I am always looking for new tools and services to help me better understand who my readers are, what they like to read, and where they like to go. Besides the more active participants that like to comment and trackback to some of my posts, many of my readers have been anonymous to me and to each other. Scott Rafer, who founded Feedster, recently contacted me about a new project that he is working on with Eric Marcouillier called MyBlogLog Communities. What is interesting about MyBlogLog Communities is that it allows me to put a name and a face to my readers, to discover what you like/dislike, and to perhaps give me an opportunity to further tailor some of my posts to your interests. What’s in it for you? Well it allows you to interact with other readers on my blog and to see what others in my community see as hot topics of the day via a link tracking mechanism. While this service is early in its release, I encourage you to sign up for the BeyondVC community (look for the Join Community button on my page) and to experiment and learn more about each other, what blogs we like to read, and favorite posts from around the web. Maybe you’ll discover something new or meet some other entrepreneurs with similar interests.
Microsoft released its third quarter numbers the other day and while revenue growth was strong, the stock got hammered and dropped over 10%. Why? Microsoft plans on investing for the long term and putting another $2b into the Internet and other new technologies like the XBox. To sum it up, here is Rick Sherlund, Goldman Sachs’ Software analyst, "It sounds like you’re building a Google or building a Yahoo! inside the company."
Looking at the long term, I am quite excited about the prospects of all of this money coming into help grow the Internet sector and SaaS. First, having another big player push the concept of software as a service will only help further educate and soften the market, particularly business customers Secondly, this will mean that Microsoft will be aggressive with hiring and with acquisitions. I remember being at the Microsoft VC Summit a couple of years ago and hearing Steve Ballmer talk about his acquisition strategy. He would either do huge, billion dollar ones or look at acquisitions less than $20mm. That has been changing and will change rapidly with this renewed empahsis and focus. That only means good news for VCs and entrepreneurs. And as a VC, I wholeheartedly agree with Microsoft’s CFO, Chris Lidell when he says, "Today, we believe we face the largest array of opportunities for growth and innovation the company has ever seen." I certainly feel the same way from a VC investment perspective.
Whether Microsoft succeeds or not is another story, but $2b invested in new technologies will go a long way towards solidifying their position. I would say that they did alright in 1995 when they decided to point their guns at Netscape to make sure the browser and Internet would not circumvent their monopoly on the desktop. The problem is that once they won the browser wars, Microsoft became satisfied, fat and happy. And as we all know, fat cats don’t hunt. Others came around and outinnovated them – Firefox, Google, etc.
This is Round 2, which really started with Microsoft’s purchase of Groove Networks and Ray Ozzie last year. To refresh your memory, I suggest reading Bill’s email from October 2005 (also see the Ray Ozzie memo) where he leads the battle charge for the next generation web, the SaaS era.
Today, the opportunity is to utilize the Internet to make software far more powerful by incorporating a services model which will simplify the work that IT departments and developers have to do while providing new capabilities…..
However, to lead we need to do far more. The broad and rich foundation of the internet will unleash a "services wave" of applications and experiences available instantly over the internet to millions of users. Advertising has emerged as a powerful new means by which to directly and indirectly fund the creation and delivery of software and services along with subscriptions and license fees. Services designed to scale to tens or hundreds of millions will dramatically change the nature and cost of solutions deliverable to enterprises or small businesses.
And yes, it sounds alot like the memo Bill Gates wrote 10 years ago called the Internet Tidal Wave where he helped the big battleship called Microsoft reposition itself and point its guns at Netscape and others. Round 2 is no different from Round 1 but the stakes are higher and it will cost Microsoft oodles more cash this time to create a dent in this market. While we all know that memos often do not mean a whole lot, it is clear that Microsoft is quite serious as they are not afraid to piss off Wall Street and really put dollars to work for the long term position of the business. This will certainly be an interesting battle to watch over the next few years.
As I wrote last year, this "web as platform" gospel is starting to spread quickly from consumer to thoughts on the enterprise. In my mind, what has enabled this enterprise web phenonomenon has been two thoughts – lightweight and simple. Of course, lightweight and simple equals cheap and fast to implement. It is quite easy now for sophisticated users to find and download new software and run it themselves, for them to take simple scripts and tie together various web apps. We are quickly moving to a world where the end user on the edge can and has taken matters into his own hands rather than wait for IT to get something done for them. I call this the age of DIY (do it yourself) in the Enterprise. Why go through centralized IT and their processes when I can get something done with my own departmental budget? Linux, Jboss, and many of the open source opportunities started at the edges first before being brought into the centralized IT organization. As we all know, many new technologies are typically adopted by consumers and then pulled into the enterprise, not pushed. Amazon and other web apps started exposing their APIs and existed long before Salesforce.com.
Jeff Nolan points to an interesting post from John Hagel which highlights this changing enterprise world. What has been deemed as the agile enterprise driven by SOA has actually turned into anything but. The enterprise version of "lightweight" called SOA stands in stark contrast to the next generation web perspective of lightweight. As John correctly points out, enterprise lightweight in the form of SOA means plumbing, it means expensive, it means complex, it means lots of consultants, and it means lots of dollars. In contrast, next generation web technologies are easy, incremental, and driven by the edge and focused on people, not plumbing. While some of these next generation apps may not scale, there is clearly something that centralized IT can learn from the edge, their frustrated internal customer, that things can get done more quickly and more cheaply. As these two philosophies become more tightly coupled we will have some interesting opportunities to invest and make money. While not directly related to this SOA/web mashup discussion, one of the companies I have always found interesting is Splunk which is bringing a Google-like approach to network management. It is downloaded, driven by the edge user, and then pulled into the corporation from the bottom-up rather than the top-down. It stands in stark contrast to EMC’s (Smarts) and IBM’s (Micromuse) way of selling and using their respective products. There will be many more opportunities like this in the enterprise as enterpreneurs leverage user interfaces and technology from the consumer world in the enterprise. Of course, this means a whole new way of reaching customers (frictionless sales), selling to them, and supporting them but this is saved for another future post. The good news is that this new age of DIY in the Enterprise is not going away and is only getting stronger everyday. This also means the creation of many more disruptive enterprise software opportunities in the next 5 years. I agree with Jeff that this is an interesting area to watch and is beyond web mashups-rather, it is a philosophy enabled by all of this new technology, the philosophy of DIY in the Enterprise.
In 1994, the smartest guys in the financial trading and academic world got together to start Long Term Capital. John Meriwether from Liar’s Poker fame assembled a stellar group from Wall Street and academia including Myron Scholes (one of the creators of the Black-Scholes option pricing model) and Robert Merton who together shared the Nobel Prize in Economics in 1997. They raised $1.25b in an instant and that giant sucking sound you heard on Wall Street was LTC hiring the best and brightest minds to its hedge fund. LTC prided itself on hiring PhDs and other brilliant talent to add to the mystique of the group. And the hedge fund performed spectacularly. It used proprietary computer driven models (think sexy algorithms) to find miniscule misprincings in markets and would use leverage and derivatives to exploit those mispricings. At one point in time, $5b of equity was levered up to a $130b of total assets or bets outstanding. While I won’t go into the specifics of the trading model (think high leverage or vacuuming nickels from a train track, it works for awhile but the train will get you one day), they crashed, burned and died in 1998 almost bringing down the global financial markets. The bigger it got, the more risk it had to take on to deliver higher returns. In other words, it is harder to drive significant percantage based returns on a huge capital base. What also set LTC apart was its culture. It was one of incredible hubris and arrogance. Their models were designed by Noble Prize winners and it was unbelievable for them to think that mere mortasl could even understand their models. They didn’t even share their investment trading strategy with their investors.
So what does this have to do with my blog? I was having lunch with a friend recently who was telling me about some of his dealings with Google over the last year. As an ex-Wall Street guy, it struck him that some of the meetings he had with Google were like the ones he had at Long Term Capital years ago. Even when LTC was about to crater, he remembers going to their offices, being sequestered into an off-campus conference room, and not being able to get any information out of them to even help bail them out. In addition, people would show up and leave during the meeting, take notes, and not even introduce themselves. Well, it turns out that his meetings with Google over the last year were pretty similar. While the Google employees were clearly bright and technical, my friend was not sure who the decision maker was and what they actually wanted to do with the company. In addition, he felt pretty uncomfortable showing up to Google and having to sign an NDA on the spot, and then going into a meeting where people would walk in and out, sit on their laptop and take notes, and not even introduce themselves. Hmmm-it really does sound like Long Term Capital. There are other parallels-Google has an appetite for hiring PhDs. is driven by an incredible proprietary algorithm, and is by far the best web company on the street and performing like a rock star. Like LTC, the bigger and bigger Google gets, the harder it will be for them to drive significant percentage based growth. In addition, the culture, since it is one driven by engineers, can also be driven by a NIH or not invented here syndrome. Ultimately, since history always does repeat itself, I hope that Google understands that self-confidence is imperative but hubris and arrogance can kill. Look at Long Term Capital and the chronicles of its short lived performance in a book so aptly titled, When Genius Failed. Hell, Microsoft was the same way in the mid-to-late 90s and as time goes by I hear that they are becoming a bit friendlier to startups and partners. I guess that is what happens when you get your ass whooped by a newcomer. Hopefully, Microsoft hasn’t learned its lesson too late. And I hope that Google remembers its mantra of Do No Evil as they are going to need partners to continue to grow their business and build great product.
We are all enjoying the benefits that come with the commoditization of existing hardware and software infrastructure. It is true that it costs exponentially less to launch a business today versus five years ago. We are all smarter, broadband penetration is reaching critical mass, and open source and commodity hardware have become reliable alternatives to proprietary architectures and closed systems. As we all move forward with our web-based operations, it is clear that scaling the back-end infrastructure still remains a formidable challenge. There have been many an instance of popular services going down – remember Typepad, Salesforce.com, and del.icio.us as a few examples. With scaling the backend also comes a need to learn more about your users and their interactions. Data mining and analysis is becoming a big thing to not only help companies create better services but also to generate more revenue per user. In addition, for many web companies extreme data driven applications are the core of their services. Think about Zillow, Technorati, and services like Indeed which are dynamically driven services based on aggregating, crawling, and filtering millions of pieces of data. However, the fast growth of many a web-based operations combined with the need to mine the data leaves a big hole in the revolution of the cheap. Web-based operations need an open source way and cheaper option to scale their database needs, move to a data warehousing architecture without breaking the bank, and scale with user growth leveraging commodity infrastructure. Enter Greenplum (full disclosure-Greenplum is a portfolio company and I am on the board) which just released its GA product Bizgres MPP for data warehousing leveraging the best of the open source PostgreSQL database. We have been working on the code for the past 18 months, and I am quite proud of the team for having delivered the release. Greenplum is taking the best of the open source database PostgreSQL and rebuilding some of the core functions like the query optimization, execution, and interconnect. We are allowing anyone to build a shared nothing architecture ala Google to scale their backend to multiterabyte sized systems leveraging cheap hardware. It is free to run on a single machine but if you want to run a massively parallel option we charge a fee per CPU.
Dana Blankenhorn from ZDNet gets it:
This is a problem a lot of Web 2.0 start-ups like Technorati, Bloglines and Flickr are facing, and projects like Drupal will face soon. They were built with open source tools, but then find they need to "graduate" to something like a data warehouse. And there’s old Oracle, telling them there’s nothing from an open source supplier that can deliver what they need. Share with us, they say, you don’t have any choice.
Well, now there is a choice. Greenplum CTO Luke Lonergan said that O’Reilly Media, one of Greenplum’s early customers, graduated from mySQL to PostgreSQL with Greenplum and got a
100%100 times improvement in database access speed across a 500 Gigabyte database. Other Web 2.0 start-ups, and projects, can do the same thing.
"The price of conversion is where the pain is," said Yara, "but look at how fast some of these projects grow." While mySQL was smart in building on a lightweight Web base, more and more users and projects will find the need to graduate, and face proprietary FUD from major vendors saying they have to pay the "monopoly tax" in order to grow.
I truly believe the next battleground will be based on scaling the back end and more importantly mining all of that clickstream data to offer a better service to users. Those that can do it cheaply and effectively will win. The tools are getting more sophisticated, the data sizes are growing exponentially, and companies don’t want to break the bank nor wait for Godot to deliver results. Given these trends, I suggest downloading Greenplum’s Bizgres MPP and let me know what you think.
Sure, the next-generation web is cheap. It is about cheaper bandwidth, cheaper hardware, free software, and better tools. In other words, you get much more done with much less than in years past. I have written about this in a prior post, Web as Platform. Anyway, has anyone noticed the arms race for talent out there? Sure it is cheap to get a product up and running but to scale any business you need talented employees in engineering and product. I have heard numerous stories over the last few months about smaller, innovative startups having a hard time bringing on qualified engineers as Google and Yahoo are offering 3 year packages of a $1mm or more in salary, restricted stock, and signing bonus. I must admit, this is a pretty tough environment to compete against. In fact, as you look at the landscape, everything that Google and Yahoo is doing is about stockpiling talent. Let’s not forget that all of those tiny acquisitions of small startups is about bringing on the best talent possible.
So then the next question you may have, is how do I compete for this talent? It goes back to selling the vision of your company, the ability to make a huge impact in a small and thriving organization, and outlining the equity opportunity. Those seeking the comfort of a nice paycheck at an established company need not apply. All that being said, despite the next generation web about being cheap, the costs are rising quickly as the big dogs with hordes of cash are not afraid to spend it to stockpile their talent. As you look at the bulk of your costs over the next couple of years, it is clear that your budget will reflect a huge percentage of cost in bringing the right people on board. No matter how you slice it, despite this mantra of cheap, it is not as cheap as we all want because personnel costs are rising, not decreasing. This next phase of ramping up companies is not about how much you spend on marketing as most services today are spread word-of-mouth. It is not about technology spend as it is way cheaper than years past. It is about finding and hiring the key people who know how to scale a back end infrastructure, who can create and deliver innovative product, and who know how to leverage word-of-mouth to create a huge opportunity. And you must do this when Google and Yahoo are not afraid to be the George Steinbrenners of the web. The good news is that just because you spend the most on your payroll, you don’t always win. Just remember Billy Beane and his Oakland A’s.
As I have written before, most of the talk about this next generation web has focused around consumer applications. I, however, have always believed that we should not forget the enterprise. This resurgence of web-based and loosely coupled applications has been driven by consumer-based innovation but there are many pockets of opportunities for the enterprise to take the best of the open web. As you look at the adoption of technologies in the enterprise much of it has been driven by a push-pull mentality where a vendor tries to sell enterprises something they don’t necessarily need. On the other hand, with the growth of the web and broadband over the last five years, it has made it easier for vendors to leverage the pull-push mentality where a single user begins using a service or downloads some code, hacks away on it, and then pulls it into the enterprise. All of this make sense-consumers are web-savvy, broadband is everywhere making it an enjoyable experience, web-based services vs. client applications are driving growth in communications, sharing, storing, and collaboration—these same consumers also work at enterprises and "pull" some of their best practices and learning from the consumer world into their everyday working world. Let me give you an example.
A friend of mine heads up IT architecture at a large health care organization. One of the big initiatives is to reorient the company to focus on the consumer (sounds like they hired too many consultants). What that means for IT is how to do they integrate thousands of different databases to figure out all of the information about a particular doctor? Sure, some of this is an exercise in enterprise data integration but you have to remember that probably 75% of the real information is in the form of unstructured notes about the particular doctor. Think about how much data gets put into CRM systems which is not structured. So naturally he asked me about what was happening in the consumer blogosphere, about tagging technologies, about RSS and turning every application into a publishing system, and how he could potentially integrate this into his enterprise. The pain was large enough that he was looking for new and better ways, think loosely coupled ways to solve his problem.
This is just one example but you could easily think about that customer pain and extract it to a number of enterprises. Data and application integration continues to rank either #1 or #2 in every CIO spending survey but going for the expensive $1mm plus point to point integration methodologies is not the way to go. We just have to be creative and think about new ways to unleash the massive amounts of data in the enterprise to make the workers more productive. Think of the easy-to-use technology used in search, RSS as the new publish subscribe, and loosely coupled applications as a new wave to hit the enterprise in the next few years. Obviously all of the buzzword du jour technologies are just enabling technologies and it is incumbent upon the startup to find the problem, figure out the market potential, and understand how to sell it. It is quite early in the process but this next-generation web will have a huge impact in the enterprise as well as in the consumer space. It will just take some time because while many of the startup companies I speak with understand the opportunity in the enterprise, they are rightly focusing on the market opportunity with consumers first. Many of these entrepreneurs do not want to be seduced by the big dollar figure type deals that are out there knowing that it costs a lot of money to sell to the big boys and a whole different kind of support infrastructure. In addition, most enterprises are not ready for it yet, but trust me, the early adopters are already out there trying to figure out how to use wikis, RSS, and other successful consumer technologies in their shops. This means it is a good time to be looking so if you are an entrepreneur bringing some of these new technologies into the enterprise, let me know as I would like to speak with you to learn more.
I was in California 3 weeks ago when Jeff Nolan told me he was leaving SAP Ventures and moving to a new group within SAP desgined to "Kill Oracle." We talked about all of the great innovation happening on the web, much of which is consumer-focused, and why it was a good time to make a switch. Yes, SAP is the dominant player in the enterprise market and even after you account for Oracle’s acquisition binge Oracle still remains the distant number 2 player in enterprise software. That being said, there are new technologies and new ways of doing business which SAP must keep close tabs on as it maintains its dominance – think service oriented architectures, SaaS, and new markets to enter and conquer. So I am sad to see one of my VC buddies go back to the operational side, but I look forward to working with him closely as he helps SAP evolve its stategy and maintain its leadership.
Another VC friend, Scott Maxwell of Insight Venture Partners, has launched a new blog with encouragement from myself and Brad Feld. Many of the VC bloggers on the web are early stage focused so Scott will bring a unique twist to the VC blogging world by focusing on expansion stage companies that have a product and some decent quarterly revenue. As Scott mentions in his post:
The issues faced by technology companies at this stage of development are very different that early stage companies. The major issues are around distribution strategy and execution, but as companies scale they tend to need more formal development approaches and have many other process, organization, skill, and staffing gaps as well. Every CEO is also looking for more leads, customer introductions, and ongoing advice in every category, personal and professional.
I tend to agree with Scott so if you want a different perspective, a perspective of what your later round VC is looking for, I suggest putting Scott’s blog on your must read list.
Angus Bankes, CTO of Moreover, recently introduced me to Jeremy Ruston, the creator of TiddlyWiki. I honestly did not really get it at first, but I have been using TiddlyWiki since last weekend and have really grown to like it. According to Jeremy, who I spoke to this week, Tiddlywiki is a reusable, non-linear, personal web notebook. On the TiddlyWiki site, Jeremy goes on to say:
As I’ve said before increasingly the web is becoming my platform and the browser is my gateway to rich services. I have a public blog which you are reading here, a private blog where I bookmark some items and make notes to myself, a couple of wikis which we use internally at Dawntreader or with portfolio companies to work on specific projects, and now a TiddlyWiki which I use to organize my personal thoughts, put ToDoLists together, record call notes, etc. Instead of having all of my notes in a notebook or in Outlook or Word, I now have a searchable, taggable personal notebook accessible through any web browser. I can link to files in my hard drive, websites, etc. It is open source and there is an increasingly strong community building new plugins and macros to add to your TiddlyWiki. The great thing is that it is a selfcontained file with no server side installation meaning I can carry it with me, email it, put it on a USB drive, or even upload it to a fileshare internally or on the web. I am still grokking this but needless to say I suggest that you save a copy of it and start using it. I am currently using Johnny LeRoys TigglyTagWiki version which you can find here. As for how big or active the community is, Jeremy says it is hard to tell but his site is getting 25k unique visitors a month and growing. On Technorati there are 1271 posts with Tiddlywiki mentioned. For an even clearer explanation of TiddlyWiki, I suggest going to Euicho.com. Euicho does a good job of breaking it down to its elements, comparing and contrasting it to Wikis, and outlining the limitless possibilities:
- It works great as a documentation manager for products, software, etc.
- Do you have a desktop full of tiny .txt file reminders and notes? It can store little bits of information, reminders, and notes like that with ease.
- It makes a great FAQ page.
- Turn it into a todo list, with items as tiddlers.
- Some use it as a blog.
- Some use it as a website.
- Make it your own personal dictionary/encyclopedia.
What I love most about Tiddlywiki is that it is quite easy to use but incredibly flexible.
Like Nick Denton and David Galbraith, I can’t comment on the acquisition. What I can say is that Moreover was a pioneer in the early use of weblogs via newsblogger, news search, and content syndication via XML and RSS. That being said, we had to make some choices when the economy cratered in 2000 and sometimes you can be too early to market before people are fully ready for what you have. I now look forward to what Verisign will do with the combined weblogs.com/Moreover Technologies group. As David Galbraith says, it will be interesting to watch…
I have been banging on about the importance of ping servers for a while, perhaps Versign with Moreover and Weblogs.com can do something or perhaps another startup will.
Whatever happens, the architecture of online publishing is changing and with it, the entire architecture of search – pinged instead of crawled. That is a very big deal for Google.
It has been quite a journey during the last five years, but I am glad that I had the chance to work closely with so many talented professionals like Nick Denton, Jeff Jarvis, David Galbraith, Jim Pitkow, and Angus Bankes, many of whom are helping shape the next generation web.