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Archive for October, 2008

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Greed Will Mark the Turnaround, But Quietly

Posted by Bob Warfield on October 30, 2008

This morning I watched a video of Kleiner Perkins Uber VC John Doerr giving his advice for startups.  It’s good advice, but it left me flat.  Why?  Because there’s nothing new or insightful there.  It is the diary of a very smart and experienced business person who is scared and doesn’t know what will happen next, so they’ve broken out the standard list of prudent measures that smart business people take.

Fred Wilson says the conventional wisdom will be wrong, whether it is fund managers or VC’s talking.  He quotes Max Levchin about the desirability of ignoring everyone and being contrarian in times like these and goes on to say:

Listen to everyone. Read everything you can. And then come to your own conclusions. It is better to be contrarian in times like these. But do it wisely and don’t bet the farm.

I will admit, this sounded to me like the first stirrings of greed, but greed in a good way.  For it is greed and not fear that wil mark the turnaround.  Fear will keep us bottled up and focusing on tactical execution and cash conservation.  That’s what Doerr’s 10 points are.  Greed is about looking for opportunity at this time instead of hunkering down and wishing it would be over.  Only greed can turn around the vastly negative sentiment that grips so many and leads to a self-fulfilling prophecy.

Where fear is concered, as Fred Wilson says, “It’s amazing to see how everyone is saying the same thing.”  I see the same, don’t you?  The advice from all these VC’s so far has been nearly identical, until this piece from Fred.  He is beginning to talk about the smarter move: 

When everyone is doing the same thing, consider doing something different to gain an advantage.

At the same time, do it quietly until you’re sure it’s working.  And don’t bet the farm.

Isn’t it interesting that the real superstars, the Warren Buffets of the world, are not paralyzed with fear?  Buffet has been aggressively buying the most troubled sector, financials, for a little while now.  And now here is Fred Wilson, sitting in the middle of the Big Apple, financial sector meltdown ground zero, making some positive noises.

This turnaround will be led by a little bit of greed and a lot of hope.

What can you do differently?

Posted in business, strategy, venture | Leave a Comment »

Cloud Computing Network Effects, Or Why Tim O’Reilly and Nick Carr Are Both Wrong

Posted by Bob Warfield on October 28, 2008

Oh boy, picking a fight with Tim O’Reilly and Nick Carr in one blog post?  Have I lost my mind? Is this just pure flame baiting?

No, there is a method to my madness, and something to be learned by dissecting this back and forth between Tim and Nick.

First, what is the back and forth?  It all started with a post by Tim O’Reilly that presented some innovative thinking about cloud computing.  Tim has been thinking hard about the role of network effects in bringing an unfair advantage to web companies, and in this post, he wonders aloud whether there are any network effects for Cloud Computing.  This post was promted by Hugh Macleod creating some buzz around the idea that Cloud Computing would devolve into a huge monopoly worth potentially multiple trillions of dollars.

MacLeod’s post was interesting, but pretty bare of strong theory for why the multi-trillion dollar monopoly scenario should come into being.  How could a single company come to so dominate The Cloud?

O’Reilly argues in his post that it is network effects that give web companies unfair advantage and that there are none for Cloud Computing would-be monopolists.  At best Cloud Computing is a commodity and commodities often have economies of scale (e.g. they can buy equipment or power in enough volume to get it more cheaply than others), but commodities do not have network effects, so there is no outsize economic leverage for the winners.  I disagree with Tim on this, and will explain why in a moment, but we need to plunge ahead in the recitation of the Tim/Nick argument further before I do that.

BTW, a “network effect” is simply a situation where each incremental new user is worth more than the last one, which drives ever increasing advantage for those who learn how to grow more quickly than others.  Eventually it creates an unfair advantage so large that it cannot be overcome by competition and gives the owner unfairly strong profitability.

Let’s now turn to our other contenda, Nick Carr, for his argument about why Tim is wrong.  Unfortunately, this one must be short, because Nick doesn’t seem to understand the term “network effects” well enough to hold up his end.  He argues that simply because the links used in Page Ranking (Google will weight search results more highly if lots of pages link to a particular result page) are available to any search engine, Google gains no network effect advantage in utilizing them.

So, we’re back to Tim, who responded both in a comment to Carr’s column and in his own rebuttal post.  O’Reilly lists no less than three ways in which Google benefits from network effects that Nick Carr either missed entirely or got wrong.  First is that Google is simply better at spidering the web’s network of links than their competitors.  Whether its that they have simply indexed more pages, or seen more web behavior by achieving a big early lead and relentlessly exploiting that advantage to tune their algorithms (if I have seen further it is because I have stood on the shoulders of other men, but I digress with this Isaac Newton related quote), Google seems to do it better, or at least well enough that nobody can gain enough temporary advantage to grow relative to them.

Carr says this is simply a matter of Google having built a more powerful indexing engine, but O’Reilly is right when he says the reason Google did that is to gain the advantage of more network effects.  Point to O’Reilly.

Second network effect Tim brings up is the Page Rank algorithm itself.  While Carr is right that this is available today for anyone to exploit, Google saw it first and built a huge lead before everyone else figured it out.  I  believe they are far more secretive today about what they’ve figured out and that they’re further extending their lead by virtue of network effects.  Second point:  O’Reilly.

Last network effect example is Google’s advertising auction.  Auctions are well known to benefit from network effects.  This is why eBay so completely owns the online auction world.  Think about how it works.  A buyer is more likely to buy if they can find what they want, so they go where there are more sellers.  A seller is more likely to list if there are more buyers.  This ensures both a higher likelihood of selling at all, and a higher price with more buyers to bid against each other.  More buyers leads to more sellers, which leads to more buyers, and so on.  It’s a beautiful thing and Google applied it to their advertising.  As Tim so effectively points out:

It isn’t that the advertising-side network effect has anything to do with Google’s dominance of search, but rather, that Google’s dominance of search is central to the design of their ad auction. You see, while Yahoo! (nee Overture) sold keyword advertising to the highest bidder, Google realized that they could mine their users’ clickstream activity to predict which ads would be most likely to be clicked on, and by what ratio, and thus sell to the best combination of price and actual click through. Thus: higher revenue, more ability to invest in infrastructure, better results for advertisers and users, thus more users, thus better data, thus better results for both organic search and advertising (both of which do, in fact, matter to users, no matter what Nick thinks).

Brilliant!

So Tim convincingly won that bout, and I’ve seen no response from Carr or others that does much to refute what he is saying.  It’s only been a day, so perhaps Nick is formulating another response, or maybe he has thrown in the towel.

But Why is Tim O’Reilly Wrong to Say There Are No Cloud Computing Network Effects?

Aha!  This is an important point to discuss now that we have dealt with the historical back and forth.  There are essentially four points in Tim’s rebuttal post to consider.  The first three are about types of Cloud Computing, and the fourth is about some called the “Law of Conservation of Attractive Profits”.

Network Effects that Benefit Utility Computing

Start with Utility Computing, which is Tim’s first kind of Cloud.  Amazon Web Services is the poster child.  Tim says no later users benefit from the growth of Amazon other than perhaps through a rise in Amazon’s commitment to the business.  He admits a few edge cases.  Maybe there will be more developers skilled with AWS so it’ll be easier to build AWS apps.  That is contra-indicated by the simplicity of the AWS API’s.  To gain lock-in, Amazon must increase API complexity, but there is too much momentum towards open source so its hard.

But wait Tim, there are some interesting network effects already built into the Amazon Cloud, whether or not we see folks taking advantage yet or not.  Here is a key effect:  it costs you very little to move data around inside the Cloud compared to what it costs you to move data in and out of the Amazon Cloud.  Hence, if applications need to exchange data, it is advantageous to do so by having the applications exist inside the same cloud.    And, the more data that goes into that cloud, the more advantageous it will be to move more apps into the cloud.  Just like the auction scenario.  Are those benefits as strong?  Maybe yes, maybe no, we have yet to see.

Here is another key network effect related to elasticity.  Elasticity is a property of Cloud Computing whereby I can rapidly provision a new server to meet the demands of scaling.  I can get a new server on Amazon in something like 10 minutes, for example.  I pay for it by the hour, and when I’m done, I return it to the pool.

What does that have to do with network effects?  Well, consider a small cloud.  If the cloud is small in relationship to its largest user, there is very little room for elasticity.  Elasticity represents unused capacity that the Cloud Vendor had to pay for in order to have inventory to sell when demand comes.  The larger the cloud is relative to the elasticity needs of a particular customer, the cheaper it is for that vendor to provide the elasticity because the extra inventory is a smaller fraction of overall inventory.  In fact, if you are a large organization at all, you should want to know the details of how much elasticity headroom there is relative to your needs.

Network Effects that Benefit Platforms as a Service

OK, that’s two examples of network effects that accrue to larger vendors of utility computing.  Let’s move on the the Platform as a Service type clouds.  PaaS platforms hide machine instances behind higher level API’s.  A pure PaaS platform will have advantages similar to a Utility Computing platform in terms of network effects, but there is an opportunity for a further advantage if you have what I call an “Affinity Platform.” 

Let me give two examples:  Force.com and Intuit’s QuickBase platform.  Do you see what I mean by an Affinity Platform?  These are platforms that started from an application.  Force.com started from Salesforce.com.  QuickBase started from Quicken/QuickBooks.  There are many others including the API’s and platforms for things like Facebook. 

Clearly Affinity Platforms have network effects and lock-ins.  Each additional person using an application brings more value to the platform associated with the application.  This value accrues for everything from rapidly reaching that installed base (ala App Exchange) to being able to perform interesting integrations, data aggregation, and other ways of adding value across multiple tenants, applications, and vendors.  It’s an ecosystem, in short, and is very much amenable to network effects.

Cloud Based End User Applications

This definition refers to individual web applications that were formerly delivered on a PC such as spreadsheets, word processors, and the like. 

Why has Microsoft Office maintained its dominance for so long?  Is it because it was a commodity and they just undercut everyone on price to create a low margin business.  No, not at all.  O’Reilly suggests companies like Rackspace show what low margin commodity businesses look like, not Microsoft. 

Microsoft created a simple network effect in their Office Suite with integration, and in the ubiquity of being able to exchange data with the largest number of users.  I might like a particular spreadsheet better than Excel (says he who created Quattro Pro long ago), but I don’t like it enough better to forgo an integrated Word Processor.  After a while, even those who did some other spreadsheet well enough to use an alternate word prcoessor can no longer get by because they can’t exchange data effectively with those who use the “standard” MIcrosoft Office applications.  Yes, there are ways around this, but they simply aren’t convincing.

Where I have been completely disappointed by the current crop of Microsoft Office-as-web-app wanna be takover artists (like Google Apps, Zoho, et al) is that they are just a subset of MS Office running on the web with decent but not great data compatibility.  And I’m gonna switch for that?  Please!

They are so missing the boat by not focusing on what the web enables them to do far better than any desktop application:  collaboration.  Collaboration, by its definition, would make for an effective network effect for any Cloud Based End User application.  Why don’t these vendors get on with discovering and delivering effective collaboration?  There are tons of specific uses of these tools, especially for spreadsheets, but also for word processing, that cry out for this.  Just look at how painful budgeting in Excel continues to be for most organizations.  Roll up a sales forecast using spreadsheets, or do any one of a number of similar exercises.  You see my point.

The Law of Conservation of Attractive Profits

I love it when guys make stuff up and call it a “Law” so that its harder to argue with and makes them sound more smart.  This one is attributed by Tim O’Reilly to Clayton Christensen.  It basically says that when a part of the market commoditizes, there will usually be an opportunity to recapture profits lost to commoditization in an adjacent stage of the value chain.  In other words, while PC hardware commoditized and was not a profitable business for many, Microsoft got the adjacent OS space and was hugely profitable.

O’Reilly’s take away is that Cloud Computing is real, but that it is a commodity, so find that adjacent stage in the value chain and stake out an unfair advantage using network effects.  In general, O’Reilly thinks those network effects accrue from data more than software.  It’s how the software is used, in other words.

I won’t disagree with Tim on this last point, but I think I have shown how there can be powerful network effects for the three models of Cloud Computing he has talked about.  Perhaps elegantly for Tim, my ideas have mostly revolved around how the software in each case is used–design software that benefits from being able to communicate with other software in the same (largest) cloud, design software that benefits from users that have an affinity through using the same application (like Salesforce or QuickBooks), and design desktop app replacements that benefit from people who want to use it to collaborate, rather than just use it to do what they used to do on the desktop.

Any thoughts on this Tim?  Nick?

Posted in cloud, platforms, saas, Web 2.0 | 6 Comments »

CEO Survival Guide: 10 Strategies to Cut in a Down Economy

Posted by Bob Warfield on October 27, 2008

So you’re scared s**tless about this economy and feeling like a caged animal?  It’s a white knuckle ride every time you check your cash balance and you just want to make the bleeding stop, or at least slow down?  Are you waking up in the middle of the night in a cold sweat, with no idea what to do, just that you need to do something?

Check out Dave McClure’s brilliant rant “Fear is the mind killer,” because it is aimed right at you.  Get used to the fear.  In fact, gain strength from it.  Even better, move from fear to healthy respect and understanding.  Derive a strategy for what to do in this down economy and quit just being afraid.

Many firms are cutting expenses and headcount in these difficult times.  If you’re going to cut, at least do so out of having thought through a sound business strategy for the cuts, rather than just out of fear and because everyone else is doing it.  Fear really is the mind killer and is to be avoided.  You’re going to need a clear head to deal with the market right now, and worse, you need a clear head to deal with your Board and your employees.  It’s a tough time, but that’s why they pay you the big bucks.

Here are 10 strategies for cutting that may actually make sense and are not just fear and adrenalin:

1. Symbolic Cut

Everyone is talking about how bad the economy is, my board is upset, so I need to make a cut.  Besides, you can always cut 10-15%, right?  OK, this one is pretty close to cutting out of fear rather than for a strategic reason.  But by calling it out for what it is, you at least put a somewhat more rational light on it and keep the fear beast a little more controlled.  Still, this isn’t really why we’re here.  Keep reading.

2. Wait Out the Recession

It’s such a tough time I should wait until there is less headwind to invest in the business.  Let’s hunker down until the end of 2009.   How much do I have to cut to make my cash last until then?  What will it do to my business if I cut that deeply?  If you’re cutting to wait out the recession, make sure your cuts deliver a real increase in your staying power, and ideally that they get you to a time frame when you expect the economy to have materially changed.  For this economy, I would hope the cuts get you to the end of 2009.  Cutting to extend your runway from the end of 2008 to mid-2009 won’t wait out the recession, although it might get you to a slightly less panicky time.

3. Cut to Get Profitable or Cash Flow Positive

If it’s within reach, and you want to wait for better times, cutting to profitability is the ultimate trump.  Unfortunately, it is a rare firm that will be in striking distance to do so.  Startups seem to rush to profitability all at once after they’ve reached critical mass.  Before then it seems like profitability may never come.

4. Cut to Redeploy

Jason Calcanis at Mahalo seems to have decided they had not made the right investments.  In his email “How to Handle Layoffs,” he says that some of what they under invested in (e.g. technology) had a higher return than some of what they over invested in (e.g. editorial content).  Hence they cut so they can redeploy some of the expenses to more productive investments.

 This one makes a fine strategy for cutting, but you have to ask yourself, “Why did it take a massive recession to wake us up to the need to retune our expenses?”  Startups should constantly be considering this one.  It is normal for a startup to try something and fail.  Failing fast, making sure you learned from it, and moving ahead with that learning quickly are the best ways to use failure to you advantage at a startup.

5.  Cut to be Inline With the Growth the Economy will Support

I made a big bet and ramped up to try to stimulate growth, but that is futile in this economy.   So, I’m going to ramp back down to where I was comfortable before I made the big bet and just turn back the clock for a while until the tide turns and I can bet again.  This looks like what Jive did as they laid off 1/3 of their staff.   Some say these are the same folks they had brought on after a recent big round of financing, which would mean they were just rolling back to prior levels they were comfortable with.

I always have a hard time hearing about startups that lay off 1/3 of their staff.  It’s hard for me to envision running a company that could be cut back so much without dire consequences.  Nevertheless, startups are often engaged in a land grab.  I just hope that before they ramp up in good times, they absolutely certain the strategy they’re ramping up really scales.  After all, this stuff is tragically knowable before you get so far down the wrong path that a failed strategy forces the layoffs.

6.  Cut to maximize the likelihood of getting a bridge from my VC’s

Fred Wang at Trinity says he’s dividing companies up into those that the firm knows will need more capital but fundamentally believes in, those that can continue on without needing new cash and those that the firm should cut.  But, he points out that the amount of capital a company needs to keep going affects the decision on whether to cut.  “It’s a little bit like poker in the sense that if the company is not burning a lot of capital and the cost of buying a card is low, it’s a little bit easier,” Wang says. “If $1 million buys them another 12 months that’s easy to call, but if the cost of a card is $5 million to $10 million then it’s a lot harder.”

Note that this is just the impact on portfolio companies of how VC’s deal with tough times.  They need to husband scarce capital and make sure it goes to the most likely returns in the portfolio. 

7.  Cut to eliminate fear in the ranks

If everyone on the team expects reductions, to get people productive again you make cuts and declare you’re finished.  Been there, done that, and it works. 

8.  Cut to get better optics for a potential sale

Clear the decks if you think you’re headed for a sale.  Sometimes startups get into a position where it’s clear they may never IPO, yet they have strong strategic value to several players in their industry.  Often this is as a result of discovering that they only appeal to a fairly narrow market segment, but that segment loves them dearly.  If that’s the case, cut to profitability or as close as possible and go find the right suitor to bring about a conclusion to the journey.

I warn though, this is a tough time for it.  I own a house I’d love to sell in order to get out from under the mortgage payments, but it doesn’t take too much imagination to see that waiting could easily net me another $100K in value.

9.  Cut as a forcing function

Getting rid of the sales team so that marketing is forced to find lower cost channels is one example.  Another would be cutting a particular product module that is consuming a lot of resources and passion but that you feel is a long shot.  Cutting a particular area sends a strong message to the rest of the company.

10.  Cut to trade up at a lower cost

Layoffs and company shut downs put better talent on the market that is easier and cheaper to get than before.  Startups are collectors of talent, to a degree.  But, to add to your bench you need space on your bench.  This is another variation on cutting to redeploy, but in this case, it’s focused on individually upgrading some of the lower ranks.

Conclusion

These are all strategies I’ve heard from one source or another.  They won’t all make sense for any given business.  For some businesses, none of them may make sense.  Pity the startup that is extremely lean and well run, yet it’s board insists on cuts.  That scenario is going to do damage to the startup that probably shouldn’t be done mostly for emotional reasons.  This is why it’s so important to agree on a strategy for what’s to be accomplished.

Aside from having a strategy for cutting, it’s equally as important to have a strategy for disclosure, at least if there is someone out there who cares.  After all, having a strategy that makes sense can instill a greater sense of confidence in your firm. 

In addition to disclosing his thinking around reductions, Loic Le Meur of Seesmic is pointing to increased transparency as an important component in this time to help counteract the negative messages associated with cost reductions.  I think he’s right.

Posted in business | Leave a Comment »

Cloud News from Amazon and Rackspace

Posted by Bob Warfield on October 24, 2008

There’s some great announcements in the cloud computing world from both Amazon and Rackspace.

First, Rackspace is making a credible effort at providing an alternative to Amazon by acquiring two startups to broaden their offering.  Rackspace is now using the “Cloud” moniker to identify both their old and new cloud computing services:

–  “Mosso” is now “CloudSites”.  CloudSites makes it easy to put web sites and email into the cloud.

–  CloudFiles is a new service announced after Rackspace acquired Jungle Disk that competes with Amazon S3.  It goes a step further by offering a desktop backup service that makes it easy to use.  In other words, they bundle an app with the cloud platform offering.  Ironically Jungle Disk today stores its data on Amazon S3.

–  CloudServers is a new service offering virtual machines ala Amazon EC2.  It’s based on technology Rackspace acquired called SliceHost.

Michael Cote suggests these kinds of acquisitions are the sort of thing he has been suggesting and hoping the likes of IBM and Sun would sign up for, and he is absolutely right.  Making it dead easy to play in the cloud is a great move for Rackspace, and it only cost them $12-16M to move ahead of many other vendors (not neccesarily Amazon).  In addition, it got an API in place, which their earlier Mosso offering lacked.

These acquisitions also point to what I think we’ll see as a major trend and that Stacey Higginbotham at GigaOm has picked up on:  hosting vendors need to start thinking about how they can transition to being cloud vendors as well.  These acquisitions successfully position Rackspace ahead of many of its competitors in that respect.

But wait, there is more.  Scoble says the company will continue making new annoucements over the next few months, so there are more shoes to be dropped.  It promises to be interesting to watch.

Amazon, for it’s part, had even bigger news.  While others are just trying to get into the Cloud marketplace with a comprehensive enough offering, Amazon continues to broaden their offering and make it more robust with the following announcements:

–  EC2 is officially out of Beta test.  Thank goodness Amazon won’t operate like Google where everything seems to perpetually continue in Beta indefinitely.  They realize that’s not good enough for others to bet their companies on.

–  EC2 now has a real SLA.  Also important if you’re betting your company on the platform.

–  Microsoft WIndows and SQL Server are available on the platform in Beta.  A friend checked it out and noted that SQL Server seemed extremely expensive.  If you have to have it, you have to have it, but this will be a problem for Microsoft as the world moves more into the Cloud.

– Amazon has announced it will be adding management consoles and load balancing in 2009.  These are two very important and basic functions for larger Cloud deployments.  There are alternatives available today (these announcements are problematic for those companies who tried to fly too close to the sun), but having an official alternative from Amazon is better.  These are very generic problems that it’s simpler to let the Cloud vendor solve unless you have some very special needs.  And, they’re problems Amazon must have solved for themselves as well.

As TechCrunchIT mentions, Amazon CTO Werner Vogels is saying that a down economy favors a shift to Cloud Computing, and Amazon is certainly very much in the leadership position. 

Much of the world will read Rackspace as challenging Amazon and wants to pit the two against one another, but I don’t see it that way yet.  Rackspace provides an alternative to those evaluating the Cloud–nobody likes to have just 1 vendor.  But, I think more importantly for them is that they have a set of offerings that make it easy to move very basic IT services such as web site hosting, email, and backup into the cloud quickly and easily.  That’s a little different than the app platform business that is Amazon Web Services and Rackspace has a little ways to go to be effective on that side.

A whole lot of other companies ranging from the IBM and Sun that Michael Cote mentions to Microsoft, which is unveiling its own offerings soon, have a lot of catchup to play.  If they wait too much longer its going to be hard to gain ground on Amazon.

Posted in cloud, platforms | 4 Comments »

The Google G1: On Par With the iPhone?

Posted by Bob Warfield on October 24, 2008

VC Fred Wilson says the G1 is on par with the iPhone, but I have to wonder about the details of what he said based on 2 of his comments:

–  Keyboard – I love the sidekick style keyboard. I used a sidekick for almost a year and it’s a fantastic user experience. The keys are not as tactile as a blackberry and I think the blackberry keyboard is better, but the G1 keyboard is just fine. If you can’t use an iPhone (like me) because of the touch keyboard, this will work fine for you.

–  The Browser – Way better than the Blackberry but not anyway near the iPhone’s browser. I kept trying the pinch gesture in the browser. They need that bigtime.

Can a phone be on par with the iPhone if it’s browser is “not any near” the iPhone’s browser?

Can you ever really like or even do justice to the iPhone if you can’t use it’s keyboard?

It’s really hard for me to reconcile a mobile OS being “as good as” the iPhone if the browser isn’t there.  It looks to me like the Treo crowd (and Fred is one) are largely email nuts, while the iPhone crowd are browser/web nuts.  I used a Treo for years before my iPhone, and am heavily into email, but I wouldn’t trade the web browsing on the iPhone for better email under any circumstances, so I just can’t view these two phones as being “on par.”

Email on the iPhone, BTW, is great for monitoring, but the keyboard does slow you down if you have to send much out.

Posted in saas | 1 Comment »

Was Web 2.0 Ever Alive…

Posted by Bob Warfield on October 22, 2008

My Enterprise Irregular colleague Dennis Howlett, via a guest post on Chris Brogan’s Blog, has taken up the refrain of my earlier post, “Is Enterprise 2.0 a Real Trend, or a Bubble That Has Burst?”  There’s quite a lively discussion going on since Tim O’Reilly weighed in with a comment calling Dennis’ post, “shockingly ignorant of what Web 2.0 is really all about.”  As I read the post, it seems to me that largely what Dennis bemoans is the lack of progress, tangible change, and broad adoption of E2.0 with business.  He argues there are three issues holding us back. 

First is that there is too much focus on sales and marketing and too little focus on broader collaboration.  There are a lot of folks that are tired of the hype around E2.0, even to the point where some Enterprise Irregulars and others want to simply eliminate some of the terminology such as the “Social” and “2.0” mantras.

Second is the problem of building communitis.  It isn’t easy, due in large part to what I call the “Rule of 10’s” which is properly attributed to Jakob Nielsen.  While it’s true that it isn’t easy, the numbers don’t make it any harder than most worthwile business activities.  You need a community of a few thousand before it becomes self-sustaining.  Until that time, the community will need some “priming of the pump” by it’s creators to ensure there is enough activity to make it interesting.  When was the last time that a business effort mattered that didn’t touch a couple of thousand customers?

The last one is a desire to have the E2.0 efforts produce hard ROI.  This has been a bit of a Holy Grail that hasn’t produced many results so far.  However, I think a lot of that has to do with how E2.0 has been approached.  Most of the tools being used are broad horizontal offerings.  Just deploying forums ala Jive or Lithium will add value, but unless they solve a specific business problem, it will be hard to derive an ROI.  In fact, I will go a step further.  The software itself has to be constructed in such a way that the ROI from social interaction is obvious and measurable.

That last is a bold statement, but very doable.  I’ll talk more about how it’s done in another post, but I think it is a crucially important concept.  One obvious way to do it is to combine Social Media with an existing business process that has measurable results.  This requires a seamless integration if it’s going to perform well, but the potential rewards are great. 

This is essentially what we do at my company, Helpstream.  We have combined traditional customer service tools like case management (ala Remedy) and knowledge bases with modern community capabilities.  This is done is a way that’s measurable because we can tell exactly how many of your customers have their issues resolved via the knowledge base versus the community versus case management.  That’s the virtue of seamless integration as you not only have a more natural user interaction, but you also can see actually what the value being created might be in hard ROI terms.

We just launched our service at the beginning of the year, but already the hard ROI results we’ve measured are pretty startling.  We’re working on a 2nd generation user interaction model that should increase those results further based on what we’ve already learned.  Stay tuned for more on this soon!

Before leaving this topic, I want to make sure I am crystal clear about another hard ROI benefit to E2.0 besides direct improvement of efficiencies and crowdsourcing style ROI’s.  Without some sort of 2.0 functionality, something Social, you may miss an entire demographic.  As Susan Scrupski pointed out so effectively, this is how these people live.  It’s how they think.  It is their preferred channel for communication.

What is the loss of ROI in being able to reach these people when they are your customers, employees, and partners?

Posted in Web 2.0 | Leave a Comment »

Blogs Are So Over? LOLOLOL

Posted by Bob Warfield on October 21, 2008

No sooner do I pen my anti-curmudgeonly Enterprise 2.0 piece than the blogosphere is awash with the antics of another curmudgeon.  This time its Paul Boutin, a professional Valley Wag blogger, who writes (in a blog for Wired Magazine), that blogging is over.  It’s so 2004.  Here is his version of what replaces blogging:

“@WiredReader: Kill yr blog. 2004 over. Google won’t find you. Too much cruft from HuffPo, NYT. Commenters are tards. C u on Facebook?”

Excellent.  Blogs are killed by Flickr (huh?), Twitter, and Facebook according to Boutin.  What a goof.  This is Sarah Lacey quality curmudgeoning, though not quite at the level of a Nick Carr.

Mathew Ingram elegantly lambasts Boutin with the following hilarious sarcasm:

So there you have it. Case closed. Jason Calacanis, whose blog was intended solely to promote the entity known as Jason Calacanis, and Robert Scoble — a man who claims it’s possible to interact in a meaningful way with 10,000 Twitter friends and 50,000 Facebook friends. These are the people Boutin wants us to look to for guidance on how to live our lives online?

I can only add that Calcanis gave up blogging for a form of communication that is even more dead according to the Chief Council of Curmudgeons:  E-mail!

What’s Boutin up to here?  Well, it’s just good old-fashioned flamebait.  It’s the reason why many bloggers post what I call Curmudgeonly pieces, or why others, like Robert Scoble write controversial posts.  It’s all about the traffic, and if blogs were truly over, there would be no traffic to chase.

Blogs won’t really be over until there is another medium where people can express themselves in a little longer format than Twitter that’s as easy as blogging.  That’s not to say it won’t improve.  There is a lot to be done to further evolve blogging platforms.  A lot is underway already in terms of facilitating the conversation that is comments, for example.

Posted in Web 2.0 | 4 Comments »

Is Enterprise 2.0 a Real Trend, or a Bubble That Has Burst?

Posted by Bob Warfield on October 21, 2008

In down times there is always a morbid curiosity, call it a death watch even.  Which companies are really just bubble babies (a delightful phrase coined by MDV venture capitalist Nancy Schoendorf) that can only exist in frothy times and which ones represent real trends that will last? 

In particular, what about Enterprise 2.0, which I see as the trend to Social Computing for Business?  This all started for me with the Forrester prediction that Enterprise 2.0 prices would be slashed, as reported by RWWeb.  The article immediately launched a discussion among the Enterprise Irregulars who largely couldn’t understand what Forrester was talking about since most E2.0 apps were already dirt cheap compared to products like Sharepoint that Forrester predicted would take over.  Just as the discussion was taking off, we got word that Jive was laying off 1/3 of it’s workforce, which added quite a lot of fuel to the fire.

Jeff Nolan of the Irregulars really nailed an important issue when he commented, “there is enormous price pressure that reflects a marketplace less then convinced with the ROI of the services/products.”  It’s true, not many E2.0 companies are selling hard ROI.  The trouble is that most of them are horizontal tools or platforms that don’t solve a particular business problem, so it’s hard to derive an ROI for them.  Forums and Wikis are common examples.  In isolation, they have no ROI, it’s a question of having an ROI when they are applied to a particular problem.

Of course no new trend like E2.0 or SaaS is complete without the usual contingent of curmdudgeons.  In this case Sarah Lacey (she of the “blew that interview with Zuck” fame) was front row center suggesting E2.0 “have fun RIP’ing”, which spurred further Irregular discussions.  Where there is Sarah being a curmudgeon, there is usually also Nick Carr, but this time I looked and couldn’t find his E2.0 demise prediction, so perhaps it is yet to come.

There is no shortage of other quotes along similar lines though:

–  The WSJ reports that the infamous F–kedCompany.com is back, and calls it another sign that the Web 2.0 bubble is bursting.

–  Micro Persuasion quotes a Forrester report that says RSS usage has peaked at 11%.  Are there really no more than this that can master RSS?  People want feeds.  The more information there is on the web, the less time we have to go see if something has changed.  That trend will only accelerate.

–  Tim Bray says that the poster children of the 2.0 era are largely frivolous.  He wonders where the 2.0 offerings are that help when you can’t afford frivolous.  He suggests bright young kids with cool tech ideas aim low.  He wants to know how 2.0 companies save money or help with problems.  BTW Tim, saving money and helping with problems is a great elevator pitch for exactly what Helpstream’s Customer Service Community offerings do.

What really got my blood pressure up and the synapses firing was one EI who said of Sarah Lacey’s article, “I totally agree with her! I bet at most, 3 survive independently as bigger companies, many get consumed, and many will operate as lonely niche players.”

Others agreed, which prompted me to respond:

It will all hinge on the definition of E2.0.  In some senses, the naysayers will be right.  In others, very much wrong.

 

The web is a huge communication channel, fully on par with any other, but younger and growing much more rapidly.  You only have to look to Google’s results yesterday <Google reported good earnings in a lousy economy> to see that the web can change everything.  Every aspect of how companies do business with each other, their partners, customers, employees, and any other entity will be impacted before it’s all over.

 

Do only a few companies own every aspects of how telephones affect business?  Even just mobile?  What about snail mail?  You name the channel, and the web has a role to play.  Paper versus electronic?  We just talked about that vis a vis O’Reilly <who shipped a white paper on wood pulp instead of electronically>.

 

Very little in the way of Enterprise Software has properly understood the potential impact the web has on that niche or how to even begin to respond to it.

 

So, will generic Wikis, Blogs, Forums and the like devolve into just a few companies with most of the players going away?  Sure, but there is a lot more to E2.0 than that.  We’re barely getting started understanding what it all means.

 

I was just at a sales call today with a major name brand public software company that is trying to understand how the web should impact their Customer Service and the ability for customers to impact with them in general.  They were so early in the evolution of their understanding that they hardly knew how to ask the questions, yet their appetite for answers was ravenous.  When they saw what is possible with software like Helpstream’s that combines traditional Customer Service functions like Case Management and Knowledge Bases (plus a business process platform ala Remedy et al) with Community, the light bulb finally went on.  They were throwing out ideas so fast we could barely keep up, LOL.

 

The secret is in how E2.0 integrates with existing business processes so that the whole is greater than the sum of the parts.  We’re still in our infancy in seeing companies that approach the problem that way rather than with generic forums and such.

 

I feel very strongly about that.  The web changes everything.  We’ve seen it do that already.  Why do we doubt that trend will continue?

The answer is right in front of our eyes:  many who argue against aren’t really first class web citizens themselves yet.  They think of the web in old fashioned terms.  The web is much more than another way to do X.  It is a way to do entirely new things not even possible before as well.

Consider these more positive thoughts:

–  Jeremiah Owyang via David Armano:  “Most companies treat social media like interactive marketing which is computer to consumer, social media is people to people”

–  Per Gartner via Larry Dignan:  Social Networks are one of the Top 4 technologies that are major trends, that can save you money, and they may not even cost you very much.

–  My company, Helpstream, is partnered with Oracle as one of a handfull of Inner Circle CRMpartners precisely because we embrace the Social while they embrace the Enterprise.  Oracle understands that a real multi-channel strategy for CRMmust include the web, and that it can’t do so without Social Software.  Moreover, they’re getting real traction with large customers around this notion.  I’ve seen the leads and been on some sales calls.  It’s a real trend.

Or, consider the post that finally got me off my duff to write this.  Susan Scrupski does a wonderful job of showing us how there is a new demographic emerging that just thinks about the web radically differently than most of us.  The title of Susan’s piece is misleading.  “The trouble with Social Media is, well, people,” implies that there is a problem.  Read the article.  You’ll see that for this new group, there is no problem.  Social Media just is.  it is an important part of their lives, and one that feels absolutely natural to them and which they’re unlikely to ever give up or stop using.  Quite the opposite.

So there are two driving trends for E2.0.  The first is its potential to unlock ROI.  The second is that it is riding on a demographic wave that is inevitable.  It is a first class channel that cannot be ignored.  Large successful organizations like Oracle are seeing it as such.  Don’t assume they’re wrong lest you be relegated to the ranks of the curmudgeons.

Funny how this got to be a bit of a manifesto, but the common threads are everywhere to be seen and they stewed to make a potent brew.

Posted in Marketing, strategy, user interface, Web 2.0 | 5 Comments »

Scoble’s Signature Tactic for Getting Traffic

Posted by Bob Warfield on October 20, 2008

This is Scoble’s trademark, right here.  The tactic that got him where he is:

Take something that’s playing well and grossly exaggerate it in the direction you think is the reason it plays well.

In this case, Dave Weiner’s post about not being a liberal coupled with Colin Powell’s announcement that he was supporting Obama were the pieces that were “playing well”.  Scoble’s gross exaggeration is to say he is “not an American” if going along with whatever he is opposed to is what Americans do.

Scoble is no Colin Powell, but he is interesting at least.  Scoble’s personality makes it easier to take the hard messages and the exaggeration.  If he pushes too far, well, “that’s just Scoble, you can’t take him too seriously.”  A lot of other bloggers couldn’t get away with these tactics, but they’re given Scoble a world-class readership.

Posted in strategy, Web 2.0 | 1 Comment »

Don’t Pollute Your Stream!

Posted by Bob Warfield on October 20, 2008

Every now and again some blogger decides to insert automatically generated entries in the RSS stream for their blog.  I have one word of advice for you if you’re thinking about doing so:

DON’T!

People didn’t subscribe to your blog to get these snippets.  It doesn’t mean people wouldn’t like to see them, but it does mean they should be optional and not forced down our throats.  Make them another feed and do not gratuitously inject them into your main feed.

The worst offenders on this are the injections of Twitter and other extremely terse content.  It comes through looking like nothing in the RSS reader.  It’s just a speed bump that wasn’t worth the effort required to dismiss it and mark it as read.  They are speed bumps because they’re not really blog posts.  They’re something alien that just feels wrong coming to me in my blog reader.

What is it about these feeds that riles me?  They’re not authentic.  They do not capture the voice of the blogger.  For me, that voice is a big part of the experience.  What the blogger Tweets about or thinks is interesting but doesn’t actually right about is very indirect and much less interesting.  Blogging is about adding value and insight.

I first got exercised about this practice when Stowe Boyd started injecting TwitPitches and other stuff into his feed.  Stowe is a wonderful writer, but ultimately this bothered me enough that I unsubscribed, and I haven’t been back.  It wasn’t the authentic “Stowe-experience” and it was really watering down the feed.  I have no idea if he is still doing that.  Maybe I should check back.

This post was prompted by the Logic+Emotion blog which injected no less than 15 posts in a row from some sort of del.icio.us mashup.  Each one simply links through to another blog post from someone else with no comment or value add by Logic+Emotion.  David Armano’s posts are normally excellent, and often are nothing more than an extremely insightful graphic.  His style is unmistakable, indispensible, and completely missing from these del.icio.us posts.

What are alternatives?  As i said, make a separate feed for whatever it is you are contemplating.  I keep a separate Google Reader Shared feed where you can see what I’m reading and found interesting.  Subscribe to it if you like, and ignore it if you don’t.  Robert Scoble has a similar feed that I subscribe to.  Some days I am thrilled to find the gems in there, other days I’m so jammed up I just mark it all as read along with Techmeme and other non-authentic feeds.  My life is made easier because the blogger was considerate enough to provide multiple feeds.

Posted in Web 2.0 | 3 Comments »

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