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Archive for the ‘Partnering’ Category

Business Web 2.0 Demands a Different Trust Fabric Than Social Web 2.0

Posted by Bob Warfield on August 28, 2007

Web 2.0 is all about collaboration.  In fact, I mentally substitute the word “collaboration” for Web 2.0 in any context where I’m having a difficult time understanding and it generally makes things much clearer.  Thanks to O’Reilly for that!

Harvard professor Andrew McAfee got me thinking about the differences in the Trust Fabric (how Social Networks govern Trusted access to information) between Business users of Web 2.0 and Social users of Web 2.0.  His post, The Great Decoupling, gives some exciting insights into how information flows within corporate hierarchies.  The gist is that historically, information has flowed hierarchically within organizations.  This is because decision making requires information and historically, it has been costly to gather and disseminate information.  These “economics of information distribution” have largely restricted information flow to corporate hierarchies, but the times they are a changin’.  One of the two factors, the costs to gather and disseminate, have been greatly diminished and commoditized by the Web.  Nowhere is this effect more strongly felt than in the Web 2.0, which has become the ultimate evolution of that trend.

MIT’s Tom Malone has gone on to write about the effects of this in his new book The Future of Work.  In his book, Malone likens the changing topology of information transfer with the hypothesis that decision making will follow suit:

The Future of Work

This all leads to massive decentralization of decision making in organizations.  It all sounds great, right?  But then McAfee starts to disagree a bit with Malone for a very solid reason:

But the fundamental rule about where decision rights should go has nothing to do with information costs themselves. Instead, it has to do with knowledge. The ground rule is: align decision rights with relevant knowledge.

This is an absolutely crucial insight.  McAfee goes on to give an example wherein some loan officers at a bank make better credit risk assessments than other officers.  Clearly, decentralizing the decision making to all the loan officers is counter productive–it should be further centralized to just those officers who make the best decisions.

There are many other examples.  I like to think in terms of categories of information that need to stay within the corporate hierarchy but that are essential to decision making.  Here are three examples:

Morale:  Do we really want everyone to know how poorly some initiative is going?  How will it help to tell those who can’t make a difference and would only be depressed by the knowledge?  Is it fair to expose some internal squabble that was mostly sound and fury signifying nothing?  Won’t that just unfairly tarnish some otherwise good people’s reputations and make them less effective?

Governance:  Is the information legal and appropriate for everyone to know in this age of SOX and Securities Laws?

Competitive Advantage:  Do I want to risk giving my competitors access to key information because I’ve distributed it too broadly?

The headlong rush the Web brings to expose everything to everyone scares the heck out of most corporate types.  Their two biggest requests for Web 2.0 initiatives are Governance and Security, and the reasons for it are exactly what we’ve been discussing.  It isn’t just that they have “control issues”.  There are sound business reasons why controls have to be in place.

McAfee alludes to this as well when he says:

The net result of disappearing information costs won’t necessarily be decentralization. It will instead be the decoupling of information flows and decision rights. Organization designers will be able to allocate decision rights without worrying about how costly it will be to get required information to deciders. Leaders will be able to ask “Who should make this decision?” without adding “Keeping in mind that it’s going to be slow, difficult, and expensive to get them the general knowledge they’ll need.”

The set of rules and data structures that define this mashup between information flows and decision rights will be an essential component of any broad-based Web 2.0 initiative for Business.  It defines differenes in how the Trust Fabric for a Business Social Network has to operate versus how a Social Social Network (sorry!) has to work.  This makes the Web 2.0 problem for business considerably more difficult than just firing up the LAMP stack to deliver a MySpace or Facebook clone to your chosen community of employees or customers.  It requires an odd combination of totally control-centric Enterprise Software think with the Laissez Faire mentality of the Web.

Dion Hinchcliffe over at ZDNet says:

Silicon Valley proper has for the most part become thoroughly bored with the Web 2.0 meme despite the largely superficial presence of the most powerful Web 2.0 concepts in many online products and services.

At the same time, mainstream business is just now getting ready for Web 2.0 adoption and are beginning to incorporate the underlying technologies, platforms, and concepts into their IT departments and lines of business.

The trouble is that so far Silicon Valley has largely built Closed Social Web 2.0.  It’s bored with that and is somewhat thinking about how to build Open Social Web 2.0.  There’s a lot of discussion about Social Graphs and Trust Fabric going on everywhere from Scoble’s Plan for Google’s Demise to the 2 Marc’s (Canter and Andreesen) Plans to Steal Away Facebook’s Crown.  Seems everyone agrees they want Web 2.0, and they want it delivered in such a way that it is open.  Business also needs to make sure it has a seat at the table as well so that its unique needs can also be met.

Related Articles

Mashups and “The Future of Work” in Enterprise 2.0

Why Can’t I Search My Enterprise Data As Well As Google Searches the Internet?

Business (And Social) Alternatives to Page Rank

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Posted in business, Partnering, platforms, user interface, Web 2.0 | 3 Comments »

Bumps in My Internet Journey (Links): August 27, 2007

Posted by Bob Warfield on August 27, 2007

This post introduces a new weekly feature for the SmoothSpan blog where I’ll list noteworthy links I came across during the prior week.  Call them “Bumps in My Internet Journey” because they made me stop and think!  If they made me think enough, eventually you’ll see a blog post about it.

Why Mahalo, TechMeme, and Facebook are going to kick Google’s butt in four years:  Scoble’s got an interesting take.  Everyone hates search engine Spam!

Attention Economy:  All You Need to Know:  Nice overview of Read/Write Web’s Attention Economy concept.  Eventually I’ll blog about this…

Denormalizing Your Way to Speed and Profit:  Because databases are an agent of the Devil when it comes to massive scalability.

Yahoo Pig and Google Sawzall:  Wherein MapReduce and Hadoop become Languages.  Don’t worry, to become a Languages is the most exalted thing in computing.  Adobe even made printers languages!

Profiting from the Content Delivery Network Wars:  They haven’t seen anything yet.  Amazon and the other big guys will roll Akamai et al up as part of the hosting package  you get when you buy their utility computing service.

What Makes an Idea Viral:  Seth Godin is always worth listening to.

Werner Vogels Tells Us About the Amazon Technology Platform:  As well as interesting glimpses into their culture.

By 2014, We’ll Have 1000-core Chips:  The amazing Tile64 has shipped with 64 cores.  Available today lest you thought the Multicore Crisis was far in the future!

Posted in business, grid, Marketing, multicore, Open Source, Partnering, platforms, saas, software development, Web 2.0 | Leave a Comment »

Scoble and I Are On a Similar Wavelength About Social Graph Based Searching

Posted by Bob Warfield on August 26, 2007

I couldn’t believe the serendipity.  Not long after writing my post about Searching Blogs Instead of Google to avoid Spam, I read Robert Scoble’s excellent piece about Social Graph Based Search (or here for the meat).  We’re very much on the same wavelength here!  Scoble’s videos do a great job of explaining why the blog search method works.  In essence, Page Rank (Google’s search algorithm) is just too easy for SEO’s (Search Engine Optimizers) to cheat on.  In essence, create a ton of links to your page, populate it with the right keywords, and you can trick Google into sending you a zillion people no matter what trash you may have put there.

Scoble uses the term “SEO Resistant Search”.  Ironically, SEO Resistance, or rather, better relevance, is the reason most people use Google.  But this whole approach is ideal for the Open Search Engine Initiative I’ve proposed already.

Good reading here, thanks Scoble: it is indeed the basis for a whole new kind of search engine!

Posted in Marketing, Open Source, Partnering, platforms, saas, Web 2.0 | Leave a Comment »

The Psychology of SaaS and Web 2.0 Persuasion (and Selling)

Posted by Bob Warfield on August 24, 2007

I recently came across Hummer Winblad VC Will Price’s excellent summary  of Robert Cialdini’s excellent book, Influence, the Psychology of Persuasion.  The basic thesis is that people rely on a relatively simple framework of cues and heuristics for decision making because we simply don’t have time to completely analyze every decision.  Understanding these decision-making heuristics is a powerful tool towards persuading people.  It’s an excellent foundation for marketers, sales people, and negotiators to have at their fingertips. 

The six guiding principles are:

1. Reciprocation:  If I do something for you, you are in my debt and must do something for me.

2. Commitment and Consistency:  Everyone wants to be perceived as having the integrity to deliver on their commitments, and as being consistent in their views.  We think badly of those who are inconsistent and don’t honor their commitments.

3. Social Proof:  When we don’t have time to reach a conclusion ourselves, we look at the conclusion others have reached, and we prefer looking to people we respect who are close to us in background.

4. Liking:  We are more likely to say yes to people we like.

5. Authority:  We feel compelled to follow the authority figures in our lives.

6. Scarcity:  Scarce items are perceived to be more valuable.  We are more motivated by fear of loss or fear we’ll be left out than by thought of gain.  We fear deadlines budgets and other artificial forms of scarcity.

Most good marketers, sales people, and negotiators will look at the list and consider that it’s a fine list but that they haven’t learned much new from it. 
My reaction on seeing the list was to try to cast it into a theory for how SaaS and Web 2.0 companies succeed.  I could feel a lot of my own thoughts on SaaS and Web 2.0 resonating with Cialdini’s 6 principles.  It shouldn’t be too surprising that they did.  After all, the heart of their challenge is to persuade people to adopt their services. 

Towards that end, here is my list of questions for you, ideas for responses, and examples for each of the 6 principles of persuasion:

Reciprocation

How do you place your customers in the position of needing to reciprocate?  First you have to give them something of value.

What have you given customers without their asking that has value to them?

This area is rich with ideas and examples.  Free trial offers and Web 2.0 services that live off advertising (often users perceive the service as a free gift) are the most common.  Here are some other possibilities:

– Gifts:  Give your best customers a gift of some kind.  One of my old employers had a special customer advocacy group that were like concierges for the customer’s experience with us.  It was brilliant, and the advocates made sure customers that were great references got gifts.

– Proof of Concept:  A willingness to invest your resources in a proof of concept that the customers sees as an expensive project if they had to do it leads to feelings of reciprocation.  In competitive situations, make sure you offer the POC first!

– Give to Get Negotiation:  Give up something right up front and then wait for the right moment to ask for reciprocation.

– Book:  Write a book that educates customers in a useful way about your space.  There is a long history of the success of this: Arbor and Cognos both did it in the BI world, Tom Siebel wrote a book in the early days of CRM, and there were others.  Services like LuLu make this so very easy.  Give the book as a gift and make sure it offers real content and therefore value.

– Palms Up Networking:  This is more for people than organizations.  It’s 5-time CEO Christina Comaford-Lynch’s approach to networking that got her into the White House, and a brilliant example of reciprocation in action.

– Give someone a home or a voice:  Isn’t this what Web 2.0 is all about?  MySpace and Facebook give people an online home.  Blogs give people a voice.  What can you give someone online that they will value more than what it costs you to provide it?

– Win-win:  How does your product or service help your customers to make money?  (???)

In closing on this principle, the ultimate reciprocation comes after you deliver a great product or service.  I used to come out of the Callidus User Group meetings charged for months because customers were so happy with the results they’d gotten with our software that it was infectious.  Those customers were eager to help Callidus succeed further.

Commitment and Consistency

What are the principles you want your business to be absolutely known by?

What are you doing to commit your entire organization to that consistency?

You can’t be surprised that when making fast decisions without full analysis people prefer choices that don’t waffle all over the place and change their minds.  It’s hard enough to make such decisions without trying to hit a moving target at the same time. 

Look at some of the great brands in the world and you’ll see their commitment and consistency:

– Starbucks:  Committed to a great coffee-centered experience.  Absolutely consistent: the Starbucks experience is the same wherever I go, even in Italy, Turkey, and Greece on a recent cruise.

– Apple:  We all know Apple to be uncompromisingly committed to what they call “insanely great products.”

– Ferrari or Porsche:  Each different, each entirely committed to their view of what it takes to sit at the pinnacle of automotive design.

The brands have hugely loyal fans because of their commitment and consistency to ideals their audiences love.  These companies have taken commitment and consistency almost too far in the minds of many business people, but their formula works.  And we all know of cases where companies lost their way relative to their original social contract and commitment to customers.  It didn’t go well for them, did it?

Don’t be afraid to talk passionately and often about your values: it’s part of the act of making the commitment.

Stay pretty high level on what you are committed to.  Customer Satisfaction should be number one, followed by Shareholder Value and Value for the people in your organization who make it all happen.  In my experience, that’s the order needed to build a great business and the rest will follow.

Before I go too far down this road, make sure you don’t allow consistency to be the “hobgoblin of little minds” either.  Screamer policies exist because policies down in the weeds should always be overridden by higher policies that commit organizations to customer satisfaction.  Even if it means a little bit of inconsistency in the minor rules, it means the major message is something people can always rely on.

Lastly, I read a study long ago about 6 sigmas and customer satisfaction at hotels that I’ll always remember.  Six Sigmas is the science of changing the process so mistakes are impossible.  You would think it is ideal for a luxury hotel, right?  One of the more famous ones tried Six Sigmas for a while and had to scrap it.  They found that customers who never encountered a problem were less satisfied than customers who occasionally encountered a small problem and then got to see the hotel go way out of their way to fix the problem.

This is part of demonstrating commitment.  Seth Godin calls it “follow through.”  Time and again I have watched customers decide in favor of a vendor they felt would stand behind them and put their success above all else, even if the customer felt the product in question didn’t have quite all the bells and whistles they wanted.  It was the commitment and consistency that won the customers over.

Social Proof

How will you build social proof for your desired market?

Who are the Key influencers that lead others to your product or service?

Social Proof can be a chicken and egg dilemma until you realize it is classic early adopter marketing.  Crowds move as herds, but there are always individuals that lead the herds.  Have you identified those individuals and given them the right cues so they can lead the herd your way?

In Malcolm Gladwell’s great book The Tipping Point , he identifies three kinds of people that are the key to the herd behavior:  Connectors, Mavens, and Salesmen.  Connectors have big social circles that can reach a large audience.  Mavens are the experts people know to turn to for advice.  Salesmen are the charismatic people who get the message out, often unconsciously.

Interestingly, these three types of people may not necessarily even be people in the Web 2.0 world.  Consider Facebook and their widget API.  If you create a widget for Facebook, you are using Facebook as a Connector (because it has a huge social network), a Maven (because it’s the authority in social networking right now), and a Salesman (because it’s “hip” to be on Facebook).  Don’t miss the opportunity to harness entire herds like this to help create your own herd.

Partners can fit into the same categories if you choose them correctly.  Invariably you will find partners acting as Mavens (who are the thought leaders in your space?), Connectors (which big VARs and SIs have virtually every Global 2000 player in the customer list?), and Salesmen (you did properly incent your partners to act on your behalf, didn’t you?).

Of course PR is the science of how to identify these types out in the press and analyst communities and get them interested in your cause.

This also explains why companies are so eager to turn their customers into “Brand Ambassadors”, but also why it is so hard.  In an ideal world, each and every one of your customers wants to tell everyone they know how great your product is.  It’s a lofty goal that’s very hard to achieve.  It merits it’s very own application of the 6 principles to properly persuade your customers to become your Brand Ambassadors.

Liking

Why will people like your company and the people they deal with?

Are you and your company likable?  Are you working to improve your likability?

Why are salespeople often such likable folks?  We say its because its essential to have social skills to be good at sales, but there’s more to it than that.  It has to do with the propensity to buy from someone you like, or to agree with someone you like, in which case you’ve bought their idea.

As a voice for your company, you should endeavor to be likable by those who would buy your products.  That doesn’t mean you have to be a total suck-up to your customers and influencers.  In fact, we all know suck-ups that aren’t very well liked at all.  Perhaps it’s better to look at it as being someone who is well respected, a more professional definition of likability.  Think of it as being a person or a company that others would want to emulate out of respect for what you’ve accomplished.  Folks like Howard Schultz at Starbucks or Sam Walton always come off as likable.  One of the best examples from the computer industry is probably John Chambers at Cisco.

Companies should cultivate likable images too.  Give back to your community through charity and you harness both the principle of reciprocation and likability.  It’s also good for the soul and genuinely helps others out.  Be humble and self-deprecating.  Be generous in recognizing the contribution of others.

We all know of Tyrant Kings and Captains of Industry who do not project much likability.  Yet they often have charisma of another sort—the charisma of power.  That still counts in a lot of ways, but it isn’t something that can be wielded until much later in a company’s evolution, and there is no substitute for true likability combined with power.  Just ask Bill Clinton!

Think back to my earlier example of the Customer Advocates.  One way of looking at their job was it was all about making sure every customer had a personal friend inside the company.  You could do a lot worse than to make sure that happens for your customers and organization!

The Web has changed some of the aspects of how this works, BTW.  Likability needs to be transmitted via the written word in many cases.  Yes, podcasts and videos are higher bandwidth, but you need to think about how to get your likability out over all the web media.  The individuals charged with getting the word out have to be content creators that are good at being likable.   One of the all-time great bloggers and brand ambassadors (at one time for Microsoft) is Robert Scoble.  Tim Ferris, commenting on the interview he had with Scoble had this to say:

   One thing impresses me about Robert more than all of his credentials: he smiles more than almost anyone I know.

It’s that likability thing again!

Take a look at personal blogs from folks like Facebook’s Mark Zuckerberg.  Heck, just look at his picture.  That fella is trying to be well liked!

Authority

How can you position your company as the authority?

Successfully positioning your company as the authority in your space has got to be one of the key steps to Nirvana.  If your name comes up in every discussion of the topic, congratulations!  You have succeeded.  If it doesn’t, you have a lot of work to do, but fear not, you can apply the 6 principles to this task as well.

How to become the authority using the 6 principles:

Reciprocity:  Give away valuable content in the area you want to be an authority.  Open Source is one of the ultimate examples and it put big names like Linus Torvalds on the map (say, he looks likable in his picture on Wikipedia too!). 

Commitment and Consistency:  Be totally focused on the area you want to be recognized as an authority for. 

Social Proof:  Get others talking about you as an authority.  This is an ideal role for VAR and SI partners as well as industry analysts.  Identify those people whose own special authority is deciding who others should listen to and win their hearts and minds.  Get the word out about these others who believe in you.

Liking:  Be a likable authority, not an insufferable authority!

Authority:  You are likely an authority on something already, right?  Get it out there so people can see you as an authority on something and look for the halo effect.  Also, write.  Nothing like seeing something in print to help establish authority.  Lastly, conduct yourself as an authority.  As Christine Comaford-Lynch’s interview puts it:

    If you try adopting supreme self-confidence, even for a day, you’ll be stunned by how the world responds. It treats you as if you deserve everything you ask for.

Scarcity:  More on this in a moment, but the real authorities are scarce because they are in demand.  I’m not suggesting you adopt the common tactic of being hard to reach, keeping people waiting, and late to every meeting, but get the scarcity message across.

Scarcity

How do you create the impression of scarcity when selling your offering?  Ah, now we understand why Web 2.0 companies have infinitely long beta tests that are by invitation-only.  It isn’t because they’re trying to be secretive, although it could be related to their ability to deliver their product.  More importantly, it builds the cache of scarcity.  Go try to buy a Ferrari (even if you don’t have the cash, it’s an interesting experience).  You will likely be told you have to put down a deposit and get on a waiting list.  Same for Harley Davidson.  Are you sure these guys really can’t build their cars and motorcycles fast enough to suit demand?  Hogwash!  They’re creating scarcity because it persuades.

There are dozens of ways you can create scarcity around your products and personal time.  If you are successful with the other 5 principles, you probably won’t have to make up the scarcity–it’ll be a fact of your day to day existence that you have a tiger by the tail and you dare not let go!

Newsflash:  Seth Godin writes a great post that is relevant to reciprocation:  What’s the most generous thing you could give to your best customer, best friend, or most important prospect.  Thought provoking!

Related Articles:

If you liked this post, also take a gander at my read on Web 2.0 Personality Types!

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Posted in business, Marketing, Partnering, saas, Web 2.0 | 6 Comments »

Why Don’t Search Startups Share Data, Part 2

Posted by Bob Warfield on August 22, 2007

I mentioned in an earlier post that search startups ought to look into a divide and conquer approach when crawling the web.  After all, one of the biggest complaints about a lot of interesting search services is they don’t find as much as Google does.  TechCrunch, for example, complains that Microsoft’s new Tafiti produces search results that are “not as relevant as Google or Yahoo“.  And yet, they also admit Tafiti is beautiful (as an aside, it is very cool and worth a look to see what Microsoft’s Flex killer, Silverlight, can do for a web site).  If the Alt search sites band together to do the basic crawling and crunching using Google’s MapReduce-style algorithms (possible based on the Open Sourced Hadoop Yahoo is pushing), they could share one of the bigger costs of being in business and ameliorate the huge advantage in reach that the biggest players have over them.

ZDNet bloggers Dan Farber and Larry Dignan ask whether Open Sourced Hadoop can give Yahoo the leverage it needs to close the gap with Google.  Their first words are that “Open source is always friend to the No. 2 player in a market and always the enemy of the top dog.”  I don’t think Hadoop by itself is enough, but if Yahoo were to create a collaborative search service, maybe it would be.  In fact, what if search was much more like Facebook only more open (Hey, if Scoble can do it with a hotel, I can do it with a search engine!)?  In a manner similar to my “Web Hosting Plan for World Domination“, Yahoo could undertake a plan for “Search Engine World Domination”.  Here’s how it would work:

–  Yahoo builds up the Hadoop Open Source infrastructure for Web Crawling.  Alt Search engines can tie back into that to get the raw data and avoid doing their own crawling.  Even GigaOm says “The biggest hindrance to any search start-up taking on Google (or Microsoft, Ask or Yahoo for that matter) is the high cost of infrastructure.”  Let’s share those costs and further defray them by having a big player like Yahoo help out.

–  Yahoo can also offer up the Hadoop scaffolding to do any massively parallel processing these Alt Search Engines need to compute their indices.  Think of it as being like Amazon’s EC2 and S3, but purpose-built to simplify search engines.  People are already asking Amazon for Search Engine AMI’s, so there is clearly interest.

–  Now here is there Facebook piece of the puzzle:  Yahoo needs to turn this whole infrastructure play into a Social Networking play.  That means they offer Search Widgits to any Social Network that wants them, and they let you personalize your own search experience by collecting the widgits you like.  Most importantly, Yahoo creates basic widgits that reflect their current search offering, but they allow the Alt Search Engines to make widgits that package their search functionality.  Take a look at Tafiti and see how it let’s you select different “views”.  Those views are widgits!

–  Yahoo gets a big new channel for its ads, and it gracioulsy shares the revenues with the Widgit builders because that’s what makes the world go round.  Perhaps they even have virtual dollars that can be used to pay for the infrastructure using ad revenue, although I personally think they should give away as much infrastructure as possible to attract the Alt Search crowd to their platform. 

Don Dodge, meanwhile, is wondering what the exit strategy is for the almost 1,000 startups out there trying to peddle alternative search engines.  It sure seems to me that creating this search widgit social network world solves a big problem for Yahoo and at the same time creates a lot of new opportunity for the exit strategy of these engines.  Suddenly, they have access to large volumes of data they couldn’t afford and a distribution channel in which to build an audience. 

Open Source Swarm Competition in the Search Engine Space is Born!

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Posted in amazon, business, ec2, grid, Marketing, Open Source, Partnering, software development, user interface, venture, Web 2.0 | 3 Comments »

How Does Virtualization Impact Hosting Providers? (A Secret Blueprint for Web Hosting World Domination)

Posted by Bob Warfield on August 16, 2007

I’ve written in the past about data centers growing ever larger and more complex in the era of SaaS and Web 2.0.  My friend Chris Cabrera, CEO of SaaS provider Xactly, recently commented along similar lines  when asked about the VMWare IPO. 

Now Isabel Wang who really understands the hosting world has written a great post on the impact of virtualization (in the wake of VMWare’s massive IPO) on the web hosting business.  I took away several interesting messages from Isabel’s post:

          Virtualization will be essential to the success of Hosters because it lets them offer their service more economically by upping server utilization.  It’s an open question whether those economies are passed to the customer or the bottom line.

          These technologies help address the performance and scalability issues that keep a lot of folks awake at night.  Amazon’s Bezos and Microsoft’s Ray Ozzie realize this, and that’s why they’re rushing full speed ahead into this market.  They’ve solved the problems for their organizations and see a great opportunity to help others and make money along the way.

          The market has moved on from crude partitioning techniques to much more sophisticated and flexible approaches.  Virtualization in data centers will be layered, and will involve physical server virtualization, utility computing fabric comprised of pools of servers across multiple facilities, applications frameworks such as Amazon Web Services, and Shared Services such as identity management.  This complexity tells us the virtualization wars are just beginning and VMWare isn’t even close to looking it all up, BTW.

          This can all be a little threatening to the established hosting vendors.  Much of their expertise is tied up in building racks of servers, keeping them cool, and hot swapping the things that break.  The new generation requires them to develop sophisticated software infrastructure which is not something they’ve been asked to do in that past.  It may wind up being something they don’t have the expertise to do either.  These are definitely the ingredients of paradigm shifts and disruptive technologies!

We’re talking about nothing less than utility computing here, folks.  It’s a radical step-up in the value hosting can offer, and it fits what customers really want to achieve.  Hosting customers want infinite variability, fine granularity of offering, and real-time load tracking without downtime like the big crash in San Fran that recently took out a bunch of Web 2.0 companies.  They want help creating this flexibility in their own applications.  They want billing that is cost effective and not monolithic.  Billing that lets them buy (sorry to use this here) On-demand.  After all, their own businesses are selling On-demand and they want to match expenses to revenue as closely as possible to create the hosting equivalent of just in time inventory. Call it just in time scaling or just in time MIPS.  Most of all, they want to focus their energies on their distinctive competencies and let the hoster solve these hard problems painlessly on their behalf.

When I read what folks like Amazon and the Microsofties have to say about it, I’m reminded of the Intel speeches of yore  that talked about how chip fabs would become so expensive to build that only a very few companies would have the luxury of owning them and Intel would be one of those companies.  Google, for example, spends $600 million on each data center.  Big companies love to use big infrastructure costs to create the walls around their very own gardens!  Why should the hosting world be any different?

The trouble is, the big guys also have a point.  To paraphrase a particular blog title, “Data centers are a pain in the SaaS”.  They are a pain in the Web 2.0 too.  Or, as Amazon.com Chief Technology Officer, Werner Vogels said, “Building data centers requires technologists and engineering staff to spend 70% of their efforts on undifferentiated heavy lifting.”

Does this mean the big guys like Amazon and Microsoft (and don’t forget others like Sun Grid) will use software layers atop their massive data centers to massively centralize and monopolize data centers?  Here’s where it gets interesting, and I see winning strategies for both the largest and smaller players.

First, the big players worry about how to beat each other, not the little guys.  Amazon knows Microsoft will come gunning for them, because they must.  Can Amazon really out innovate Microsoft at software?  Maybe.  The world needs an alternative to Microsoft anyway.  But the answer when competing against players like Microsoft and IBM has historically been to play the “Open System vs. Monolithic Proprietary System” card.  It has worked time and time again, even allowing the open system to beat better products (sorry Sun, the Apollo was better way back when!).

How does Amazon do this to win the massive data center wars?  It’s straightforward:  they place key components of Amazon Web Services into the Open Source community while keeping critical gate keeping functions closed and under their control.  This lets them “franchise” out AWS to other data centers.  If you are a web hoster and you can offer to resell capacity that is accessible with Amazon’s API’s, wouldn’t that be an attractive way to quit worrying so much about it?  Wouldn’t it make the Amazon API dramatically more attractive if you knew there would be other players supporting it? 

Amazon, meanwhile, takes a smaller piece of a bigger pie.  They charge their franchisees for the key pieces they hold onto to make the whole thing work.  Perhaps they keep the piece needed to provision a server and get back an IP and charge a small tax to bring a new server for EC2 or S3 online in another data center.  How about doing the load balancing and failover bits?  Wouldn’t you like it if you could buy capacity accessed through a common API that can fail over to any participating data center in the world?  How about being able to change your SaaS datacenter to take advantage of better pricing simply by reprovisioning any or all of the machines in your private cloud to move?  How about being able to tell your customers your SaaS or Web 2.0 offering is that much safer for them to choose because it is data center agnostic?

BTW, any of the big players could opt to play this trump card.  It just means getting out of the “I want to own the whole thing” game of chicken and taking that smaller piece of a bigger pie.  Would you buy infrastructure from Google or Yahoo if they offered such a deal?  Why not?  Whoever opens their system gains a big advantage over those who keep theirs monolithic.  It answers many of the objections raised in an O’Reilly post about what to do if Amazon decides to get out of the business or has a hiccup.

Second, doesn’t that still mean the smaller players of less than Amazon/Google/Microsoft stature are out in the cold?  Not yet.  Not if they act quickly, before the software layers needed to get to first base become too deep and there are too many who have adopted those layers.  What the smaller players need to do is immediately launch a collaborative Open Source project to develop Amazon-compatible API’s that anyone can deploy.  Open Source trumps Open System which trumps Closed Monoliths.  It leverages a larger community to act in their own enlightened self-interest to solve a problem no single one of these players can probably afford to solve on their own.  Moreover, this is the kind of problem the Uber Geeks love to work on, so you’ll get some volunteers.

Can it be done?  I haven’t looked at it in great detail, but the API’s look simple enough today that I will argue it is within the scope of a relatively near-term Open Source initiative.  This is especially true if a small consortium got together and started pushing.  One comment from that same O’Neil blog post said, “From an engineering standpoint, there’s not much magic involved in EC2.  Will you suffer for a while without the nifty management interface? Sure. Could you build your own using Ruby or PHP in a few days? Yep.”  I don’t know if it’s that easy, but it sure sounds doable.  By the way, the “nifty management interface” is another gatekeeper Amazon might hold on to and monetize.

But wait, won’t Amazon sue?  Perhaps.  Perhaps it tips their hands to Open Source it themselves.  Legal protection of API’s is hard.  The players could start from a different API and simple build a connector that lets their different API also work seamlessly with Amazon and arrive at the same endpoint—developers who write to that API can use Amazon or any other provider that supports the API.

You only need three services to get going:  EC2, S3, and a service Amazon should have provided that I will call the “Elastic Data Cloud”.  It offers mySQL without the pain of losing your data if the EC2 instance goes down.  By the way, this is also something a company bent on dominating virtualization or data center infrastructure could undertake, it is something a hardware vendor could build and sell to favor their hardware, and its something some other player could go after.  The mySQL service, for example, would make sense for mySQL themselves to build.  One can envision similar services and their associated machine images being a requirement after some point if you want to sell to SaaS and Web companies.  Big Enterprise might undertake to use this set of API’s and infrastructure to remainder unused capacity in their data centers (unlikely, they’re skittish), help them manage their data centers (yep, they need provisioning solutions), use outsourcers to get apps distributed and hardened for disaster recovery, and the like.

So there you have it, hosting providers, virtualizers, and software vendors:  a blueprint for world domination.  I hope you go for it. I’m building stuff I’d like to host on such a platform, and I’m sure others are too!

Note that the game is already afoot with Citrix having bought XenSource.  Why does this put things in play?  Because Amazon EC2 is built around Xen.  Hmmmm…

Some late breaking news: 

There’s been a lot of blogging lately over whether Yahoo’s support of Open Sourced Hadoop will help them close the gap against Google.  As ZDNet points out, “Open source is always friend to the No. 2 player in a market and always the enemy of the top dog.”  That’s basically my point on the Secret Blueprint for Web Hosting World Domination.

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Posted in amazon, business, data center, ec2, grid, multicore, Open Source, Partnering, saas, venture, Web 2.0 | 8 Comments »

Why Don’t Search Startups Share Data? (aka Open Source Style Web Crawling)

Posted by Bob Warfield on August 7, 2007

New Jersey Search Engine startup Accoona is filing for IPO after just a few short years of operation.  Whether you think they’re a good investment or not (http://www.alleyinsider.com/2007/08/analyzing-accoo.html), there’s definitely some feeling there’s gold left in them thar hills and the Googleplex hasn’t taken it all yet.

At the same time, there is an interesting discussion on Skrentablog that asks if there are 100 alternate seach engines how come only about 11 seem to be crawling the net?  Accoona is one of the 11 actually detected, BTW.  Richard MacManus is similarly perplexed, and his ReadWriteWeb blog post considers some possible explanations, but winds up baffled.

I appreciate the mystery.  Are these niche search engines that just haven’t hit all the sites?  Are they purchasing their index from somewhere?  Do they know some other way  besides crawling to create an index?  Are they really smart about not crawling until a page changes somehow?  And does this deafening silence from crawlers indicate that the Googles and Yahoo’s of the world really have sewn up the search world, that you have to be big to do it, and that others need not apply?

I’m reminded of a novel web crawler I was involved with at a startup I founded called iMiner/PriceRadar.  We had a nifty data mining application that tapped into eBay to optimize listings.  During our early days, we had to crawl eBay and collect all the data.  We discovered early on that their denial of service deflector shields where blocking our IP before we could gather much data.  What to do?  In those days, DSL was just coming on stream, so we bought every employee a DSL connection and built a distributed spider that ran from their homes.  They’d install a little applet on their PC and we collected all the data we wanted because the load was spread over enough IP’s it didn’t trigger eBay’s ire.  Meanwhile, the employees got a great perk.  In effect, nobody could’ve seen we were crawling the web (or eBay in this case) because our presence was too diffuse.

Which brings me to my point about all this web crawling: why aren’t startups sharing the burden?  There are enough of them with enough different spins that they should be able to divide and conquer the web, much as my old distributed algorithm would divide and conquer eBay.  The necessary algorithm can simply be Google’s MapReduce or the Open Source alternative Hadoop.  These algorithms are tailor made for distributed crawlers.  One could even set things up so that the startups could participate to the extent of their needs and funding and would thereby receive only a subset of the collective work.  Come to that, why doesn’t Google or Yahoo sell “Remora Slots” on their own crawlers?  These would be piggyback opportunities to filter the text as it is gathered and build up custom indices of one kind or another.  It’s the Amazon Web Services equivalent for a big Search provider to offer.  They could charge so many cents a terabyte and offer the ability to filter what gets passed on for niche services that don’t need to whole web.  Now that would be an interesting service!

The same principle should be at work throughout a lot of startup activities.  Why don’t startups collaborate more frequently?  We’ve demonstrated code collaboration ala Open Source has tremendous advantages.  The next step is collaboration on data of various kinds.  Many would say the data is even more important than the code (see Open Source and Scratching Itches in the Cloud).  Combine code and data and there isn’t a lot else.  The ability to combine the data likely requires the right sort of platform and api’s to make it happen, but it would be quite an innovation if it came to pass, wouldn’t it?

It’s been a long time since the idea of “Kiretsu” was in favor.

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Posted in amazon, grid, multicore, Partnering, software development, venture, Web 2.0 | 4 Comments »

What Will SaaS Partnerships Look Like Going Forward and How Will Platforms Play?

Posted by Bob Warfield on August 6, 2007

There’s some interesting commentary over on Apprenda’s SaaS Blogs about creating vital roles for VARS and hardware vendors in the SaaS world.  The discussion started out particular on the impacts SaaS might have on hardware vendors.  General agreement was reached pretty quickly that SaaS leads to further consolidation of data centers and increasing server utilization.  I want to talk mostly about the more software related end of the discussion, but before doing so, there’s one comment I had about the hardware piece.

Companies like HP have realized that increasing centralization is inevitable, and they’re making acquisitions and adjusting their strategy to position themselves for the change.  A great example is HP’s M&A activity around software related to managing complex data centers.  OpsWare was the latest acquired component of HP’s strategy in this space, and a canny move on HP’s part to cash in on centralization and the ever increasing complexity of managing such data centers.  The big storage vendors such as EMC are already well positioned, and it is interesting to note EMC also had the foresight to target virtualization—another helpful component in the brave new world of increasing centralization.  For the right product/market mix, virtualization can stand in for true multi-tenancy, at least for a little while.

Returning to the software piece, one of the more interesting observations was that SaaS mashups are an opportunity for VARs to add value.  The focus in this case was integration mashups.  To the extent the VAR can become an expert at creating such mashups, it’s a great starting point.  The SaaS customers already have to deliver their data to the cloud, so the job of transforming and preprocessing it so it is useful feedstock to a particular SaaS application can also be performed in the cloud and it can be done by a different vendor.  VARs frequently deal with this sort of data massaging in the perpetual world anyway, so they clearly have the expertise.  Astadia, currently the leading Salesforce.com partner, has partnered with Pervasive to do exactly this kind of thing.  It’s no coincidence they’re showing this kind of forward thinking and are the number one partner for arguably the number one SaaS vendor.

Beyond Mashups, there are almost always opportunities to create additional modules in the ecosystem surrounding the immediate niche the SaaS “parent” lives in.  This is ideal for VARs for several reasons:

  It creates distinctive IP they can call their own, which has a higher valuation that just being a body shop.  All good VARs know their space as well as the ISV, sometimes better.  Being able to package some of that expertise as a new module is the best possible outcome.

  Creating the module in the SaaS form factor, leads to a win-win for VAR and customer.  The VAR gets recurring revenue from its IP, and the customer gets all the advantages of SaaS.

The best VARs have been creating add-on modules since the software game began.  There are a couple of challenges to be overcome.  First, writing software is often difficult for services companies.  The gestation period can result in a lot of non-billable time from their very best consultants.  The traditional solution is to get a customer to pay for the development for their own use and leave the VAR with the IP for resale.  That’s still workable here, but the point is that the economics and costs of software development do not favor the VAR’s normal tendencies.  SaaS makes this worse as it is harder to write SaaS software than on-premise software. 

Second, the SaaS world itself is still in its infancy, particularly with respect to connectivity and platforms.  These two are related, but the overlap is not 100% because connectivity is only one of the services a platform may provide.  Just as the Web 2.0 world is in the process of evolving platforms, so too is the SaaS world.  There are even some similarities between the initial entrants: Facebook for Web 2.0 and Salesforce’s App Exchange for SaaS.  Neither is a particularly effective platform for all purposes: they have many disadvantages for their users.  Both are a great leap ahead from no platform whatsoever. 

We haven’t seen the last of this by any means, and platforms for both worlds will evolve for a number of years before stabilizing.  It’s worthwhile in the meantime to follow both worlds closely.  I believe Web 2.0 and SaaS will eventually enjoy far greater overlap than they do today, and this will be to the good of all concerned.  The lack of overlap continues to show that the SaaS world has yet to leverage the collaborative community aspects of the Web that should give them an even greater advantage over old-school on premises software.

For the VARs out there, getting some IP in the SaaS game seems a critical differentiator.  Companies will be trying to lock up various niches, and it becomes important that one’s competitors don’t steal too much of a lead lest it become insurmountable.  Now is the time for VARs to be experimenting and gaining expertise in these areas!

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Posted in business, Partnering, saas, venture, Web 2.0 | 1 Comment »

How Should Businesses Embrace the Web 2.0?

Posted by Bob Warfield on July 27, 2007

Along with SaaS, the other big trend facing businesses is Web 2.0.  If you haven’t heard about it by now, let me refer you to the seminal O’Reilly blog post that really frames the definition of Web 2.0.  In the meantime, think of Web 2.0 as all the ways the web enables collaboration.  This is a big deal, and there are many services out there that are thriving on collaboration.  Good collaboration is participative and it involves your friends and associates.  It is fun to the point of being addictive, which is why it is growing virally.  It involves back and forth, the ability of your co-collaborators to influence you and you them, whether for entertainment, enrichment, or both.  As we will see, it involves a certain loss of control too, which is difficult for many businesses to come to grips with.

What’s a real example?  Trusted Opinion recently added Netflix queuing to their service (and Mashable’s write up too!).  Trusted Opinion is all about collaborating on recommendations for various things.  Imagine how natural to be able to read someone’s opinion about a movie and with one click add that movie to your Netflix queue.  It’s a perfect example of a good application of Web 2.0 to business with just one minor fly in the ointment:  Trusted Opinion had to do all the work themselves because Netflix has no Web 2.0 api.

The Trusted Opinion example brings me to some concrete thoughts about how businesses can embrace the Web 2.0.  One thought is to try to build your own collaborative social network for your community.  That would be classic old school business thinking that’s born out of a need for control.  One of the less comfortable aspects of the Web 2.0 is that it involves relinquishing a lot of control.  Netflix has no control over what folks are saying over at Trusted Opinion, for example.  I don’t necessarily want to discourage having a special community for your users.  I’ve seen cases where this is highly valued, and even cases where the community itself wants to be a closed club only open to folks who do business with the company.  The example I’m thinking of is a CAD/CAM software company whose community consists of machine shop owners who’ve purchased the product.  These shop owners don’t want their own customers to see the kinds of questions they’re asking or the problems they’re having lest they be perceived as incompetent.  They want a closed community for privacy’s sake. 

That frames the trade-off pretty nicely.  If you want the emphasis on control and privacy, create a closed community that your business owns.  If you want the emphasis on growth, openness, getting your customers to be your advocates, and involving people who are not your customers, you will likely do better to enable 3rd party social networks to play in your game.  Some businesses would do well to have both—a special community that only customers join, and as many tendrils as possible to embrace the open communities.

Let’s focus on the open communities.  These are the Facebooks, Twitters, Diggs, MySpaces, and countless others.  How do businesses play in those games and leverage the results for success?  Go back to the Trusted Opinion example.  Does your business have an api that does something interesting for those communities?  Is it possible for talented players in the community to bring you into that community as the Trusted Opinion people did for Netflix?

What about the next step, where you bring your own business into a community?  Let’s take Facebook, which has gotten huge press lately around its platform for creating Facebook widgets.  What sort of Facebook widget would play for your business?  Netflix could’ve created a review widget with a button that adds the movie to the Netflix queue for the user.  Now how to get the word out?  Take that internal community.  Start by getting the word out there.  Some number of your customers are also Facebook users, they have to be given how many users are on Facebook.  Offer them the widget via your community, and get the word out via the traditional tools that Facebook already provides.   The intersection of your community and Facebook will give your widget a real jumpstart over others that don’t start from an existing community.

Pretty shortly you are going to come up against another issue.  A Facebook user may not be immediately recognizable as someone who belongs to your community.  To overcome this problem, your community needs to allow its users to tell you their Facebook identity.  Ideally, you should let them switch to using their Facebook identity instead of the one they have in your community if they want to.  It’s a little thing, but it reduces friction further.  While you’re building this capability into your community, think about leaving it open ended so you can have users give their other identities as well.  Design your Web 2.0 widgets for the open communities to access and use this identity mapping information.  It’s another strength you bring to your users and community.

Now what about other Web 2.0 platforms?  It’s the same story.  Can you embrace their api’s?  Can you cross-reference identities between the two?  Have you published apis that make it easy for those communities to derive benefit from your offerings?  Going back to the Netflix example, can one of your customers Twitter about the movie they just watched and make it easy for their Twitter friends to add the movie to their queue?  Can they Digg those movies?  Can they bookmark the movies on Del.icio.us?  Can bloggers on the popular platforms quickly create movie review and embed a widget that ads the movie to the blog reader’s queue?  What can you give folks to insert into news feeds?  Are you using blogs as a tool to get the word out and building a community around your blog?  And do all these reviews allow the viewer who has already seen the movie to feed back their opinion and have that captured by Netflix too?

You get the idea.  I am by no means picking on Netflix, it’s a great service and I know the founders personally.  They’re some of the brightest folks around.  I’m just using them as an example that nearly every company I know can relate to about what Web 2.0 might offer.  Most companies today are concerned with Google ad words and Search Engine Optimization.  Plugging into the Web 2.0 central nervous system is the next essential step.  Don’t get left behind!

While I’m at it, this is a two-way street.  The big social networks can afford to wait for companies to embrace their apis.  Up and comers should follow Trusted Opinion’s example and think about how their community can benefit if they find ways to tie the network back to other businesses or even other social networks.  The other seed I’ll plant is someone needs to make it easy to embrace these platforms.  Companies can barely deal with blogging and search engine optimization.  Building widgits is a whole order of magnitude more complexity.

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How Can System’s Integrators Leverage the SaaS World?

Posted by Bob Warfield on June 15, 2007

Phil Wainewright is blogging again about the impact of SaaS on the partner world, in this case SI’s.  I’ve written about this subject before in my article “Is SaaS Toxic for Partners”.  Basically, he is writing about the experiences of some SI’s who’ve taken the SaaS bull by the horns and tried to differentiate themselves as SaaS specialists.  The firms in question are Appirio and Bluewolf.

It’s an interesting strategy on the part of those firms, and a good one at this early adopter stage.  While their competition is imitating a deer in the SaaS headlights, they’re getting a head start in the brave new world. 

Unfortunately, their comments on what they’re able to do to differentiate themselves in the SaaS World don’t change my opinion that in the long run, SaaS is toxic to partners.  Some of the differences they note SaaS brings about:

         Much shorter implementation cycles.  We’re talking 30-60 days instead of a year of consulting.

         Because cycles are so short, users want iterative agile development engagements that are much more collaborative than they had been in the past.

         Because there is so much less to do, the personnel at the SI are involved in many more projects—5 at a time instead of 1 at a time.

         There is much less requirement for the arms and legs: the actual hardware, database, and app server expertise.

Those all sound like fundamentally bad things for the SI’s business, because they mean there are a lot fewer services to be sold on a SaaS project.  As the service dollars to license dollars ratio falls from 12:1 in perpetual markets to 4:1 in SaaS markets, there will be a glut of SI capacity.  Further, the ease of system integration for SaaS solutions will tend to commoditize what little business is left making matters even worse.  As Narinder Singh, co-founder of Appirio puts it, “The whole ecosystem will get disrupted.”

The one ray of hope being sounded is that there is an enhanced opportunity to create IP in the SaaS world.  This is true because customers are interested in Best Practices, and because it is so easy to implement a solution the vendors are finding the implementations are more reusable.

Creating distinctive IP will be the defining difference for the partner ecosystem.  Those partners that can create IP and leverage it will be much more successful than the others who are likely to be commoditized out of existence. 

The corollary to this is those SaaS companies who facilitate their partners creating valuable IT will find a much more supportive partner ecosystem building up around their solution.

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