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For Executives, Entrepreneurs, and other Digerati who need to know about SaaS and Web 2.0.

Archive for June, 2008

The Internet is an Influence Multiplier

Posted by Bob Warfield on June 11, 2008

After reading David Armano’s post Brands + Amplification = Influence, I was reminded of the military concept “force multiplier”.  A force multiplier is a combination of technology, intense training, organization, or a combination of all to make a given force more effective than another force of comparable size.

David is responding to a post by Alan Weiss that says it isn’t really possible to create a brand on the Internet, you can only spread it more effectively.  Perhaps Alan and I define brand differently, but I think he is wrong on that, and I have the impression Armano thinks he is wrong too.  

Weiss claims people only read your blog because they heard about you in some other context, and want to hear more from you.  I know for a fact that is hogwash–I get a lot more people wanting to interact with me outside the blog because they first discovered me in this blog than the other way around.

Armano makes some interesting points in his post though.  The most important of which is that the Internet is a sort of non-linear amplifier of the value your content is delivering.  He says:

But what may be the most critical piece for us to understand and harness is how amplification actually works.  The mechanics of it are intricate to say the least.  If you have nothing remarkable to offer, there tends to be no amplification.  If what you have to offer is remarkably good—the network kicks into overdrive resulting in the influence of behavior and ultimately some type of relationship.  If what you have to offer is remarkably bad—the network also kicks into high gear and amplifies the negativity—influencing behavior and often times causing perception and possibly relationships to go south.

I interpret this graphically as wildly undamped growth curves as you stray towards either slightly positive or negative.  The more positive or negative your initial content, the more it kicks:

The more your content deviates from the mean “quality”, whether good or bad, the more intense is the amplification effect of the Internet. This goes a long way to explain why when you look at a bunch of blog posts you’ve done, they don’t fall into a nice uniform scattering of popularity. A few are hugely popular, and most are pretty average.

What does it mean for marketers? Armano gives this anecdote about Dell:

Michael Dell understood this when he prioritized the effort for his company to participate in the positive amplification of his own brand via the internet including multiple social networks. This ultimately lead to more than a 20% improvement of opinions found on the Web accessible through Google etc. Other major companies have watched closely and are now in the process of figuring out how their own brands need to come to terms with this new reality.

For startups, my takeaway is that your first priority has to be to find something worth saying.  Or, to put it in these terms, something worth amplifying.

I had a great lunch recently with LucidEra’s Ken Rudin, whom I’ve interviewed in the past.  That lunch will be the subject of some posting next week, but for now, I can easily see that Rudin has followed a strategy of creating something worth amplifying and then empowering his customers to talk about it. 

Jim Kukral, in a comment to Armano’s post, puts it perfectly:

Amplification is another word for creating customer evangelists. The people who really, really amplify your product/services.

Another way to look at it is that your first task may be to get on the map by non-Internet means and then to follow that up with a campaign to amplify the positive message you can talk about after you’ve gotten yourself on the map.  Getting on the map is a function of creating enough critical mass of customers who are excited about your product.

Posted in Marketing, strategy, Web 2.0 | 4 Comments »

My Biggest iPhone Gripe Still Not Fixed

Posted by Bob Warfield on June 10, 2008

Nobody is talking at all about my biggest iPhone gripe:  no Flash support.  I can find no news of when or if it will be fixed.  Not sure what’s up between Adobe and Apple, but this is silly to leave out there.

Posted in saas | 3 Comments »

3G iPhone Shuns SaaS for Longer-Term Opportunity?

Posted by Bob Warfield on June 10, 2008

Of course the Apple 3G iPhone announcements dominate the blogosphere and other news channels.  As I read the various accounts, I am struck by one message writ huge by Apple’s actions: 

They are stepping back from the SaaS subscription model

The deal is you get the iPhone more cheaply, $199, but you have to sign up for a 2 year contract at $30/month for individuals and $45/month for businesses to use it.  Apple gets a decent sized one shot payment on that, but no revenue share with the telcos.  We’re back to the future with a totally conventional deal between the handset provider and the telcos.

Huh?  Well lookit.  They’re changing the model from a long-term revenue share with the telcos to a big up-front payment from the telcos.  Add to that the requirement that you do an in-store activation.  I remember how delighted I was with my original recipe iPhone to be able to activate it from iTunes in the comfort of my home.  How in the world can stepping back from that very cool approach to a requirement that I actually go visit a (gasp!) bricks and mortar establishment be a good thing?

What’s up with this?  I can’t seem to find a definitive analysis yet, although the stock market is definitely not impressed with it, or perhaps they’re not impressed with the delay in availability until July.  StartUp Meme calls this normal for any Apple conference.  However, we can speculate:

1. The telcos forced them to do it.  They made it clear they would not continue to put up with a revenue share and Apple accepted that in the interest of continuing to grow the franchise.  With iPod sales basically plateaued, they had little choice.

2.  They want to do it for some reason.  Perhaps they fear the legion of iPhone clones that are coming and want to take money off the table ASAP.  Perhaps they sensed that now was the time to really corner the smart phone market if only they would give a little to the telco’s wishes.  Perhaps international adoption was severely hampered by the deal structure they were trying for.  Or perhaps they did the math and figured out they were losing so much money to illegally unlocked iPhones that the original model was not a money maker in the long run.

Whichever model holds true, it is a bizarre and unusual event in this day and age for a company to get so far down the SaaS/Subscription path and suddenly convert back to the all-up-front on-premise mode of thinking.

I guess it sheds light on why AT&T would pre-announce the 3G and potentially freeze sales.  They like this new deal better and preferred to see Apple sell as few revenue sharing phones as possible.  Apple, for its part, seems to have cooperated by having a well-publicized shortage of the regular iPhone to flush the channel fo the offending devices and their attendant subscription-based contracts.

My money is on option #2, that Apple wants to do this.  They’re still in a strong enough bargaining position I have a hard time believing the telcos forced the issue.  Moreover, I think what was messing with Apple was their lack of control over those pesky unlockers.  It is interesting that Gizmodo reports there will actually be a penalty of some kind if you don’t get you phone registered and on a “legal” 2 year contract within a short 30 day grace period.  Wow!

Apple will keep its hand in the game in a different way.  By tightening their absolute control over iPhone activation, stopping the jailbreakers, they ensure control over the software that goes on the phone.  The iPhone Applications Store can be the long-term money maker.  That makes the iPhone the razor, and the apps the razor blades.  The video game console market has been run this way for decades, so maybe Apple isn’t so crazy after all.  If they can get revenue sharing off every piece of software that goes on the platform, that ain’t all bad.  According to the SDK press release copied in the Gizmodo article, the app developer sets the price and keep 70% of revenue.  Apple gets the other 30%.  In this model, Apple trades a long tail of SaaS revenue on the phone itself for a big up-front payment and tighter control over the likelihood you’ll pay them some of that 30%.  Jobs is thinking big as usual.

Related Articles

SproutCore:  Techcrunch says you can preview MobileMe by looking at SproutCore.  Not much to see as far as I can see.

GigaOm has a good rundown on some of the iPhone apps that will be available, and Techcrunch covers more as well.

WSJ discusses how Apple eliminated a lot of the objections from business with the new announcements today.

The new iPhone adds centralized push notification ala Blackberry to do away with the evils of polling.  This is good news!

Video of Jobs demoing the new features

Raph Needleman says the Emperor has no Clothes and that everything about today’s announcement, and especially the pricing, shows Apple is responding to stiff competition.  Raph, there is an element of that I think.

Apple beat Microsoft’s Live Mesh with Mobile Me–all about syncing, just like Live Mesh.  This is not unusual.  Microsoft always overengineers each release and takes 3 of them to get it right.

More MobileMe goodness from Techcrunch; lots of good screen shots.

Posted in Marketing, strategy, Web 2.0 | 4 Comments »

Helpstream: Focused on a Market Primed for Speed

Posted by Bob Warfield on June 9, 2008

I loved Carleen Hawn’s recent post on GigaOm: How to ID a Market Primed for Speed.  There is a lot of wisdom there, courtesy of serial entrepreneur Ash Munshi.  Munshi lists Four Steps to identifying a market primed for speed:

1. Identify an inefficient market.

2. Identify a market in which VC money is already being spent. “This means others believe there is a transformation about to a happen,” he says. “What transformation are they betting on?”

3. Identify the part of that market that has not been “staked out.” And be a friend to the constituency that isn’t being served.

4. Look for an external catalyst that could act as a change accelerant. “The question is, if something breaks (like regulation, a rate hike), can you capitalize on [the change] in a way no one else can?”

You could not ask for a better definition of what we’re doing at Helpstream for Customer Service.  Let’s take a look:

Identify an Inefficient Market

Is there anything more inefficient than the way most companies approach Customer Service?  When was the last time you had a good experience at the hands of Customer Service?  Is it common?  Is it the majority of times when you need Customer Service?  Most people would say “no”.  Yet, when we put the shoe on the other foot, and look at the cost to deliver Customer Service and the headaches associated with it, we see that vendors are no happier than their customers.  This has to be the very picture of inefficiency.  A lose-lose proposition pitting “us” the customers against “them” the vendors.  The goal of these systems and organizations is simply to get us off the phone as quickly as possible–what’s called “deflection” in the trade.  Why else are we immediately told to reboot and call back?  Then when that doesn’t work it’s “reinstall and call back?”  This isn’t help, it’s deflection.

There are varying degrees of the inefficiency.  The worst is the old-school On-premises systems.  These are systems like the old Remedy.  A step up would be SaaS delivery, such as we see from RightNow, but so far these companies are delivering on the web, but they are not very web savvy.  They somewhat reduce the cost of the software, but this pales in comparison to the costs of Customer Service.  Both Good Customer Service (focused on increasing customer satisfaction) and Bad Customer Service (focused on deflection) are extremely expensive, even with SaaS.

Identify a Market in Which VC Money is Already Being Spent

Bingo!  Parature, for example, has received a recent large round from Accel.  There are actually quite a few companies in this space.  As Munshi says, “This means others believe there is a transformation about to a happen,” he says. “What transformation are they betting on?”

Identify the Part of that Market that has not been “Staked Out”

Once again we have a Bingo!  These other guys in this market all seem to be focused on SaaS versions of Remedy.  RightNow was the first, and we can regard Parature as attempting to be a fast-follower for that vision.  But despite a few token offerings, these companies are missing the bigger point.  What is that point?  The web fundamentally changes almost everything about how companies do business.  Many companies haven’t figured that out yet, but for those that have, and those that want to, they have to ask how it changes Customer Service.  We’re focused on providing a solution for those companies at Helpstream, and it’s a pretty darned good one at that.

See Helpstream CEO Tony Nemelka’s recent post on the Abundance of Help for more on this.

Look for an External Catalyst that could act as a Change Accelerant

What better accelerant can there be than the massive changes the web is wreaking on almost every part of the Business Fabric that is our economy?  Whether we’re talking about the new generation coming up through the ranks that expects business to be done on the web and in a web-savvy way, or the tremendous economic advantage that the web can bring your company, there has never been a more powerful catalyst out there.

And, it applies directly to the Customer Service world.  As Tony points out in his post:

Young people today are beginning to wonder why you should do things yourself when you can get help from others to get things done more efficiently and effectively.  They’re wondering why they shouldn’t share their woes and frustrations when there are so many people willing to listen, respond, and help make things better.  Web communities and collaboration technologies have justifiable caused many people—particularly those who have spent most of their lives in a Web-enabled world—to question whether relying on others is really a bad thing after all.

This is just another example of how the Web is fundamentally changing things.

Ash Munshi’s Four Steps are an excellent way to analyze your idea for a venture.  How does it stack up against these criteria?

Posted in saas, strategy, Web 2.0 | Leave a Comment »

Acquisition is About Arbitrage, and Kara Swisher is Right

Posted by Bob Warfield on June 8, 2008

Kara has a thought provoking post called, “Nightmare on Microsoft Street“.  She basically asks what will Microsoft do if Google starts buying up all the web properties that Microsoft hopes to acquire or partner with.  With Yahoo blocked, at least for the time being, what’s Microsoft’s next step to gaining some web dominance?

Whether they plan to build success organically, by growing existing properties and creating new products, or whether they plan to acquire others (Kara mentions Digg, for example), a Google acquisition binge would wreak havoc.

Why can’t Microsoft successfully compete with Google for these acquisitions?  With respect to competing with Google, they certainly have the chance where the acquisition would thrust Google into anti-trust waters.  Acquire as many search and advertising companies as you like, Mr. Ballmer.  Of course with Yahoo bridling at the thought of it, and nobody else anywhere in sight, this is not necessarily an interesting category.

In the end, Microsoft’s problem will be that Acquisition is about Arbitrage.  The Wikipedia defines arbitrage as follows:

“arbitrage is the practice of taking advantage of a price differential between two or more markets

What does this have to do with Google and Microsoft fighting over potential acquisitions?  The two markets are the respective stocks these two companies have.  Let’s look at it this way.  These companies would be buying future earnings and sales.  If those purchase translate immediately into multiples according to the multiples they enjoy today, and the company was purchased at a lower multiple, the acquirer comes out ahead.

Microsoft trades at a healthy 4.55 times sales.  So every $1 in the acquired company is theoretically worth $4.55.  Pretty profitable business, these acquisitions, no?  Unfortunately for the Redmond Boys, the GOOG can turn that $1 into $10.17.  To over simplify things, they can afford to pay twice as much as Microsoft and still come out ahead.

Larry is going gangbusters with his acquisition strategy over at Oracle.  $1 acquired can be $5.68 at Oracle’s multiple.  But, in the unlikely event they find themselves bidding against Google, the GOOG can afford to pay a lot more.  BTW, if Oracle wants to get Webby, it too can outbid Microsoft, but only a little bit.

This business of arbitrage came up recently in a discussion with the Enterprise Irregulars.  There was much back and forth about why Oracle didn’t acquire  Here the economics are backwards.  Oracle gets $5.68 for $1 of sales while Mr Benioff is getting $10.65.  Wow!  Salesforce gets more than Google!

M&A is a tenuous business.  Any time an acquirer makes its intentions known, there is a window where every potential other acquirer stops what it is doing and decides whether to make a play for the acquiree.  Consider it a feeding frenzy.  Those that have the most valuable currency, the Googles and the Salesforces, can afford to pay more than the others, and they’ll take the prize if they want it bad enough.

Consider Oracle’s famous back and forths in this area with SAP.  Eventually it made SAP rather gunshy about acquisition contests with Oracle.  Oracle was characteristically very blunt and to the point.  They told SAP they were crazy people and they’d pay more than anyone else for an acquisition.  But it wasn’t so crazy.  Larry enjoys that $5.68 multiple while SAP is at $3.90.

Which reminds me, SAP is below Microsoft’s multiple and therefore the arbitrage works there.  Oracle can’t really buy them without anti-trust issues.  What about that play?

Posted in saas | Leave a Comment »

What’s the Halflife of a Turnaround?

Posted by Bob Warfield on June 6, 2008

There’s been considerable discussion among the Enterprise Irregulars sparked by Vinnie Marchandani’s post about Jerry Yang.  Vinnie is quite passionate about the idea that a venerable web entrepreneur like Yang should be given a lot more of a chance, and that a non-techie like Carl Icahn should be reviled.  The Irregulars reacted pretty negatively to the post.  The general sense was that it was time for Yang to move on.  Larry Dignan picked up on this theme as well.  Like me, he is generally tired of the whole spectacle.

Vinnie stuck to his guns though, and posted again, speculating about what might have happened if Steve Jobs was in this position after getting back to the helm at Apple, or Mark Hurd at HP, or Gerstner at IBM.  All of those have been successful turnarounds.  Perhaps there just hasn’t been enough time for Yang to make a difference.

While I am a bit fatigued as I mention with the whole topic of Microhoo, I was nevertheless curious about this comparison Vinnie draws with Apple, HP, and IBM.  What if we could rearrange time and compare these three companies side by side, exactly aligning the timing of the new boss taking the helm.  Could we tell which ones were undergoing a successful turnaround, or would we have to wait much longer to see a result?

It’s not hard to retrieve the historical stock quotes for these three, so I simply took those quotes for the equivalent length of time after Jobs, Hurd, and Yang took over the helm and plotted them in a chart:

Halflife of a Turnaround...

During Mr Yang’s tenure, Yahoo’s stock is essentially flat. There was no real discernible trend until Microsoft got involved and as we know, that trend went away.  As a matter of fact, the stock spends most of its time below the green line connecting the opening and closing of the period.  Clearly the market immediately had little confidence.

Contrast that with the performance of HP’s Mark Hurd, where the stock closes out the period up 29%, or Apple where the market loved Steve Jobs immediately and closed up a whopping 67% by the end of the period.

Is this the wisdom of crowds or just good PR?  It’s hard to tell from this data, especially since we know a lot more about what happened at HP and Apple after the period depicted–things continued to go much better.  We don’t know for sure what would happen if Jerry Yang thwarts Carl Icahn and manages to stay in place.

The market is not a patient place.  The halflife of a turnaround looks to me like it’s about a year or less.  If a new CEO can’t inspire confidence in that time, the market is unlikely to leave him in place.  Hard to say whether it’s fair or not, but it’s also hard to argue that Apple and HP didn’t do a lot better over the same period.

Posted in business, Marketing, strategy, Web 2.0 | 5 Comments »

Adobe Enters the Office Wars

Posted by Bob Warfield on June 2, 2008

 I was a General in the Office Wars once. I remember it vividly. I built a product called Quattro Pro (originally Surpass) and dove in head first. For a while, we did extremely well. QPro sold over $100M in its first year and catapulted Borland forward mightily. For a time it was thought the company could rival Microsoft. Indeed, we seemed to be fighting with Microsoft on nearly every front, but it was not to be. Quattro Pro was ultimately sold to Corel Draw, and I haven’t seen or heard much of it since. Today, I am a confirmed Microsoft Ofice user. Mostly.

There are exceptions, and they center around the areas of document editing of two somewhat specialized kinds. First, I do all my blogging in the WordPress editor. Anyone who has ever cut and pasted to a blog from MS Word knows it is awesomely painful. This is typical Microsoft and a bit of typical limitations of the Windows UI. Many have discussed how the clipboard is an abomination of UI design, at least as implemented by Microsoft, so I won’t revisit. I am, BTW, writing this post in BuzzWord, and will report on how well that went at the end. 

Getting back on point, Adobe has some new announcements that boil down to a big splash in the Office Wars. It had been Microsoft with their On-premise suite against a bunch of web upstarts ranging in size from mighty Google to smaller players like Zoho. Adobe is interestingly in the middle. They are more a traditional On-premise company like Microsoft, but they are also an incredibly important part of the web ecosystem with products ranging from their Creative Suite to platform offerings like Flash/Flex/AIR.

This particularly offering is a starting point. It consists of BuzzWord, ConnectNow, and Share. BuzzWord, is the hip web word processor that Adobe recently acquired. It has a cutting edge UI that Rick Treitman, who briefed me, likes to compare by saying it is the iPhone experience for word processing. I have to admit, it has that minimalist + successively disclosed power + hip “it’s the new black” look that Apple is so good at and which made me fall in love with the iPhone immediately.  

Next up is ConnectNow, which is a slimmed down version of Adobe’s WebEx competitor, ConnectPro. What’s slimmed down? Well, you can have meetings with up to 3 participants for free. If you want more, you better get ConnectPro. We used it to do my briefing, and it was first class. It was prettier than WebEx, though I can’t honestly say it did anything from my side better. Nevertheless, it was fully integrated with the experience and was pretty cool.

Lastly, we have Share, which is a “desktop in the cloud” where you keep your documents and files. We saw BuzzWord documents and images during the demo, as well as PDF’s. Speaking of PDF’s, the big news in BuzzWord is its ability to create PDF’s. You can view them in Acrobat 9 seamlessly through this new web experience as well.  

Overall, I liked the new suite, though I found it to be a little short of what I would’ve hoped for. Notably missing, but coming soon (they wouldn’t say when) is AIR support, so I can run BuzzWord when there is no Internet and sync back to Share later. Also notably would be more applications. They have a great start on a collaborative suite around word processing, and that’s powerful, but I need more. A slide show capability like PowerPoint and a spreadsheet would be ideal. One could argue some of the components they give web designers in the Creative Suite might also be handy.

How did it go writing this post in BuzzWord? It was certainly pleasant, and it looked good when I pasted into WordPress. However, like MS Word, there were tons of extraneous tags scattered all around the text when you look at the HTML source. I rate it better than MS Word for this task, but not hugely so.  

How would I rate their chances for success? Good, but it’s a long haul. They’re starting with a word processor, which I think is essential. The last Office Wars were won because of Word more than the other apps. But they missed the fact that suite selling is powerful. Organizations and individuals feel like they’re committing to these products forever. They want all the bases covered.

There is a unique opportunity for Adobe, because the design center may have changed. Back in the First Office Wars, the design center was really around desktop publishing. WYSIWYG was a big deal. The level of document formating and how well your products eschewed things like embedded codes versus getting with what modern desktop publishers did was key.  

Today, I don’t hear much about desktop publishing. There is an opportunity to change the design center to the web. For Adobe, this is the best of worlds, and it is the worst of worlds. Why? Because they clearly get the web, but they also clearly have a foot firmly planted in desktop publishing territory. So, they made sure to do PDF before looking much at HTML. Really slick UI that fixes the sins of the past and extends towards the web and what it means to create documents for the web versus dwelling too much further on desktop publishing seems viable.   And why can’t I add a link in really few keystrokes?  Specifically, we need a keyboard shortcut at the very least.

Meanwhile, how does Adobe partner effectively? There is a little bit of danger that a lot of would-be Flex lovers have to decide whether Adobe is Switzerland enough to embrace that platform or whether Adobe means to go after them.  There is an API that sounds interesting for Share, but I would love to see more of a partner ecosystem.  That’s tough when you’re pushing UI.  UI wants to be totally fascist and doesn’t partner well because it doesn’t compromis.  Just ask Steve Jobs.

Adobe, good opening gambit, but many more moves are needed to win this round of the Office Wars!

Related Articles

Eisman-sf says they love ConnectNow to facilitate their own internal collaboration.

Ryan Stewart shares some good screen shots, but you may as well just go try it. 

Michael Coté makes clear that Adobe has been at SaaS for a little while, and the big news here is they’re simply unifying their offerings into a coherent suite.  Pricing is free and they’re now dragging WebEx into the fray.  Seems like a lot of people want to commoditize WebEx.  I wonder what Cisco thinks of that?

Larry Dignan asks whether good UI is compelling enough to drive a suite to success.  I think the question is for which community is some need underserved enough that a killer solution with the right UI matters.  iPhone won through killer UI, but I think it also won because the web browsers were underserved.  Certainly its email was inferior in many minds as was its voice calling.  My vote is to go after the underserved web community and not the desktop publishers.

The Joy of Flex devotes a lot of ink to discussing the need to get an Adobe login or associate your BuzzWord login with an Adobe login.  It mentions this may be confusing.  Here Adobe really missed a trick.  I much prefer Zoho, who made it seamless to just use your Google or Yahoo account to get into their service.  Eliminating friction wins on the web.

Posted in saas, strategy, Web 2.0 | 5 Comments »

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