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Archive for December, 2007

Google’s Knols (the anti-Trolls) Are Opportunity for All, But Especially for Google

Posted by Bob Warfield on December 14, 2007

When Google sneezes, we all get the cold.  It is ubiquitous.  It is the front door to the web.  Google’s search share in November climbed to a staggering 69% of all queries, according to  So it’s not too surprising that the blogosphere will hang on every crumb of information that escapes the Googleplex.  The latest is a doozy.  Google has announced a new service called Knol that is a very “Wikipedia-like” service.  The idea is to encourage individuals to write encyclopedia like articles.  But there are some interesting kickers:

– Unlike Wikipedia, Knol will emphasize who wrote each article. 

– Authors are eligible to participate in ad revenues for the pages.

– Google will use the awesome power of its search engine to drive traffic to the pages it deems best by adjusting their ranking in the search results.

Each of these is no small issue, and together they have driven considerable commotion.  The last one, I think, scares people the most.  Om Malik says Google is finally showing its monopolist claws:

Now if you think about it, knol despite its fancy name is nothing but a classic move by a quasi-monopolist who wants to ensure that they keep getting the raw material (in this case content on Knol) for free, so that they can keep selling it at a premium.

Not so fast Om:  Google is offering to share in the spoils of advertising.  OTOH, with a 69% share of search, I think we have to conclude that Google is no “quasi” monopolist, they are the real thing.  And that business of adjusting search rank has got to be scary, particularly if you will be competing in some way with Knol (as some say services like Mahalo, Squido, and clearly Wikipedia will be).  Om is not the only one who is deeply suspicious of all this.

Steve Rubel cuts directly to the chase by saying, “Wikipedia and Wikia are Dead. Google Just Killed Them.”  Rubel sees the good aspects of Knol in terms of emphasizing individuals, and also sees the opportunity (more about that below), but he thinks it will make life tough for competitors.  Techcrunch writer Duncan Riley worries that Knol is going a step too far.  His concern is that this is another step on the rung of the ladder that has Google moving from indexing other people’s content to owning the content themselves.  He is write.  I’ve written about this issue with respect to platforms when I argue that platforms have to act as Switzerland.  When a platform competes with it’s customers, that’s problematic.  When a monopolist does so, that’s what everyone complained about in Microsoft’s case.  Another phenomenon at work is a natural evolutionary instinct that is hardwired into each of us: we fear too much concentration of power or advantage.  Eventually that fear turns to active dislike and resistance.  Google is definitely starting to feel this.  Despite their “no evil” pledge, they will eventually react with bewilderment as they watch the once friendly world begin to react negatively to moves they think of as natural next steps.  Perhaps this is what was meant by the idea that “power corrupts”.  Eventually the wielder loses perspective on what they are doing to others around them.  They feel entitled to take the actions they do for having build the empire that serves as their power base.

What I see Google doing here is looking for walls to tear down in case there might be a garden inside.  Google’s share has gotten so great that the Internet itself is their walled garden.  Further walls inside the Google Estate are an annoyance.  After all, if you hunt on the King’s land, you are killing the King’s game, and that’s just not right.  Read/Write Web agrees, although not so dramtically and with no sense of Kingsmanship when they say, “It won’t be a walled garden but will live on the open web.”

The name “Knol”, BTW, apparently is a short form for “Knowledge Unit”, which is what the Googlers think of these articles as.  I prefer to think of the people writing as the Knols, since they’re one of the big differences here.  In fact, a “Knol” as content creator is sort of the opposite of a “Troll“.  Malik goes on to say this move is also a tacit admission by Google that the almighty search algorithm isn’t everything.  It takes people to get to the next step.  I’ll have more about that to say below, but he’s right.

This business of Knol being about the people is a key thing.  It is one of the big differences that might motivate people to be consumers of Knol instead of Wikipedia where the individual is minimized (that and the unseen hand of manipulated search results).  I’m all for it (um, not all for that unseen hand).  As I’m reading blogs I often have LinkedIn and Facebook there and when I see a new name, I will go and look them up to see what I can learn.  There’s nothing like understanding an individual’s background to help understand their perspective.  It’s especially important to know whether they have some vested interest in that perspective.  Individual names without context aren’t really people, they’re just tags until you get to know them.

Stowe Boyd has always had keen insights into this kind of thinking, much more so than I with my rectilinear Engineer’s thinking, so his article on this did not disappoint.  Stowe loves the idea of bringing the individual to the forefront, principally because he feels that Wikipedia and similar services homogenize content too much and reduce it to a committee-run process of consensus.  This can drain the life out of an idea and certainly an article.  There certainly have been problems with unseen backroom tampering at Wikipedia, a phenomenon that Stowe politely refers to as the, “tyranny of the bureaucratic infighting around what is and is not true.”  There have been some more nefarious doings in that respect, but I’ll let that be lest we digress.  Stowe amusingly replaces the backroom bureaucratic process with Adam Smith’s “Invisible Hand’ as a means of determining truth, which he says is aptly Googlesque.  I agree.  Capitalism will decide based on who gets the most ad revenue and reader votes, with some subtle jiggling as well.  There will be Google’s staff at work for the latter to ensure “quality.”  Some moderation will be called for to ensure that Trolls do not infiltrate the Knols, but I hope any such editing will be done with the gentlest touch.

Most of this is fine and well.  Both Steve Rubel and Nick Carr view Wikipedia as a competitor to Google, but I’m not sure I do yet.  I use Wikipedia a lot, so anything that gives me even more “Wikipedia” goodies is a winner.  One of my “productivity” tricks is to type the concept into Google and add “wikipedia” to the search.  This generally gets me to the Wikipedia page with one more click.  I’ve never felt lucky enough to invoke the Google option to just go to the first result, but perhaps I should start.  This “trick” is one more in my bag of goodies to avoid the spammers.  Directly searching Google without prejudice is something I save for last.  Still, Carr says Wikipedia dominates Google search results for many common searches.  That may be true.  I started using it a lot when I began to see it on the first page of results for many Google searches.  It hadn’t occurred that this might be happening to a lot of people because I tend to search for fairly obscure things relative to what I read are the common searches.  I can’t remember the last time I searched for “Britanny Spears” or “Anne Nicole Smith”. 

Now onto my attempts at deeper insight, rather than just commenting on other’s comments.  I promised some thoughts on opportunity and on how Knol can augment search.

First, let’s focus on search.  Don Dodge says that search is the start page of the Internet.  I think he is right, at least in general.  I have my own tailor made start page for my browser, an idea I got from John Dvorak of all people.  It is only useful to me, but it does gather together my most frequently accessed web resources in a convenient way that reflects my interests.  Google features prominently there as do various shopping services, special interest communities, and other goodies.  Some things are conspicuosly absent.  Why isn’t Wikipedia there?  Dodge says people don’t search Wikipedia, but as I have said, I do.  I just like to use my Google shortcut of adding the word Wikipedia. 

Knol has the potential to be a huge resource for improving search algorithms.  I know from experiments of my own that content such as what will appear in Knol is useful metadata related to search.  The Knol example everyone is passing along is an article about Insomnia.  The link goes to an image, presumably the real thing isn’t linkable yet, but blow up the image and read just a little ways into the article.  Consider an algorithm that looks at a Knol post versus the overall corpus of Google’s archived web pages.  What is the difference in word frequencies between the two?  Here are the first 5 sentences of the article:

Insomnia is a common sleep disorder, present in approximately one in ten adults in the United Staes.  It has both night time and daytime symptoms.  Night time symptoms include persistent difficulties falling and / or staying asleep.  Daytime symptoms include diminished sense of well being and compromised functioning due to fatigue.  The word persistent is empahsized because many people occasionaly experience disturbed sleep at night but their problem is transient.

We now have a pretty good idea from just this little bit of things that are related to insomnia including basics like the fact that it’s related to sleep, its a disorder, and its related to fatigue.  But we have a lot more text to analyze.  We have reader comments to analyze.  We have multiple posts on the same topic so we can triangulate on where the agreement and disagreement between them might be.  We have traffic statistics and page ranks.  And lastly, we have some rules about what these pages should be and ways of enforcing those rules.  A bot can’t just create a Knol and throw it out there to skew the results.  In fact, we might use our knowledge gleaned from Knols to make our search engine even more resistant to dirty SEO tactics and spam.

Are you beginning to see why Google might see this as more than just a way to take on Wikipedia?  It might turn out to be critically important to the next major improvement in their search approach.  It might give us some of the very things Jason Calcanis promises for Mahalo, but it might do so using (gasp) algorithms.  Pretty cool stuff.  I can tell you from experience that letting humans provide hints to help an algorithmic engine cover the last mile is hugely powerful.  One of the keys to making it work well is to limit domains.  In a sense, each Knol is sort of a limited domain that Google can begin to aggregate metadata around that improves search.  Its another approach to the Semantic Web we’ve heard so much about.

Second, I promised thoughts on opportunity.  Steve Rubel sees the potential in his post:

I  am excited about the launch of this initiative. It is my hope that corporations and organizations that play by the rules will be able to unleash their subject matter experts to add content to the commons in a way the community accepts. There’s no reason they should be excluded, provided there is some degree of counter balance.

What’s even more exciting is that it reinforces the role of PR in this new wild and wooly online world. Now granted, we will have to play by the knol rules and be transparent.

I’m less excited than Steve about the potential role of PR, but I think Knols and their competitors will become an essential part of securing mindshare.  The phrase “content is King” has been derided recently.  People talk about the demise of the blogosphere, but I see the opposite.  Content is King, but only when it’s transparent.  Only when you know who is behind it and what their agenda is.  Only when you can trust it.  Google’s decision to emphasize the individual and bring them out into the open aids that transparency.  It creates a new medium to get your message out, provided your message is up to the standards of being worthy.  Mindless marketing pap and press releases done by formula will not pass muster.  The sort of content that makes for a well written blog post can pass muster.  If, in fact, the Knol content does go into the overall search algorithm, it also becomes a means of influencing search that will matter to the SEO crowd.  This compounds the value of getting your message, your brand name, the preferred term or market your products and company are associated with, to be expressed properly and prominently in the Knol world.

The last piece that I want to add is that I haven’t seen that much discussion of the potential of Knols to spill out in other interesting ways.  With each Knol:

“authors of the articles are featured, with photos and a profile page. In addition to the ability to comment on the article — and apparently adding information Wikipedia-style, according to the Google blog post — readers can see other articles written by the same writer, and the articles have a star rating that refers to “peer” reviews, which are also visible in the sidebar.”

Already, this starts to sound to me like a weird blog format, where the blog articles are torn out of individual blogs and cast into a giant Uber Blog.  What are the implications for blogging?  What are the implications for blogging communities like WordPress?   

Secondly, how long before someone at Google starts thinking about how to tie social networking into this.  If people are a big part of what’s new about Knols, then networks of people had also better be there sooner or later.  Will we want a newsfeed attached to the photo and profile page of the authors?  If we find a Knol we particularly like, do we want to go to the profile page and find more articles by the same author?  LinkedIn takes great delight in filling my page with notes on what my contacts are doing elsewhere on LinkedIn.  Will this surface on the profile page.  At what point do we wake up to find another wall around a garden got knocked down and there is a full blown social networking community camped around this thing?

Interesting stuff.

Posted in Web 2.0 | 1 Comment »

Is Twitter the Ultimate “No Social Barrier” Medium?

Posted by Bob Warfield on December 13, 2007

People who didn’t grow up on email are acutely aware that email often brings out the worst in people.  It’s a phenomenon that’s been studied and theorized about.  What it boils down to is that by abstracting and isolating away the other participants in a conversation, email makes senders much bolder than their normal face to face or even telephone persona would allow. 

There’s a big meme flying around about whether Twitter is a huge waste of time or an incredibly valuable resource.  This latest flare up seems to have started when Scott Karp announced he was going to stop using Twitter entirely because it was, “a massive waste of time.”  This isn’t the first time Scott has managed to stir up the blogosphere with a negative post.  His earlier “5 reasons why the mobile web sucks” struck a similar nerve.  Incidentally, having heard the startling statistic that iPhone users access the web just as much as users of desktop and laptop PC’s I have to conclude that Scott was wrong on that mobile web business.  I still can’t get over that story which also mentions that 1 in 1000 web pages served are served to the iPhone.

Returning to the subject at hand, Karp wrote a fairly lengthy post, but other than blaming a lot of the time sync on “half conversations” (two people Twittering but you’re only following one of the two, only getting half the conversation, and little value from that) and noting that it made him very unproductive by distracting him too much, he didn’t really have much meat to pass on.  There were many reactions to it all:

  • Anne Zalenka, a writer for GigaOm, seems to have found the whole thing insulting.  She is offended that Scott found talking to her on Twitter to be a waste of time, and takes umbrage that Scott seems to slam people who like it as people who look to the web as a tool for time wasting.  Personally, I think it is odd that Anne takes this all so personally, but Twitter does excite tremendous passion and polarization.  More on that in a minute.
  • Ryan Stewart had the most useful post I read on the whole thing, largely because he clued me into Tweetscan.  I love search tools that yield rich results but are slightly off the beaten path.  I regularly search the blogosphere for many topics before I’ll go into regular Google search  because the latter has gotten so spammy.  I’m not sure I’m ready to proclaim as Ryan has that Twitter is “insanely valuable.”  He uses it as a way to stay in touch on a personal level with more people.  Twitter seems to have disintermediated the water cooler in that role for Ryan.  I just don’t know that I can view that as “insanely valuable”, although it is certainly fun.
  • Mathew Ingram is on a similar vein, waxing eloquent on the notion of “ambient intimacy.”  I first came across that term via Leisa Reichelt.  There is no question that continual casual contact promotes much deeper communication than many people suspect.  It’s one reason why teams geographically separated have a hard time communicating as well as a group all in one place.  I’m just not sure Twitter is an adequate substitute.  The water cooler may in fact be a better tool after all.  Still, Twitter beats no contact at all by a lot, and it lets you have some form of ambient intimacy with a whole lot more people.
  • Jeremiah Owyang may have gotten this ball rolling when he says that some conversations are shifting to Twitter.  I liken the way Owyang likes to use Twitter to the way the Marines use Recon:  it provides advanced intel on the meme-o-sphere (there’s a new one for you) and and various other tasks too lightweight for real blog.  For example, he uses it in lieu of a link blog.  I can see value in the former–I hear news often breaks on Twitter before blogs.  It makes sense because there is far less friction.  OTOH, for the latter, even if it’s only limited to 140 characters, I’d much rather click “share” in Google Reader than have to Twit about some great blog post I just read.  In any event, Jeremiah and others report that Twitter has been driving tons of traffic to their blogs and they now regularly Twit about any new writings.  I wonder if that same effect would be felt if the blog software automatically Twitted?  Is it getting notification, or is it getting notification you know at the early stage was provided by hand?  Kind of like my searching the blogosphere to minimize search spam.  If enough people did it, the search spam in the  blogosphere would get so bad the tactic would quit working.  In this respect, advertising is much like the stock market: it adapts to whatever you do if there is enough advantage to be had in adapting.
  • Logic+Emotion calls Twitter a “Conversation Ecosystem.”  Writer David Armanjo is clearly a visual thinker as this post is full of visuals.  Yet Twitter is textual.  More on these learning/communication styles shortly, but I didn’t get an awful lot out of the post.  Evidently I wasn’t intended to because Armanjo winds up saying, “Explaining Twitter is an act in futility unless the person you explain it to understands the intricacies of social networks.”  He then says it works for him as does participation.  Note: participation is another dimension of my learning/communication styles theory of the Web.
  • Brian Solis gets into this conversation ecosystem idea  little more deeply and convinces me further that my Web 2.0 Personality Style theory explains a lot of what’s going on here, so let’s end the he-said-she-said and cut to that chase.

I’ve observed before that Twitter is very much a love/hate relationship, and that the choice is a function of your preferred personality and learning styles as expressed on the web.  Think of this as a Myers-Briggs type analysis, but applied to the web.  Here is a diagram I like to use to illustrate the point:

Web 2.0 Personalities

There’s Twitter in the top left quadrant pegged as being appealing to those who are Interrupt Driven+Textual+Structured+Participators.  Scoble loves Kyte, which is all the same stuff with Rich Media thrown in.  When these bloggers write about how some conversations are moving into conversational platforms, isn’t that just saying that conversations that either involve people who prefer those dimensions, or subjects that benefit, operate more naturally and with lower friction there?  I think it does.  This is why I think that ultimately, any entity that needs to get a message out to everyone with minimum friction has to consider how they’re going to cover every square in the matrix.  An ideal corporate web presence would solve to that.  In addition, it would make it easy for visitors to self-select the presentation format that they prefer. 

Incidentally, I think that identifying that optimal presentation format for visitors is one of the most valuable and unique things a Social Network could do.  If you are a marketer, wouldn’t you love to understand the best way to package your message for each potential customer?  I don’t see anybody working on that today, but there are Social Networks that have personality tests of various kinds that could be used to gather some of this information.  Google could infer a lot of it too by looking a little more closely at what things you prefer.  Already you have the option of searching web pages, blogs, images, and videos.  Where does each person spend most of their time searching?  That’s telling us something interesting about that person and how to reach them effectively.

What does all this have to do with Twitter being the ultimate “No Social Barrier” medium?  This was the other thing I came to after thinking further on the essence of Twitter.  As we strip expressiveness from a medium we increasingly depersonalize it.  It’s almost the opposite of a Turing Test, so much so that a Russian firm has a technology that can talk dirty so well over a messaging medium that most people can’t tell it’s a bot and not a real person.  Someone quipped that this is because such messages only communicate with the reptilian portion of the brain, hence the bar is lowered.  I agree, but you get the point. 

For messages where there are no social barriers, Twitter may be the ultimate.  You can tell someone about the hamburger you had for lunch without too much fear.  Scott Karp may be annoyed and quit listening, but most Twits seem to take it in stride.  After all, there will be another Twit along shortly, and how much time could be wasted reading just 140 characters.

Posted in Marketing, Web 2.0 | Leave a Comment »

Cisco as Business Social Network Kings? Stranger Things Could Happen…

Posted by Bob Warfield on December 12, 2007

I read on the excellent Read/Write Web that Cisco had acquired a business social networking company called Five Across.  It’s very easy to think of Cisco as strictly a network “black box” (routers, switches, and all those crazy things) company, so my first reaction was to wonder what the heck it was all about.  And then it hit me.  Cisco also bought WebEx, which it seems to me is a fascinating thing to weave into a Social Networking fabric.  It can even be used as a platform.  But consider what WebEx does really well: it lets you share the computing experience on your machine with a group of others.  In business, it’s used to demo.  I’ve also seen it used very productively to do Tech Support, where the Tech Support person WebEx’s onto the machine having the problem so they can poke around and see what’s going on.  Very useful.

That’s all business use, and we could theorize about many more business uses beyond that for the marriage of WebEx and Social Networking.  But you can imagine all sorts of other sexier and more “consumery” uses if you stretch your thinking a little bit.  The casual game craze is big.  Perhaps WebEx becomes like that big poker table where the game itself isn’t even part of WebEx, it’s some app running on one of the participant’s PC’s that everyone can access when it’s their turn.  Read/Write Web refers to Infoworld, which says that Cisco plans to introduce an “Entertainment Operating System.”  Apparently EOS will combine a delivery system, a social networking platform and a set of tools to help consumers find the content they want.  The National Hockey League and Nascar are playing with it today.  Presumably it makes another threat to conventional television and other media when used in this fashion.  Imagine hosting a virtual Superbowl Sunday involving friends all over the world.  I guess the international theme works better with Soccer, and having worked with some Soccer fanatics who were stuck in the US, I can readily imagine that this would be popular.

Dan Scheinman, SVP and GM of Cisco’s media solutions group says, “We’ve become the only company that can do all of these three things together,” referring to the delivery of rich media, social networking, and search for the proper media.  I’m not sure they’re the only ones, but they are early to the party and thinking ambitious thoughts, which is often a good combination.  My Web 2.0 Personality Traits theory postulates there is room for a lot of different models.  Facebook is not at all rich media oriented, so something like this might appeal to those who want something a lot richer.

As to whether this is a good strategy for an Internet Box company, I believe cloud computing forces all companies buildling infrastructure components to reconsider their strategies.  Cloud computing pushes for commoditizing of these components, as well as massive centralization in standardized data centers.  Google has reached a point where their infrastructure demands are so specific to their fabric that they’ve started building their own switches and servers rather than buying from companies like Cisco and others.  If predictions of fewer much larger data centers become the trend, this process will accelerate and these big vendors will need a strategy for why their boxes make sense rather than someone elses.  The Old Guard will potentially have to fight for ascendency all over again.  Companies like Sun and HP are already talking quite a lot about concepts like “Red Shift” and looking at products and offerings that help to manage large centralized data centers. 

Cisco is taking the interesting step of going directly to the consumer so they can own the whole stack in some areas.  Vertical integration in other words.  The risk is that it alienates other customers who feel Cisco may be competing with them.  OTOH, if customers like Google build their own boxes, the guantlet has been thrown.  At least Cisco is striking out in an area where there aren’t any big players to alienate yet.

There is another platform out there with huge potential that’s been quietly sneaking up.  Adobe is building a family around Flash technology and all of it’s derivatives that is extremely potent.  They’re taking the HD video delivery world by storm, so much so that it looks like Flash will be the standard for HD delivery.  I also noticed an interesting article in RIApedia on the Acrobat Connect product, which looks a lot like WebEx.  Characteristically, Microsoft will have to show up before too long (they probably have already and I missed it) to announce they want to play in this pond too, so Cisco is not going to have it to themselves.

Now let’s fast forward to the fun part.  I’m envision a big projector at home, a connection to the Internet, running one of these thin clients in the browser, and hosting some sort of cool entertainment event involving people at my house and people elsewhere.  We could be watching sports or playing shooter games.  Whatever we’re doing, it’s sure to be fun!

Posted in strategy, Web 2.0 | 2 Comments »

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

Posted by Bob Warfield on December 11, 2007

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted in business, enterprise software, saas | 4 Comments »

Enterprise Software Too Boring: Oh do come along…

Posted by Bob Warfield on December 10, 2007

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

Scoble gets pretty close to this issue when he says:

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

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

The usually clever Umair Haque says this about Enterprise Software:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Posted in business, strategy | 9 Comments »

30″ Monitors Rock But Smugmongous Is Really Cool

Posted by Bob Warfield on December 8, 2007

Recently I bought a Dell 30″ monitor.  I got a new one from eBay for circa $1000, which seemed like quite a deal to me given that it hadn’t been that long since I paid nearly that for a much smaller monitor.  I was immediately enthralled with the thing after setting it up.  Playing first person shooter games you can just about get lost in the image and motion sick it’s so immersive. 

For certain tasks, screen real estate can be very important.  I once heard Alan Kay say that using a windowed user interface wasn’t like a desktop at all.  He said it was like taking everything off your desk and throwing it into the bottom of a trashcan and trying to work on it there.  For coding, web page design, or whatever else you use your computer for, there finally seems to be enough real estate on the 30″ monitor. 

I also found that as I’ve gotten older, I’m reaching that uncomfortable state where I don’t quite need bifocals, but there are zones of discomfort where things are hard to read.  Initially, I would take my glasses off and it worked.  Now, for certain things, I move the glasses out on my nose a bit.  It was starting to be annoying, but the 30″ monitor makes everything easier on the computer.

Just as I had settled into loving this thing, I caught Robert Scoble’s video interview of Smug Mug founder Don MacAskill.  MacAskill demos their new services on a pair of 30″ monitors.  The SmugMug site has the cool ability to open a window that spans both monitors with tons of thumbnails and a giant view of the currently selected thumb.  Holy photo sorting Batman!  I need this thing.  It’s so hard to be able to wade through tons of thumbnails, and the Windows Explorer makes the thumbs too small anyway.  I may have to give this a try, although I don’t know where I’d even put a second 30″ on my desk.

SmugMug is a really cool business, BTW.  Watch the interview.  I met MacAskill briefly at the Amazon Startup Project.  I’m hoping to interview him some time soon–waiting to hear back on their interest. 

P.S. It was so annoying not to be able to get the interview to pop out on Scoble’s site.  It popped out once with Seagate.  I zapped that window and then could never get it to pop out again and zoom up.  Oh well.

Posted in gadgets, Web 2.0 | 1 Comment »

Which Startup Deployment Model? (Avoid Muck and Brass, Look for Gold)

Posted by Bob Warfield on December 7, 2007

You have a brilliant new idea for a software product.  Customers will beat a path to your door if you can get it built.  You’re fleshing out your plan, and it comes time to decide on a deployment model, which will have consequences for your business model as well.  There are four deployment model options to choose from:

  1. Sell software that gets installed on customer hardware
  2. Package your code onto a hardware appliance and sell the box
  3. Package your code onto a virtual appliance and sell the appliance
  4. Sell a hosted solution

Phil Windley is busy asking exactly this question over at Technometria.  I’ve personally worked for or founded a LOT of businesses that sold #1.  More recently, I built and sold #4 at my last employer, Callidus Software.  We’ve also looked at the potential for #2 or #3 at various companies and at various times.  Lastly, I did a fairly elaborate benchmarking study where I went and met with a number of SaaS and enterprise vendors considering SaaS.  My conclusion from all of that is to recommend #4 exclusively.  That’s a very strong position to take, but I wouldn’t even hesitate about it.  Let me go through some of the issues Phil considers as well as some of my own thoughts on why I’m taking such a position. 

We’ll start with some issues that Phil brings up.  He launches his discussion with references to two eloquent articles on this topic.  Jason Fried wrote a great piece about why 37Signals doesn’t sell installable software.  Jason’s article focuses on the following reasons for choosing a hosted model:

  • It would require a larger less agile company to sell installable software due to the need for more technical support, documentation, and a slower development process.  This would also reduce control over the customer experience.
  • Having total control over the development and deployment evironment greatly simplifies the software.
  • Environmental issues at the customer’s site make it much more likely something can go wrong.
  • Upgrades are problematic and you wind up supporting lots of backward compatibility headaches as multiple versions coexist.

The comments on Jason’s article are also quite interesting.  Many seem convinced that hosting is simply a plot to extract continual monthly fees and ultimately make more money from customers.

The second article Phil quotes takes up the opposite argument.  Joel Spolsky responds to Jason’s article directly with some interesting comments:

  • Writing installable software is a gnarly problem, and solving gnarly problems is what you get paid for.  This is why his article is called “Where there’s Muck there’s Brass”.  The Muck is the Gnarliness.  The Brass is the Reward for dealing with it.
  • Joel’s company, FogBugz, offers both hosted and installable, but installable outsells hosted 4:1.  If they eliminate installable, they have to live with 1/5 the revenue and that’s just not tennable.

Joel adds some interesting disclaimers at the end such that he doesn’t claim 37Signals would sell 5x as much by offering an installable version because:

  • 80% of their customers opt for Windows Server, but 80% of support incidents are due to that 20% Unix audience.
  • The installable version has been on the market for 7 years and the hosted version for only 6 months.  If you look simply at new customers, the ratio of installable to hosted goes down to 3:1.

Joel’s comments are on reddit (interesting tactic, actually) and the very first one has the same reaction I did to the article.  Joel didn’t make a compelling case that you leave a lot of revenue on the table by not offering installable versions.  His own disclaimers already start to create doubt around the proposition, but what the first commenter brings up is that if there was only a hosted option, some of the buyers of installable would choose the hosted option.  In fact, Joel’s article is the first one I’ve seen that strongly made the case for a huge revenue downside of not offering installable software, particularly for a startup.

Consider the effects self-selection and expectation.  FogBugz has been on the market for 7 years.  By this time, how much of their selling is based on referrals?  Quite a lot I would expect, and those referrals are based on the vast majority of folks having experience with the installable version.  A new startup has no built-in expectation from customers.  It’s putting the word out for the first time about what it does.  The SaaS startups I talk to share a common theme when it comes to competing with companies that offer multiple models: simpler is better.  Simpler is easier.  Focus is good for a startup.  Not offering too many choices is good.  Save the choices for later, after you have successfully tapped into a real market with your initial offering and gotten it tuned up for a good product/market fit. 

What these pure SaaS plays tell me is that it’s just easier for them to sell than it is for the hybrid counterparts.  I’ve presented real data on real companies that makes this obvious.  Part of it has to do with the fact that many of the benefits of SaaS force you to speak to the disadvantages of installable software.  The hybrid vendor can’t do that.  They’re selling with one arm tied behind their back.  My interview with Concur’s CEO Steve Singh brings this out in an interesting way.  Concur is probably the largest company ever to make a transition from installable to SaaS.  During the transition they offered customers the choice.  Given that SaaS delivers accounting numbers that are short term less impressive than perpetual license sales (because you receive the revenue monthly over a longer time and not all at once), he originally incented his sales people to favor selling installable to cushion against any sudden impact on his numbers.  So long as he gave extra incentives to his salespeople to push the installable version, the breakdown was 50/50 in terms of what customers were choosing.  As soon as the sales compensation was neutral, customer’s started choosing to go 99% on-demand/hosted.  That’s a big difference!

As I’ve watched and talked to various software companies exploring SaaS, the story repeats over and over again.  It’s much easier to sell the SaaS proposition.  It’s much easier for customers to get started with it.  They have a better experience.  There is little needed for protracted evaluations.  Buy it, use it, and if it doesn’t work out in a month or two just cancel it.

Because of all this input I’ve gotten, I look at SaaS as having two huge advantages.  One is the ability to provide a superior customer experience and the other is the ability to sell much more easily on the basis of that.  The fact is that it isn’t easier to develop SaaS, but the problems you solve add more value and your company stays more focused on innovation and less focused on plodding through the mud.  This is an area where I differ with Joel Spolsky.  Writing installable software is not solving a gnarly valuable problem in the sense he intends.  It is dealing with a tedious and expensive problem.  Are you putting your best rocket scientists to work supporting new platforms and writing installers?  Or are those the first things you want to outsource and offshore?  Customers clearly do not pay more for those who have solved it.  They may even pay less over time for installable software.  Joel himself admits that a reason people want it is perceived lower price.  So why dive into cleaning up muck for brass?  Brass is not nearly as valuable as gold.  Muck and brass are common.  They are not differentiated ways to make a difference.  Look for mechanisms that are differentiated.  What can you do for your customers by hosting that is nearly impossible to do with an installable version?  That’s the really interesting question.

Aren’t there any cases where SaaS doesn’t make sense?

We can hash through the whole security and privacy thing, but it’s been done to death and frankly, it’s just not a real issue for most kinds of software.  Companies are nearly through that learning curve.  Companies large and small are entrusting their sales information, arguably the absolute crown jewels they own, to SaaS systems.  ADP has done this for years with salary information that results in cash outflows.  Read the interviews I’ve done on this blog with various SaaS CEO’s.  I ask them all about this and they’re all very clear that there has been a change.  Consider also that all the SaaS markets are still young, vibrant, and growing.  You don’t have to get 100% of the addressable market day 1.  There is time for the late adopters to come around to an understanding on this.

I’ve commented before on appliances too.  I personally see them more as transitional marketing gimmick than anything.  They’re neither fish nor fowl, and they are not silver bullets.  You can’t really get to the SaaS sales proposition I know with an appliance.  Nevertheless, they’re better than a pure installable solution if you’re determined to put something on-premises.

Beyond that, I think it really depends on the software.  Software that has to be on the desktop or inside the firewall for some reason is an example.  I just wonder how much longer software has to be on the desktop as I work with technologies like Adobe Flex, and I also wonder whether this is a time to create a startup around such software.  The world is in transition.

Go for the SaaS model and don’t look back.

Posted in saas, strategy | 6 Comments »

Scalability is a Requirement for Startups

Posted by Bob Warfield on December 6, 2007

Dharmesh Shah wonders whether startups should ignore scalability:

You’re worrying about scalability too early. Don’t blow your limited resources on preparing for success. Instead, spend them on increasing the chances that you’ll actually succeed.

It’s an interesting question: should startups worry about scalability, or does that get in the way of finding a proper product/market fit?  If you’ve read my blog much you’ll know that I view achieving that product/market fit as the highest priority for a startup, and I’m not alone, Marc Andreesen says it too.  I think this is so important that I have advocated some relatively radical architectural ramifications to help facilitate the flexibility of a product so it can evolve towards that ideal even faster.

But where does scalability fit in?  Can you achieve that product/market fit without it?  For most startups, I think it is either difficult to verify a true product/market fit without it, or worse, you may achieve it only to immediately fall to earth a victim of poor user experience.  There are certainly plenty of examples of companies that started out great, seemed to have that product/market fit, but got into persistent hot water because they couldn’t scale out a good user experience when their site began to take off.  Fred Wilson writes recently about his love/hate relationship with Technorati, which has been a good example of this.

Here is another question, “How much success do  you need to verify product/market fit?”  Signing up a few customers to a beta, or even having a large beta is not really enough in my opinion.  It’s pretty easy to get a ton of people to try something that sounds sexy and is promoted well.  The question is whether that really takes well enough.  Marc Andreesen’s Ning is a good example.  When they launched their original product it required a fair amount of custom programming to create a custom Social Network.  They had 30,000 social networks created even so, but the service wasn’t taking off.  Michael Arrington was calling it R.I.P.  Then they released a version that eliminated the need for programming and suddenly the product/market fit was there and it took off like a rocket, crossing 100,000 social networks in record time.  Clearly Ning had to deal with scalability before they could learn much about their product/market fit.

Google is another great example of this.  They had to scale from day one because of the problem they were solving.  Om Malik says their infrastructure and ability to scale is actually their strategic advantage.  Certainly the nature of the problem Google wanted to solve required scalability from day one.  This is how Aloof Schipperke wants to view the question when he says, “Scalability is a requirement, not an optimization.”  It’s a bit of a double entendre.  One could say it is a requirement that all startups deal with it, or one could say startups need to evaluate whether scalability is a requirement in their domain.  I’m in that latter camp.  Figure out what success really looks like.  When do you know you have product/market fit?  Be conservative.  What are the requirements to get there?  Aloof lumps scalability in with other “ilities”.  Can your startup reach product/market fit without security, for example?  The answers may surprise you if you’re really honest about it.

Chances are, you may have to do more to be sure about product/market fit than you are comfortable with in release 1.0.  You’ll need a phased plan for how to get there.  Lest you use this as an excuse to ignore scalability until the last minute, keep in mind that these phased plans should have short milestones.  Quarterly or six month iterations at most.  Scaling a really poorly architected application can amount to a painful rewrite.  So do a phasing plan for scaling.  What are the big ticket items you’ll need to enable early so that scaling later is not too hard?  There are a few well-known touchpoints that can make scalability easier.  I’m not going to go over all of them, you know what I’m talking about:  statelessness, RESTful web services, and beware the database.  If you don’t know about these things, get some people on your team who do!  It’s not hard to start out with a plan in mind about your eventual scalablity and just make sure that along the way you don’t inadvertently shoot yourself in the foot.  It usually boils down to securing the two ends of the puzzle with good scalability:

– How will the client side web servers scale?

– How will the database back end scale?

Make a plan for what it will look like when it’s done, and put phased milestones in place to get there over time. 

Here’s another key issue.  Dharmesh’s original question assumes scalability and user/experience compete for scarce resources.  Ed Sim somewhat follows this path too when he writes that it’s hard to sell Scalability.  Aren’t we talking about the tradeoffs between UI/Features and Infrastructure (web or DB)?  Are the same engineers really doing both things?  It seems to me a lot more common to have a “front end” or application group and a “back end” or infrastructure group, even if “group” is a bit grandiose for a couple of people.  Take the opportunity to map out how the modules produced by these two groups will communicate.  Make that communication architecturally clean so the groups are decoupled.  Make the communication work the way it will when you build out scalability, but then don’t build it out at first.  This will enable the infrastructure group’s agenda to decouple from the user experience guys. 

BTW, if you’re thinking the true competition between the two is you want to hire all user experience people with your capital and no infrastructure, that just sounds like a bad idea to me.  It’s hard to deliver good user experience if your infrastructure is lousy, buggy, and doesn’t perform.  There are ample studies that show the speed with which your application serves up pages is a big contributor to user experience as well. 

I’ve gone down this path before of having essentially two small teams and making sure there was clean communication between their code from the start.  My company PriceRadar was lucky enough to land a partnership with AskJeeves early on.  Part of the deal was we had to pass a load test that showed we could handle 10,000 simultaneous users hammering our application.  At the time, most of my experience and developers were from the Microsoft world, so we were .NET all the way.  I remember meeting with the advisory board for a company called iSharp.  It was an all-star cast of web application CTO’s and VP’s of Engineering.  We went around the table to hear what everyone was doing.  I was the only Microsoft guy in the room, and the Unix crowd just laughed when I told them we had to pass this big load test.  AskJeeve’s CTO was there as well as the fellow in charge of AOL Instant Messenger and about 10 others.  They flat said it was impossible on Unix.  In less than a month we had it all working with a distributed grid architecture.  The front end guys were never even involved and changed little or no code.  The back end guys didn’t sleep much, but they emerged triumphant.  And the entire team was about 10 developers, per my small team mentality.

Yes Virginia, you should worry about your scalability, but it need not be all consuming.  You can handle it.

Posted in data center, grid, multicore, platforms, saas, strategy, Web 2.0 | 2 Comments »

SaaS Network Effects Start Charging Up…

Posted by Bob Warfield on December 5, 2007

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

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

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

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

Another example of network effects for SaaS was mentioned by Zoli in his blog.  He was talking about the value of benchmarking information.  This is an area that is hugely valuable, and the information is very hard to get.  Whatever it is you do, imagine being able to get benchmarks on how your industry does the same thing.  The most obvious is benchmarking on salaries and other compensation.  We all want to track that information down when it comes time to agree on a pay rate!  But almost everything could benefit from some benchmarking.  Take corporate travel.  It would be interesting to know how your company fares (no pun intended!) relative to others in terms of whether you are getting good deals on air fares and hotels.  What about meals?  What would you do if you learned your staff were spending in the 99th percentile on meals during business travel, for example?

Suppose you have a SaaS company doing some sort of analysis for your customers.  You could provide them additional insights by showing them benchmarks for various metrics based on vertical industry.  Concur does expense reporting and travel, for example.  They could give you the comparitive travel information I mention above.  Lucid Era does reporting on the sales cycle.  They could tell you a lot of interesting information about how your sales cycle and pipeline compare to others.  Xactly reports on sales compensation.  Would you like to know relative to your vertical industry peers whether you pay your sales people more or less to close each incremental $1 of revenue?

SaaS companies are in a unique position to create benchmark information by analyzing the data in their multitenant systems.  To succeed, they need the willing permission of the real owners of the information, lest they suffer a Facebook Beacon-style backlash.  However, given reasonable privacy safeguards, it is often possible to secure permission.  The most obvious safeguard is that benchmarks are aggregates.  You’re presenting the average of a large number of datapoints, so the likelihood of discovering an individual datapoint is low.  What does this have to do with network effects?  The more datapoints, the better the benchmark.

I’ll leave you with a last example of SaaS network effects.  This has to do with datacenters.  SaaS runs software for you in the cloud.  But as someone once remarked to me, there are many clouds.  Each corresponds to a datacenter.  There are advantages to being in the same datacenter in terms of latency and speed of data transfer.  Certain kinds of applications can benefit from this, so eventually, it there will be advantages in which SaaS cloud you choose to trust your data to based on which applications live in that cloud.  We’ve seen one example of this already.  Joyent was able to offer free Facebook application hosting because it had dedicated high speed fiber to Facebook’s datacenter. 

Stay tuned for lots more network effects in the SaaS world.  The model is tailor-made for it.

Related Article

Phil Wainewright picks up on my impression too:  the SFDC data sharing option is extremely expensive.  So much so that he calls it the “anti-viral” network, implying the cost is so high as to thwart the network effect.  I think he is right that they’ve made a mistake there.

Posted in business, saas, strategy | 5 Comments »

It’s Late for the Advertising Game

Posted by Bob Warfield on December 3, 2007

There are a couple of fascinating posts on who clicks on banner ads in the web.  Several of the bloggers I follow picked up Apophenia’s post that seems to have started it all.  It’s all about the question of who is doing all the clicking on ads and why.  We certainly all have the experience of not clicking many (or any) ads ourselves and wondering who does.  The data being referenced by Apophenia was provided by AOL EVP of Global Advertising Dave Morgan in his blog.  A casual read of these two provides the following about who is clicking on ads:

What did we learn? A lot. We learned that most people do not click on ads, and those that do are by no means representative of Web users at large.Ninety-nine percent of Web users do not click on ads on a monthly basis. Of the 1% that do, most only click once a month. Less than two tenths of one percent click more often. That tiny percentage makes up the vast majority of banner ad clicks.

Who are these “heavy clickers”? They are predominantly female, indexing at a rate almost double the male population. They are older. They are predominantly Midwesterners, with some concentrations in Mid-Atlantic States and in New England. What kinds of content do they like to view when they are on the Web? Not surprisingly, they look at sweepstakes far more than any other kind of content. Yes, these are the same people that tend to open direct mail and love to talk to telemarketers.

He goes on to say that these predominately Midwestern females are mostly clicking on sweepstakes ads.  This has all prompted a certain amount of wonderment out in the blogosphere.  Noah Brier muses about whether Google has any incentive to improve search results.  Mathew Ingram wonders whether this odd demographic is carrying the entire web on their shoulders.

Some posts make you stop and think.  And then you go back and re-read them.  Carefully. 

After going back over the Dave Morgan post twice, I have concluded that it doesn’t really tell us what it seems to on first glance.  Here are just two key points to consider:

1)  These data are about ad clickthroughs on AOL.  They tell us nothing about ad clickthroughs on Google unless you think the two will be highly correlated.  I don’t.  The demographics of people who clickthrough AOL ads are pre-selected by the list of people who use AOL in the first place.  Suddenly these results are making more sense!

2)  Even Morgan in his article calls out Google as a separate case from what he is measuring, which are clickthroughs of banner ads when the audience is not in an active search-and-buy mode:

While focusing on clicks makes a lot of sense in search advertising, since the audience has already been highly qualified by their search term and is “hand-raising” — announcing their interest in a particular product or service or activity — it is logical to focus on a click as a very good proxy for the generation of a qualified lead. It makes sense. It works. The market loves it; Google will do more than $10 billion in revenue selling clicks this year. No further discussion needed, right? Not the case when it comes to display ads delivered on Web pages containing content or applications, where the audience is not in an active search- and-buy mode.

We have known (or at least believed) for years that some people like to click on banner ads, and many others don’t. While it’s never been the subject of a lot of research, it’s something that most of us have believed intuitively.

Are things making more sense now?  We skew a demographic by choosing to measure AOL, not the entire web.  We further are only measuring randomly inserted banner ads, not AdSense or something similar.  The result?  Poor demographics and very low clickthrough rates.  Is it any wonder that Google is running away with the online advertising market?  They have a better mousetrap:

– Do you want to target AOL (or insert any random property with highly skewed demographics including Facebook) or the whole web?

– Do you want to try to interrupt someone engaged in another task with advertising, or catch them when they are most susceptible, for example when they’re searching for what they want to buy?

Clearly these are no-brainer questions.  The next one will be a little harder.  Suppose you are an entrepreneur.  You’ve leveraged a ton of eyeballs through some mechanism.  Hey, maybe you have the ideal way to find a date for college kids (and your name starts with Zuckerberg).  Now here is the billion dollar question:

How do you get those eyeballs to take interest in your advertising to the point they act on it (by clicking through) without being offended or annoyed by whatever it is you do to get it in front of them?

It’s very late in the advertising game.  You’re going to need to come up with an extremely innovative answer to that question to have a real shot.  My guess is that it will be extremely difficult to build a big enough audience that tiny fractions of it are valuable.  There is a point of diminishing returns and Google is harvesting the cream.  Perhaps the ZDNet guys are right that there will be a duopoly in Search.  It is so valuable that someone with deep pockets might very well try, Microsoft is a reasonable candidate.

Failing that, you’ll have to look for richer veins of more concentrated advertising interest.  What would people with buying intent want to see?  I know it is terribly hard to find good reviews.  Searching for them on Google is a disaster.  You wade through so many waste-of-time recommendation systems that everyone under the sun has put up.  I prefer to start such searches in the blogosphere, but that is still not perfect.  If you could actually figure out how to vector people on to credible objective reviews quickly and easily that ought to be valuable search real estate.  I did read somewhere that the independent shopping search engines have gained share versus Google, which is rare too.  These guys are helping you to find the best price when you already know what you want to buy.  You can try to be the arbiter of style for some segment.  People look there when deciding what to buy.  Maybe that’s what Facebook hoped for in turning people to recommending products.  It’s funny, but as I read back over this paragraph I am struck that some days there is nothing new under the sun.  All of those approaches have existed for years in the print media.

All in all, I wouldn’t want to be trying to start out a new advertising driven venture these days unless I really had a firm grasp on some sort of secret sauce innovations.

Related Articles:

Alex Iskold blogs about how little Facebook really knows about us that is relevant to advertising.

While you ponder what your revolutionary new advertising model might be, consider this article from Dare Obasanjo that says most of the Social Networking isn’t revolutionary at all.  It is simply an evolution of what has gone before.  I agree.

Posted in business, Marketing, strategy | 3 Comments »

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