’s small!

When you have a large IT group, you can afford to, and indeed, may even want to dedicate some of them to building the integrations.  When you have a small group, if the vendor can’t do it for you, it probably won’t ever get done.  So it isn’t that the little guys care more, they’re just helpless to get any kind of solution if they care at all.

What does this mean for SaaS vendors?  In this case, having out-of-the-box tight integration with other SaaS vendors (or On-premises packages) was a big differentiator.  It lowered the deal friction (less to worry about on the custom install side) and increased customer satisfaction (hey, we could never get these two systems to talk before!).

Today, I read in one of Jeffrey Monaghan’s posts the following:

It is important to be viewed as the expert when you are selling a product…but it is imperative when selling a service. Customers are buying a promise from you. And an expert is perceived as someone who is most likely to deliver. Everything you do should scream “We’re experts!” Collateral material, websites, even the way your sales team dresses.

Jeffrey is making a slightly different point than the integration point, but it’s really the same story again, isn’t it?  Small businesses can’t afford to hire Accenture or somebody to come partner with their software or sevice vendor to help them out with “Best Practices” or “Business Process Re-engineering.”  The software itself had better have all that built in, and the vendor had better look like the experts, and be prepared to help educate the customer as much or as little as needed.  It can’t be an extra cost option.

This is just another thing I really liked about how Rally Development’s web site is set up.  There is that perfect mirepoix of product marketing, best practices (and in their University, clearly there’d be experts there!), and community.  Rally is just a site I came across by accident when two different people asked if I knew of them.  Their site really resonated with my idea of what a small company should be doing with the web to get the word out.

How about you, are you the experts in your area?  Shouldn’t you be?

Content Quality Matters (Enterprise 2.0 Take Note!)

No sooner did I pen Immediate Gratification Matters than I read Jason Menayan’s GigaOm post on 7 Things HubPages Did to Beat Squidoo.

HubPages and Squidoo are sites where people can write short articles about topics they care about.  Squidoo was founded by Seth Godin, a famous marketer whose blog I follow religiously.  Despite rapid initial growth, HubPages was languishing a year later, and trailed far behind Squidoo in terms of traffic as well as revenue generated for the company and its authors.

So what did HubPages do to beat Squidoo?  They list 7 things:

1. Remove all adjult content:  At the time they did it, adult content was 1/3 of all traffic.  Clearly they had to choose to get rid of one audience in order to encourage others to step up.  Would you company give up 1/3 of its sales for the promise of much larger sales later?  Something similar keeps a lot of companies from going SaaS.
2. Disallow spam:  No aggressively promotional articles were permited, and links to sites being promoted had to be toned down.  You couldn’t just publish your ads as pages.
3. Purely personal articles (like blogs) were eliminated:  The feeling was they were less likely to be useful to readers or to attract search engine traffic.
4. Copied content was penalized:  Ever come across content that is just a blatant republication of some other content?  Sometimes there is an issue of rights to use the content, but even if there is a right to republish it was felt that original content was more valuable.  Hence article scores were penalized though the article itself was not removed.
5. Articles Linking to Questionable Sites Were Flagged:  If they could see that a site might potentially phish, display obnoxious popups, or redirect to a different site immediately, the site is marked as such.  I just noticed Google doing a bit of this too, and appreciate it.  It’s never been a pleasant surprise to land on one of these obnoxious sites after clicking on an innocuous-looking search result.
6. Added a discussion forum:  This encourages real community and conversation, which was evidently lacking.  With a forum, users can help each other out, share advice, and socialize beyond simply publishing articles.
7. Up front payments for very high-quality articles:  Great articles attract significant traffic and create success stories that are a good example for others to emulate.  I’m not sure how those success stories are propogated, but I would make the propogation in some way very easy to make this more viral.

These are all ways of increasing the quality fo content and incenting people to build a quality-focused community around the content.  There is a lot to be learned from this for would be purveyors of content.  What is your strategy to increase your content quality?

Somehow I find this message to be strangely ironic.  As I mention, I follow Seth Godin religiously.  The idea to focus on content quality is definitely one of his core themes.  His book “Dip” is all about finding out what you can be the best person in the world at and focusing on that one area.  Yet, a competitor has gotten more focused about it than Squidoo.

Seth recently wrote:

In the face of infinity, many of us are panicking and searching less, going shallower, relying on bestseller lists and simple recommendations. The vast majority of Google searches are just one or two words, and obvious ones at that. The long tail gets a lot shorter when you don’t know what’s out there.

Organizations that can help us manage the infinite are facing a huge (can I say it? nearly infinite) opportunity.

To the issue of getting yourself hooked into “shallower” ways of finding content, one should add that when there is infinite content, it can be particularly differentiating to have better content.  This is something that has always bothered me about the crowd that says, “Content is a commodity.”  This has been such a popular meme lately, but it is so hollow. 

The next time you’re going through pages of Google search results just trying to find one good read about you topic, ask yourself, “Would getting to quality sooner have mattered to you on that search?”  I’ll bet the answer was “yes” for most searches.

P.S.  Why should Enterprise 2.0 take note?  Because these folks are going to be particularly sensitive to the kinds of content that HubPages eliminated.  Does your Enterprise 2.0 solution have a way to do that automatically, or are you going to leave it up to your customers to police their sites? 

Microsoft Mesh: All Your Devices and Data Are Be Ours

I’ll bet your blog reader is probably overflowing with posts about Microsoft’s Mesh announcement this morning.  Sorry to add one more, but it is an important announcement and there is some analysis I want to get out onto the table.

Mesh Product Director Mike Zintel sums up the Mesh vision well: 

“The coolest thing about Live Mesh is how it smashes the abrupt mental switch that I have to make today as I move between being ‘on the web’ and ‘in an application.”

“At the core of Mesh is [the] concept of a customer’s mesh, or collection of devices, applications and data that an individual owns or regularly uses. The Mesh Account Service persists the relationship among these resources and authorizes access to them. The mesh is the foundation for a model where customers will ultimately license applications to their mesh, as opposed to an instantiation of Windows, Mac or a mobile account or a web site. Such applications will be seamlessly installed and run from their mesh and application settings persisted across their mesh.”

Ray Ozzie adds to this that the Web is “the Hub of our social mesh and our device mesh.” And goes on to say that, “in scenarios ranging from productivity to media and entertainment, social mesh notions of linking, sharing, ranking and tagging will become as familiar as File, Edit and View.”

Mesh starts out for individuals, which I suspect is intended to minimize adoption friction.  Lots of cool sounding functionality has been considered and incorporated into the design.  There are objects that range from data to applications, and data is not limited to files.  There is some sort of role-based security around these objects, and objects can be stored in all sorts of places.  Most importantly, there is pub/sub synchronization, replication, and update alerts and feeds to keep people aware when changes are made.

At the moment, Live Mesh is an invitation only “Technology preview.”  The current version only does synchronization of Windows computers, but its intent is to extend to other devices.  Mobile and Mac are promised within the next year.

How is this really different?  Josh Catone mentions similarities with Dropbox, SugarSync, and Microsoft’s own FolderShare.  Interestingly, I’ve seen a demo of software that syncs across PC’s and mobile devices not long ago from SoonR as well.  It works today for a number of devices.  Their motto is “The Anywhere Workforce.”  I vividly remember a couple of years ago seeing a PowerPoint slideshow played back over a Motorola Razor at my home using SoonR.  How long before Microsoft has made it that far?

As Catone points out, the difference is that Live Mesh is intended to be a platform.  It is feeds of all shapes of sizes plugged into your data and applications.  These feeds are used to sync your data objects, and to keep you and others abreast of when these updates are happneing.  Since its a platform, the feed mechanisms are open and accessible to third parties.  There is a demo, for example, of Twitter tweets being synced to the Mesh Notifier.  Clearly Microsoft will want a piece of the burgeouning feed aggregation world.  FriendFeed and friends look out!  In addition, there is an offline component too, which provides one possible answer to the likes of Google Gears or Adobe AIR.

In a nutshell, that’s what Live Mesh is, now what does it mean?  Will it work?  What can we do to prepare for it?

Analysis

Scoble loves it.  A veritable toolbox of feeds going every which way.  Everything is a feed, including your, um, feeds.  I’m not surprised Scoble loves it, but his description doesn’t make it sound like the one highly differentiated must have thing that will keep Microsoft a vital part of all our lives.  In particular, if your promise is connectivity ala feeds between all things, how does that reconcile from this passage from Scoble:

Unfortunately they aren’t even close to being finished. Mac support? Coming in the future. Nokia support? Unclear. iPhone support? Ask Steve Jobs (translation: will be very limited due to Apple’s complete control of that platform). Firefox support? Yes! Linux support? What’s that?

Can a ubiquitous “operating system” to store all your data, manage all your feeds, and connect it all to every computer and mobile device you own succeed if it is owned and operated by a company whose reputation is to take unfair advantage of any access you give it?  Isn’t this the very poster child of what you would want to have be very Open Source and very Swiss in its dealings?

Phil Wainewright sees this issue clearly when he brings up “how the company seems to lurch from launching fresh, Web-savvy solutions one day but then falling back into its crusty old server-centric habits the next.”

Clearly such a platform will rely on third parties to get excited about supporting it.  Will Steve Jobs let it onto the iPhone when he hasn’t even allowed the Flash Player?  Will Sony support it wholeheartedly when they see the XBox team has a huge lead on them because of the usual Microsoft “our guys get all the early advantages” ploy?

Erick Schonfeld captures the flavor of a nagging doubt that has been in my mind.  He sees Live Mesh as a response to efforts to take browser-based apps onto the desktop and into Microsoft’s face.  Live Mesh is taking applications off the desktop and pushing them into the Web’s face.  They demo geneology changes being updated whenever a family member makes a changed, but Erick points to web-based Geni which already does this automatically.

Which one is better?  Do you want lots of copies of data being synced, or one copy being edited collaboratively by many?  This debate has been waged for years, but the general consensus has tended towards one copy with collaborative editing.  Desktop-think wants to keep going the other way.  And, it is very convenient if it’s just you in charge of your data–this blog with me editing it coming to many of you via RSS.  But, if many of us have to work on it, a Wiki is a better idea.

The Live Mesh vision is then useful, but probably overreaching.  It isn’t the “one great thing to restore Microsoft’s dominance.”  There are a lot of questions about whether Microsoft will reach a critical mass in getting others to play along with it.  Suppose they follow their standard playbook (and I see no deviation yet):

- Get their teams early exposure.

- Preannounce to freeze the market.

- By the time others can get there, the Microsoft apps are all doing it better than anyone else will be able to emulate for some time.

- Use this as the competitive edge to increase share for Microsoft apps and position the others as being “not quite up to the Windows standard.”

That strategy doesn’t work in the web world and will backfire mightily if they try it.  Imagine LiveMesh with nobody but Microsoft’s apps talking to it along with whatever files they can drag along and other open API’s that their own engineers tie into.  It becomes a modestly useful feature, not a platform, provided it is well implemented.

Here is my next concern.  There are 100 engineers at work on Live Mesh already, and lots of key functionality (like version control) nowhere in sight.  Aside from the Tactics of Monopoly, the other Fail mode is creating a giant monolith of software.  Vista is a painful example of how far things can go wrong.  Mesh is, at its core, another attempt to rework the document and folder file system.  Microsoft promised this in Longhorn for years but never delivered.  Now Microsoft is adding to that challenge the need to build something that (sorry!) meshes well with the web.  That’s no small order.

Many are saying this is all Ozzie and is his third iteration of a vision that started with Lotus Notes.  Groove is another one, lest we forget that.  Is this the right vision to be on?  Did the first two iterations demonstrate enough goodness that we want to build this stuff into the OS and fabric of every PC and device we own?  It doesn’t seem like it, but perhaps.  OTOH, what if we were all using an online backup service of one kind or another (Mozy et al), and we could access the backups from any device, publish an RSS feed of the versions, and so on. 

The world used to say Microsoft gets it right by the Third Try.  Microsoft is a little slow.  After the Third Try comes Fourth System Effect (with appologies to Brooks’ Second System Effect) where they go way overboard and manage to produce a Vista.

Lest I leave on that purely negative note, it’s always helpful to ask what they should have done or what they should now do.  It’s the “What would Google do?” sort of game, although it’s more like, “What do modern web companies in general do?”  Google’s recent AppEngine announcement is a prime example that touches all the bases:

-  Start small:  one language (Python), one application type (web apps).  You can build something small quickly without 100 cooks in the kitchen and make it tight.

-  Involve the community:  10,000 betas, first come first served, no special favorites and ramping up almost immediately to 20,000 betas.

-  Be open:  SDK was open sourced day 1.  It didn’t take long for the community to take the SDK and bring it up on Amazon Web Services.  Google doesn’t care, it’s all good.  It’s Open.

-  Piggyback on an innocuous beginning:  AppEngine is built on technology Google had created to do lots of other things internally.

-  No special advantages:  Google usually integrates after the launch of a new service so that everyone is on an even playing field and the service gets out the door faster.

There are lots of ways a service like LiveMesh could’ve followed this formula.  I’ll let you fill in the blanks, but consider this too:  there are a fair number of organizations out in the wild that can follow such a formula (and some are already far along the path).  We don’t really need Microsoft to get there.  That’s the piece Microsoft needs to wrap their heads around better.

BTW, the mental barrier between being on the web or in the application (going back to Mike Zintel) is already broken.  I don’t feel it a bit when I spend most of my day in the browser using web apps. 

I guess this is what Microsoft is worried about.