Web as platform-don’t forget the enterprise

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.

Thoughts from a recent CIO dinner

One of our advisors for our fund hosted a New York CIO dinner last night.  It was a gathering of 30-40 of some of New York’s leading technology buyers, mostly from the financial services industry.  As a VC, it was quite interesting to hear about the state of technology spending and what is top of mind for many of these players.  Repeatedly I heard about grid computing, security, and service oriented architectures.  It seems to me that all of the Gartner hype put into these technologies years ago are slowly becoming a reality.  As for startups, not many were mentioned, and most of the technology buyers said your best bet was coming in through a larger partner whether it be a Sun, Cisco, HP, or IBM.  In addition, it was quite clear that this was a small community, and like any small community, they all talk with each other and want to know what technologies their peers are using.  So lesson #1 is while it is always hard to land your first financial services customer, remember not to screw it up because if you do everyone will know.  On the other hand if you deliver on your promises and have a great base of early reference customers, it will pay huge dividends. 

During dinner, one of the CIOs reminded me of the difficulty of startups selling into his organization.  First, when you think of IT budgets, you have to remember that about 60% is spent on people, 20% on hardware, and 20% on software.  In the software bucket, much of this money is spent on software maintenance and relationships with existing vendors.  While the remaining small % of spend leaves room for new license spending, only a fraction of that will be even available for early stage companies.  Lesson #2 is that it is important to understand the culture of each financial institution with respect to their reputation of being an early adopter, fast follower, or mainstream player.  For example, someone from Citi told me that if he were a startup he wouldn’t even bother selling into Citi as it takes an incredibly long time and you could die trying.  Ditto on Bank of New York as their business is about settling the trillions of dollars of cash transactions daily.  Nothing innovative they really need to do here except scale and reliability.  BONY gets no points for taking on sexy technology or more risk.  On the other hand, investment banking and trading heavy financial services companies will take a look at new technology to get a leg up on the competition.

Lesson #3, if you sell into a large financial services player, either be well networked, come in through a partner, enter from the bottom up, or go to revenue generating groups with money and buying power.  On the top down approach it is all about having credibility.  No one wants to be the first, especially if your technology doesn’t work.  On the well networked side, get a reputable CIO to believe in you and your service, get them your board or advisory board, and have them make a few calls their technology friends to open up some doors. With respect to working with partners this can be many times more difficult than landing a large customer.  I would not waste your time with a partner unless you have a number of solid customers and can show the partner how they are going to make money and lots of it.  Finally, entering from the bottom up means staying away from the CIO’s office, offering free downloads, for example, where the actual workers can bring software into the enterprise from the worker-bee level.  This takes time but can be doable.  Finally, if you have the right product and reach the right person in the revenue generating departments, not IT, and show them how they are going to differentiate themselves from the competition and make more money with your product and service, you can avoid being put in the IT bucket all together.  What does this mean for me?  I wouldn’t bet the farm on selling to these guys unless you have a team that knows the space cold, is well networked with peers who have budget authority to get the early customers and traction, and unless you are well prepared for long sales cycles.  It is damn hard to break into the clique, but if you do it can be quite rewarding.

Wireless – bring down the walled gardens!

At the CIO dinner I was at last night (more on that later), I had the opportunity to play with a demo model of the Motorola Q Phone running on a Verizon EVDO network.  12476_motimage After a few minutes with this device, there is no doubt in my mind that Motorola will have another hit on its hand.  It is as thin as the Razr, a little wider than my Blackberry 7100, has a full QWERTY keyboard, digital camera, full audio and video capabilities, and runs on Windows Mobile over Verizon’s high speed network.  Trust me-this this device is worth waiting for when it comes out in Q1 2006. 

During my demo, one of the founders of a wireless application company showed me a financial trading application streaming with live after-market data.  It really looked like any Bloomberg or Reuters 2000 terminal scrunched into a smaller form factor.  I also used a variety of other applications which ran seamlessly on the Windows Mobile platform.  This led us to a conversation on the "walled gardens" of wireless.  Traditionally, consumers have had limited choice with respect to the software and services they are allowed to use on their device based on their wireless carrier.  Sure, many carriers offered open web access on their phones but there really has been no point in browsing for information on the web with slow networks.  In addition, browsing regular web pages through a small phone sucks.  As wireless data networks like EVDO continue to increase their throughput (400-600kb), as devices like the Q get better and become more like mini-computers, the future will be leveraging the open web for downloadable mini-apps.  One of the best examples of this is the Google Local for mobile application.  Rather than go cut a deal with a carrier or launch its own MVNO (mobile virtual network operator), Google is playing the carrier-neutral angle allowing anyone with open web access from the phone to download the app.  It is elegant, functional, and small but its usability is not limited to what a user can access through a browser.  While this only runs on J2ME enabled devices, downloadable mini-apps will clearly be a trend that will continue in the future. Why do we need MVNO’s specialized and targeted to every slice of America when we should just be able to download and access what we want, when we want, and from any device. Let’s just hope that as we move into the future device manufacturers, carriers, and software vendors will get smart and find ways to create a truly open platform to break down the walled gardens of wireless, to allow end users to install any software from any vendor on any device, and thereby enable a wireless data explosion bringing lots of revenue to the carriers and lots of happy customers.

Frictionless sales (continued)

I would even apply this frictionless sales model to the consumer web.  We all know that the Internet is turning every media company upside down about worries of cannabalizing their existing business.  It is clear that CBS gets it as they just announced that March Madness will be delivered free over the Internet.  CBS will monetize it with ads.  CBS is going open and understands this could potentially create new and additive revenue models, not less.  Kudos to Larry Kramer for making this happen.  Larry and I are on a board together and I look for more innovative and forward thinking ideas from Larry as he helps CBS embrace the web, not fear it.  Think about the millions of users who will go watch the March Madness online and check for scores.  Think about all of the cross promotion of new television shows on CBS, the additional ad revenue, and the general brand awareness that CBS will build from this.  On the other hand, I was on the CNN site and saw this.  Why would I pay $3 a month or $25 a year for CNN on the Internet when I can get it for free on the television?  If you are a media company, go the CBS route and figure out how the web will help your business, not kill it.  Be innovative, reduce the barrier to adoption for your customer, and figure out how to monetize your audience.  Add more features, add community so your users can interact with one another, and leverage the web and its interactive, two-way nature.  Don’t just deliver me programming on the web and charge me for it.

Frictionless Sales (continued)

As you know, I am enamored by frictionless sales.  Frictionless sales means reducing the pain for customers to adopt and use a service/product and consequently reducing the cost of sales and marketing to get a customer and generate revenue.  As I mention in an earlier post, "The less friction you have in your sales and delivery model, the easier it is to scale. The easier it is to scale the faster and more efficiently you can grow." The lowest friction sale can be a user clicking on a web page and the content owner getting paid for it.  The highest friction sale is spending lots of money on marketing and trade shows and having a large, direct sales force of expensive reps pounding the pavement for months trying to close a large deal with an enterprise customer.  Follow that with a 3 month implementation process to get the customer happy.  There are various grades of friction between these two extreme points like open source business models, software as a service, and reseller/OEM-type models as other forms of packaging and delivering a product/service.  And of course, each of these models requires a different methodology and way of marketing and selling to a customer.  Ultimately what you want is sales leverage where every $1 you spend on sales and marketing equals multiples of that in terms of revenue.  Jonathan Schwartz has a great post on why Sun went open source and why free does not mean less revenue but more revenue.

Opening up the Solaris Enterprise System, and giving it away for free, lowers the barrier to finding those opportunities. Free software creates volumes that lead the demand for deployments – which generate license and support revenues just as they did before the products were free. Free software grows revenue opportunities.

Opening up Solaris and giving it away for free has led to the single largest wave of adoption Solaris has ever seen – some 3.4 million licenses since February this year (most on HP, curiously). It’s been combined with the single largest expansion in its revenue base. I believe the same will apply to the Java Enterprise System, its identity management and business integration suites specifically. Why?

Because no Fortune 2000 customer on earth is going to run the heart of their enterprise with products that don’t have someone’s home number on the other end. And no developer or developing nation, presented with an equivalent or better free and open source product, is going to opt for a proprietary alternative.

Those two points are the market’s reality. And having reviewed them today at length at a customer conference, with some of the largest telecommunications customers on earth, I only heard the strongest agreement. They all, after all, are prolific distributors of free handsets.

Betting against FOSS is like betting against gravity. And free software doesn’t mean no revenue, it means no barriers to revenue. Just ask your carrier.

To further add to his point, just because it is free does not mean it is frictionless.  It has to be easy to install and easy to use.  In addition, free can be time based or feature-based.  What free means is lowering the barrier for a customer to use and love your product.  It means more qualified leads and a shorter sales cycle.  It means a lower cost of doing business-lower sales and marketing and lower implementation cost.  It means a more capital-efficient business.  The great news is that when the more established vendors like Sun jump on this bandwagon and educate their customers, it only further legitimizes this way of doing business for many a startup.