Yet Another Software Blog

Enterprise software is not like Facebook for a reason

2010-02-25T19:34:00.000-08:00

Salesforce’s Marc Benioff was his usual provocateur self with his post on Techcrunch “The Facebook Imperative” where he asserted that “Why isn’t all enterprise software like Facebook?” is the important question he will wrestle with this decade. Let me humbly submit that we can probably wrap this up a little faster than that.

1. Facebook is designed for entertainment, not productivity.

The more often users come to Facebook and the more time they spend there, the more they view advertisements, the more money Facebook makes.

Thus the objective behind Facebook’s design paradigm is get people to spend as much free time as possible on Facebook. To this end they have created some wonderfully addictive features: trolling through your friends’ updates, playing games, creating lists of things you like, acquiring virtual currency and thinking of witty things to say for your own status update.

I’m not so sure that “spend as much time on the site as possible” is a useful design paradigm for the enterprise. So to ask “why isn’t all Enterprise software like Facebook” is a bit like asking “why isn’t all Enterprise software like the final season of Lost.”

2. I do not have the same social relationships with my co-workers that I do with my Facebook friends.

Across various teams, projects and organizations that I’m a part of, I probably interact with ~100 different people at my company.

The percentage of these 100 colleagues that would want to hear my general stream of consciousness updates on what I’m doing in a personal context is very small. That small percentage are already my friends on Facebook.

The percentage of these 100 colleagues who would like my general stream of consciousness updates on what I’m doing in a professional context is a bit larger but still a fraction of the 100. That small percentage are already my connections on LinkedIn.

Get where I’m going with this?

3. Facebook is not another better Lotus Notes

I think it would be a real mistake to think of Facebook as another groupware modality, following the path of e-mail, portals, instant messenger and wiki’s.

The features in Facebook that most look like productivity / groupware are ones that have been around for a long time (e-mail, file upload, notifications). What is new about Facebook is the voyeurism and the followership and the lengths people are willing to go to in order to acquire both. Will fostering voyeurism or followership in the workplace lead to a happier or more productive outcomes?

Stick with the Amazon analogy

“Why isn’t enterprise software a lot more like Amazon” is a much more sensible question to me. From when you land on Amazon’s splash page, the less time it takes you to get through checkout, the more money for Amazon.

And so Amazon’s user design paradigm is designed around that business model: find what you’re looking for, transact your business, get out. That doesn’t mean Amazon doesn’t have community features like favorite lists or reviews or collaborative filtering, but they’re designed in service of useful outcomes for the consumer and the business.

For both employees, managers and shareholders, I think that’s a lot more along the lines of what people are trying to accomplish at work and a more worthy model to aspire to.

Handicapping PaaS

2008-07-07T23:46:00.000-07:00

I was thinking of cooking up a post on platforms in the cloud when Abhijit Dubey, Junaid Mohiuddin and Aadarsh Baijal at McKinsey & Company (and several pundits by now) beat me to it.

The report outlines this new market for SaaS platforms that provide some combination of:

1. Traditional software stack components (e.g. OS, app server, DB)
2. Unique SaaS components (e.g. billing, SaaS dev tools, )
3. Hardware as a service (pay by the drink CPU/storage usage)

The report goes on to categorize different PaaS plays into categories based on what cocktail of components they offer today (e.g. Amazon’s EC3 is just hardware whereas Force.com is a full dev environment and runtime).

Good. Fine. Agree.

Then the report goes onto describe how lucrative the market for PaaS will be based on the notion that lots of SaaS ISV’s are getting started and much of their revenue will get paid back to the PaaS vendor for providing the infrastructure, with 30% of the PaaS value then getting passed onto the underlying database vendors and the like.

Strongly disagree. More on this later.

The paper goes onto make a few more predictions, namely:

1. The data center/rack space vendors will coexist with the Amazon EC3 types for a while as they serve somewhat different needs.
2. On premise development platforms (e.g. J2EE, .Net, etc) and on demand development platforms will start competing immediately.
3. Application focused PaaS offerings will fragment into several purpose built sub-markets (e.g. for UI intensive apps vs. transaction intensive apps)

More disagreement.

I think the team does an excellent job cataloging and categorizing the various PaaS plays in the market but mis-reads the market and competitive trends that will drive the evolution of these businesses.

In enterprise software, the real platform money is in the enterprise in-house developer, not the ISV.

In fact for most enterprise software vendors, the ISV is a break even venture at best. This is for several reasons:

1. ISV’s are cheapskates. Most of them are losing money or breaking even themselves and so they cannot afford to pay much.
2. ISV’s are technically savvy and so they are very savvy platform shoppers.
3. ISV’s are fickle. They are afraid of holdup costs and so they want to play on multiple platforms at the same time.
4. ISV’s go out of business often.

Basically champagne tastes on a beer budget. The main reason why platform vendors cater to these developers is they create ubiquity for the platform which encourages the enterprise vendors to pay the serious money for the platform. The checks that Citibank’s CIO writes to IBM Websphere dwarf what any ISV will write.

So focusing on who will win the ISVs is (nearly) a moot point. A PaaS company whose business model is built around monetizing ISV customers will most likely change their business model or go broke.

PaaS offerings of all types and flavors will compete with traditional on-premise development environments and runtimes for the hearts and minds of the enterprise developer. If you look at Force.com and Coghead for example both focus their marketing squarely at this audience.

It is very early days, but I think development and application oriented PaaS offerings will face an uphill battle to win the hearts and minds of the internal IT developers currently using WebSphere, .Net or LAMP. The simple reason being customers who buy SaaS are usually choosing to outsource some IT project they find to be distracting or problematic while choosing to develop in house is in many ways a choice to embrace a project that they believe is important or solvable.

This all sounds like I’m a PaaS pessimist when I am not entirely. More to come in my next post…

Determining success in software product development

2008-04-13T22:20:00.000-07:00

My blogging has slowed to a crawl in the past few months. This is in large part because my group (SAP Governance, Risk and Compliance) has been on the verge of releasing two new versions of its flagship products Access Control and Process Control. Like a marathon, it’s that last mile that hurts the most.

During this past year and especially during the past few months, I’ve spent a lot of time thinking about what defines success when one delivers software products. It’s very difficult to know when to say “job well done” and I think many experienced software executives still make this call incorrectly.

False Measures of Success

If you work in software, you can understand why this assessment is hard. Software development is a tricky activity to measure, and the measurements you can make are very context dependent. Thus results are typically useless when comparing one product or release to another.

For example, you cannot say you have been successful if you “delivered the product on time.” After all it is easy to deliver a product on time if you cut back on scope or skimp on quality. This basic product delivery loophole is a byproduct of what project managers refer to as the “iron triangle” of scope, cost and quality. To move one variable up you must decrease the others and these relationships are for the most part fixed.

You also cannot say you are successful if you “delivered the product on time, on scope on quality.” While this sounds impressive on the surface, it is really more a function of good expectation management. Time, scope and quality are things you set targets for (i.e. fixed values). Whether you arrive ahead of or behind a target value has a lot to do with the target itself. Delivering on time, on scope, on quality is more often the result of a successful negotiation on the part of the project manager.

Any Hope to Judge Success?

I’ve come to understand that there are actually two triangles and, given the right timeframe, neither one of them is iron.

Let us call one the “execution triangle.” This is essentially the same stuff as the iron triangle: scope, time/resources, and quality. In software, this triangle is truly iron for short periods of time (e.g. 3-12 months), but you can push and pull at it when you look beyond that time horizon as you have more freedom to change processes, practices and technologies.

The other more strategic triangle is the “context triangle.” It is comprised of change, waste and innovation.

Change – how rapidly is the context changing while the product is being built? If you decide to simultaneously change the architecture, the people, the technology and the requirements, the size of the execution triangle will get very, very small.

People – how many good people do you have on the team? Product managers that write first rate requirements? Engineers with years of experience with the tools and technology? Architects that are not astronauts? If you want to accept more change with the same level of waste, you need better people on the team.

Waste – What percentage of the time and money you spent on release was put to productive use (i.e. working code that someone wants) and how much was lost to confusion and dead ends? If you want more change with the same people who built the last release, you must accept more waste.

The relationships between the elements of the context triangle are also fixed (e.g. the same release with a higher rate of change will result in greater waste). In addition, the context triangle drives the size of the execution triangle. If you have great people, low waste and a low rate of change, you can deliver some 5-10 more functionality with the same amount of time and same level quality as you otherwise could have.

Many people, executives in particular, are willfully blind to the context triangle. They do not want to believe it exists because it takes away strategic choices. To understand the context triangle is to understand for example that one cannot enter a new market with a new product on a new technology platform with a newly hired team.

So What’s Your Point?

Like most things in business, it is important to distinguish between lucky and good, circumstance and success, however tricky it may be. And so, true success in software development is the execution you achieve given your context, because the context is almost never under your control. Change, waste and innovation are the cards you are dealt and how much scope and quality you derive from these circumstances are how you played them.

P.S.

If you're in the market, please take the time to check out the newest releases of SAP GRC Process Control and Access Control. They’re both excellent. I should know :-)

The enterprise software industry in 2007

2008-01-03T20:38:00.000-08:00

Happy New Year to everyone!

I wanted to jump into 2008 predictions but only seems fair to review my track record from 2007. 2007 predictions included:

The last of the SOA middleware vendors get merged, acquired or shut down

I was almost completely wrong here. Savvion is still around as is Amberpoint and the rest of the gang. Above All Software seems to have shut down which was a real pity because Roger Sippl is something of a role model for me.

No open source companies will exit throughout 2007

I almost got this right but the acquisition of Xensource by Citrix killed this one. Much like Red Hat’s acquisition of Jboss, I can safely predict this deal will never turn accretive and will not transform the acquiring company’s prospects.

Oracle will acquire one or more sizeable application software companies within the first half of the year

OK, not such a hard prediction to make right? But keep in mind Oracle’s acquisition of Hyperion happened right at the end of the 1st half of 2008 and as predicted, just in time to keep analysts from determining if Oracle is achieving any real growth outside of the growth it acquires.

A significant handful of SaaS companies will make it through the IPO window

For sure this happened. Successfactors made it out as did Netsuite, Constant Contact and probably more I’m not tracking at the moment.

Tech boom enterprise applications startups come back to life

Big miss on this one as far as I can tell. The rich keep getting richer in enterprise applications as conservative customer buying patterns and a lack of innovation in the startup apps community prevents the new companies from taking off.

2007 will not go down as the year the Web 2.0 bubble burst.

True! Companies grew, ad revenues were up, bankruptcies were few. 2007 was another banner year for the web 2.0 trend.

In conclusion

So my batting average for 2007 was 3.5 / 6 or 58%. Does this mean I’m ready for analyst fame or infamy? Let’s see if I can get this up to 70% next year.

A new wrinkle on SaaS

2007-12-04T21:31:00.000-08:00

Salesforce announced an interesting new capability to facilitate the sharing of specific types of information between different SFDC subscribers. An early example would include something like sales leads. So, for example if one SFDC customer sells a complementary product to another SFDC customer, they can share information like leads among one another.

This is in retrospect a pretty obvious capability for an enterprise SaaS vendor and I'm a little surprised that no one has thought of it before. While SaaS has cost efficiencies for the vendor, I think it's been a struggle to say that SaaS itself provides competitive advantage for a software vendor. But this is something that would be difficult for on-premise vendors to replicate: an application network effect that's could be genuinely beneficial to the user. The consumer web companies have all figured this out some time ago, perhaps because consumers are more fickle than enterprises.

In the case of Salesforce, I doubt it the feature will be very utilized as few companies share leads frequently enough to make this an often-used feature. It feels a bit forced and after the thought. But it does spark some thought as to what the next generation of SaaS vendors may portend. They say that with every architectural shift, the first generation of new companies uses the new architecture to ape the old paradigm. But the second generation uses the new architecture to accomplish something truly novel.

Where is it all headed? What does it all mean?

2007-10-31T21:27:00.000-07:00

I’ve let the blog go a bit cold! It’s been a very busy past few months and feeding the beast has been tricky despite a busy tech news season.

A few weeks ago, Oracle announced a semi-hostile takeover bid for my former employer BEA Systems.

The Wall Street Journal put the offer in context with an article that portrayed Alfred Chuang as one of the last of a dying breed – the founder/CEO of an independent mid-sized software company.

The data supporting this assertion are actually mixed.

1. Many mid-sized enterprise software companies are still alive and kicking including TIBCO, SAS, Kronos, Cognos, Manhattan and Parametric.

2. However many mid-sized software companies have left the scene including Siebel, Hyperion, Agile, Retek, PeopleSoft, webMethods, Mercury, and now possibly BEA.

3. However many newcomers seem poised to replace those that have left. For example Salesforce, Successfactors, vmWare, Red Hat, Netsuite and Rearden Commerce.

4. However many of these newcomers are struggling to sustain growth as public companies or are struggling to get public in the first place. And the aggregate revenues & employment of the new companies is far less than the companies they are replacing.

So what does it all mean?

Since inception the high tech industry has moved in cycles. But I don’t think all parts of the industry follow the same frequency. The frequency many of us think of the system architecture cycle. We’ve heard this dozens of times before: first there were mainframes, followed by minicomputers, followed by client-server, followed by N-tier apps, perhaps now followed by something more grand that lives in the cloud. If you look at the history of this evolution, it would lead you to believe high tech has roughly a 7 year clock cycle from boom to bust and back again.

But if you look just at consumer software applications, it would look quite different. First there were many desktop application companies, then there was Microsoft, then there was more Microsoft, then there was more Microsoft and well, you get the point. Microsoft launched Office as a suite in 1989 and it has taken roughly 16 years before anyone or anything managed to mount a credible assault on its hegemony. Much slower clock cycle.

So, whither enterprise software? Is our industry consolidating? If so, is it the consolidation before the next big bang? I’m pretty unsure of both points at this stage.

Software Product Marketing 2.0?

2007-09-06T01:13:00.000-07:00

One pet peeve I have with the enterprise software industry is the marketing. I find most software product marketing to fluctuate between the puerile to the abstruse.

The abstruse bit actually gets me more than the puerile does. For example, most product brochures do an amazing job filling 2-4 pages with words and the obligatory marketecture diagram, but still saying next to nothing about what the product actually does or how it will specifically benefit the buyer. My belief is this is a contributor to sales inefficiencies because now it takes 2 flights from a sales rep and a demo from a sales engineer until the customer has the first clue what the product does or what to compare it to.

Can we throw out the product marketing slick? What would replace it? I was pondering the idea of a product marketing slick wiki. The idea would be that for each product you start with a normal 2 page product description but then readers could comment on it or ask questions and the product managers, marketers or users can clarify and enhance until all the marketing-speak is scrubbed out and you're left with a lucid description. I’d be curious to get any comments if this sort of thing has been tried before.

Dissecting the SaaS business model

2007-07-30T10:24:00.000-07:00

Three SaaS companies, Netsuite, Successfactors and Constant Contact are preparing for IPO. This is great news as I get to tick off a “win” on one of my 6 predictions for 2007.

Jason Wood did a stellar writeup of the Netsuite S1 and Jason Corsello did a good note on the Successfactors S1. I thought I'd take a comparative look at all of them.

What struck me with all three companies was the losses. The first order explanation is quite simple: all the companies spend a ton of money on sales & marketing (between 65% and 100% of revenues). Most of these businesses are the farthest thing from the oft discussed but seldom witnessed “pull model” that’s supposed to lead to superior profits.

The root cause for the losses is a little more subtle. In a recent article, McKinsey consultants asserted that the primary cause is scale. In fact they go so far as to say that these scale economies are nearly identical to those of on-premise software companies.

On the surface this appears to be a reasonable explanation. Successfactors had $36m in 2006 revenues and spent roughly 100% of revenues on SG&A. Netsuite is at $65m in 2006 revenues and spent 78% of revenues on SG&A. But I think this is a bit off. Salesforce is at $309m in 2006 revenues and still spent 67% of revenues on SG&A. Rightnow was at $110m in 2006 and still spent 71% of revenues on SG&A. Meanwhile, many smaller on premise companies like Aspen Technology, Quest Software and VMWare keep these costs around 40-50% of revenues and turn an operating profit of 10% or so.

The true factor driving SG&A for these SaaS companies is growth, not scale. This is logically consistent as the economics of most any subscription business is based on the cost to acquire a customer versus the future returns of that customer relationship. I took the financials for all four companies and lined them up not based on year but based on when they are at a comparable size (comparable stage in their evolution). They look like this:

You can see that SG&A spent in the prior year (cost to acquire customers) correlates very well to growth in the subsequent year (returns from customers acquired). So, as long as you believe there’s growth left in your market, keep spending to capture that growth. To prove the point, Successfactors had an interesting period in their fiscal 2004 where they seemed to prematurely press for operating profits by taking SG&A down from 108% to 75% of sales. They were horribly punished in the following year with tepid growth of 35%. They corrected the error the following year and growth sprang back to life.

I created a simple ratio I called “growth efficiency.” This ratio is growth rate in a given year divided by the SG&A % from the prior year. Essentially this evaluates how much growth is generated by a point of margin spent on SG&A in the prior year. I think this ratio is a pretty good indicator both SG&A spend efficiency and is probably also a pretty good indicator of long term profitability. A few observations on the ratios for the 4 companies:

Salesforce had reached a fairly stable equilibrium where a point of margin spent on SG&A returns a point of growth the following year. However this has been deteriorating over the past 2 years. If the high end of Salesforce’s 2008 guidance holds, they will be down to a .69 ratio, equal to or worse than anyone else in the group. Interestingly, this is trending down at a time when Salesforce has been raising prices through various premium offerings that can now drive the user/year fee as high as $2,350. I think there are lots of interesting theories to explore here.

Successfactors’ ratio is all over the map due to their experimentation, but in 2005/2006 a point of margin spent on SG&A returned a point of growth. I think it’s too soon to extrapolate any long term trends for Successfactors.

Netsuite has been a consistently less efficient business. A point of margin spent on SG&A currently returns only 2/3 of a point of growth the following year and this was 1/2 a point of growth a few years back. That reinforces my theory (and persistent rumors) that Netsuite should have a tougher time acquiring customers than a Salesforce. Financials is a more centrally controlled purchase decision and is more likely to go through a comparative evaluation. In their defense, the picture has been steadily improving.

Constant Contact has the best business of the four. A point of margin spent on SG&A gets you 1.4 points of growth. This with a product whose average selling price is just $34/month. This also makes sense as e-mail marketing services for SMB companies has got to be the ultimate impulse buy. Constant Contact uses no direct sales force and generates almost all revenue through marketing campaigns and channel partners.

The pull model is as elusive as ever, but Constant Contact seems to give us a few hints as to how it's supposed to work.

[SaaS], [Business Models]

Software sales & marketing costs

2007-06-24T06:49:00.000-07:00

Periodically I’ll find a post in the blogosphere lamenting the amount of money that enterprise software vendors pour into sales & marketing. In most companies, sales & marketing expenses are 2-3X those applied to product development. While there are countless articles, books, methodologies and consultants available to increase the efficiency of product development, the cupboard is comparatively bare when it comes to efficiency in sales and marketing.

Sales and marketing expenses are, in the abstract economic sense, wasted money. If customers were omniscient they could order whatever they needed on a web site without vendor prompting or encouragement and take vendor sales & marketing costs down to zero.

I believe the root cause of sales & marketing expenditures is a two way street. Reducing these costs would neither be a vendor-only solution nor a customer-only solution.

Where does the money go? If all sales & marketing expenses are 100%, the breakdown for an average enterprise software company might look something like this:

Brand & general awareness building – 10%
Tactical marketing (demand generation, etc) – 20%
Quota carrying salespeople & associated overhead – 35%
Sales specialists (sales engineers and various other specialists) – 35%

I’m sure there is wasted money in marketing, but at 70% of the total, the bigger opportunity for improvement is in sales.

If you were to show sales costs as a simplified function of revenue it might look something like this:

Cost of Sales as a % of revenue = Revenue Per Sale / [ (N * S * T + C) * 1/P(w) ]

N is the average number of people working on a sale

S is the average salary of those people for a month

T is the average amount of time in months it takes for the sale to reach a decision (win or lose)

P is the probability of winning the sale

R is the revenue a company takes in a given year

C is costs associated with the sale (e.g. travel)

Three parts of this equation are relatively uncontrollable:

S is not an opportunity for savings. There is a market rate for good people in any profession. If you pay less than the market rate, you either get bad people or no people at all.

I don’t think there’s a big opportunity to reduce the average number of people working on a sale. You could argue that fewer sales specialists would reduce N, but I’d predict that this would result in salespeople doing this work themselves which would increase N back to the original level. Possibly there’s some optimization to do here but not a ton.

Revenue per deal is a big but I think untouchable lever. Doubling the amount you sell in one shot cuts sales costs nearly in half. Of course customers aren’t too thrilled about paying double and vendors aren’t too thrilled about receiving half, so I think we’ll have to let the market sort out the average deal size.

Three parts of the equation are controllable if everyone (vendor and customer) is willing to do their part.

Time is a big lever. With a similar sales team and win rate, a company with an 18 month sales cycle will spend twice as much on sales as a percent of revenue as a company with a 9 month sales cycle. There are tons of pockets of wasted time throughout the sales/purchase cycle but the first order problem is this:

People are free to waste what is not their own. So vendors frequently waste the customer’s time, and customers frequently waste the vendor’s time.

Some ways vendors waste the customer’s time:

- Avoiding describing what the product or service actually does in favor of abstract marketing and positioning statements like “end to end” or “best in class.”
- Reluctance to disclose product weaknesses.

If you’re a large purchaser of technology, go to one of your vendor’s account managers the day after New Year’s and say:

“Whatever quota you’ve been assigned for me for this year, I’m guaranteeing you’ll make it. Now I just guaranteed your income so you work for me. You will be my savvy shopper. I want to get precise descriptions about what your products do. I want to know about their issues and weaknesses before anyone else does. I want to have access to your company’s expertise as fast, or faster, than anyone else. If you fail to do these things I can ensure you get kicked off this account and probably fired.”

Some ways customers waste the vendor’s time:

- RFP’s. Everything in moderation, but most book-sized RFP’s are huge time & resource drains for vendors with low probability of success.
- Concentrating purchase authority in the hands of one or two people who take months to get access to.

If you work in sales management for a large technology vendor, pulls a customer aside at the end of your first meeting and say:

“On average my company spends 12 months with customers before they reach a decision on our product. If you are willing to commit to a yea or nay decision on my company’s product within 6 months, I will discount the price an additional 7% in addition to whatever discounts you regularly negotiate.”

Sales costs are roughly 25% of revenue so by cutting them in half the customer and the vendor can share the savings equally at a 7% discount.

Win rate is another big lever. If a vendor won 100% of the deals it pursued, its sales & marketing costs would be half that of a vendor that won 50% of the time. This is a big reason why the #1 vendor in a software market typically makes 80% of the profits in the market. If #2 vendor wins half as much as the #1 vendor, their sales & marketing costs as a % of revenue are higher than that of the leader, and this causes them to starve R&D to fund additional sales & marketing. Of course this further reduces the win rate, sending the #2 or #3 vendor into a vicious cycle.

It’s in the technology buyer’s power to increase win rates industry wide, reducing vendor sales & marketing costs. If you’re a shopping for software, how many vendors do you typically evaluate? When do you cut most of them loose so you’re down to the likely two?

Cost associated with the sale is yet another lever. Over a 12 month sales cycle, the airfare, meals and extraneous expenses can add up. I’ve personally never seen a compensation plan that rewards salespeople for saving the company money. I’m not sure why this is but perhaps someone can explain to me why this would not work. A sales manager tells his salespeople:

“On average our company spends 3% of revenue for a sale on travel & miscellaneous expenses (this is a total guess on my part). If you come in below the company average, you can have half of the savings.”

Just as in product development, there’s no silver bullet to reducing sales and marketing costs. But the prize (in the form of increased profits, more money ploughed into R&D, and customer savings) is so great, it seems crazy not to try. So let’s light a candle rather than curse the darkness. Has anyone attempted these or any other approaches to streamlining the enterprise software sales and marketing machine?

Startup fad diets

2007-06-17T14:08:00.000-07:00

Just got through reading this article on Appirio in Forbes online.

Essentially Forbes holds Appirio up as the new paragon of startup thrift. The founder’s taken such overhead reducing steps as:

1. No physical office space except for a rented cube.
2. A team distributed throughout the country, mostly in low-ish cost US states like Arkansas
3. The company owns no hardware. Everything is by the drink from Amazon ECC
4. The company spends no money on PR. Everything is word of mouth.

For all this, Appirio is able to bid for projects at 20% less than competitors (which seems like an underwhelming cost advantage after all that fasting) and often does fixed bids.

O.K.

Let us all agree that being thrifty is good.

Let us also agree that advances in technology and business practices allow startups to run leaner and meaner than they could have 7 years ago.

But some of Appirio’s stuff is just shortsighted, and by the way, it’s been tried before.

Consulting/software hybrid businesses. So many failures in this regard it’s hard to count all of them. ICG Commerce comes to mind as one good example.

Fixed fee consulting projects. This works when you’re a small company but falls apart as you grow because of underbidding which either burns out consultants or creates perverse incentives to under-deliver to clients so they might hit the target budget. Cambridge Technology Partners is a good example.

No physical office space, just a distributed team. A nice over-head saver but typically these sorts of companies have very little cohesion and turnover becomes rampant, especially as you get into crunch time on one of those fixed-fee projects that you underbid. A notable failure example here would be Gemini Consulting that tried to go 100% virtual with just one physical office in New Jersey.

No hardware. Well, this is a matter of degrees in my opinion. Clearly the old days of buying hundreds of thousands of dollars worth of Sun servers is over. But are you so hard up you can’t spend $10,000 on a couple of Dell boxes? Or at least some dedicated servers from a hosting company? The difference is a couple of hundred dollars a month for some added consistency and reliability. Isn’t a business worth at least this much?

No PR. Hard to argue with this one, I don’t recall ever getting much value out of the money I’ve spent on PR.

It seems like every startup era, the business press profiles some startup that takes the current zeitgeist to the perverse extreme like some sort of fad diet.

I recall articles in 2000 during the dot com boom where they’d profile a startup that raised $20 million in the series A and bought a Superbowl ad the next day. Get big fast and build the brand immediately. THAT’S the future of the startup.

A few years later I was reading articles of startups that threw everything to India except a skeleton crew in the US. Quotes from VC’s saying “I’m not interested in any business plan that doesn’t have an India strategy.” Go to India. THAT’S the future of the startup.

Now it’s “buy nothing, own nothing, hire no-one” future of startups.

Every era a number of businesses get weaned on the new fad diet, but just like fad diets, they typically last for a couple of years before becoming dysfunctional and flabby.

P.S. - From when I started writing this post we're apparently already moved onto the new "don't fund anyone over 40" diet.

What are you willing to pay for availability?

2007-06-10T11:17:00.000-07:00

Dan Farber writes up an interesting piece on Salesforce.com's rather extended scheduled downtime. In the process, Dan quotes a fellow Enterprise Irregular Charlie Wood who says:

Does anyone think PayPal could have hours of scheduled downtime and get away with it? Of course not! Why not? Because payment processing is a mission-critical, 24×7 function. Shouldn’t sales and support be no different?

In fact it should be different. People are prone to forget that sales force automation has very little to do with actually securing revenue. If your SFA is down, you may not be able to enter some contact information or update your pipeline, but this is hardly life threatening for a few hours. By contrast if your order entry & fulfillment system goes down for a few hours, you are likely to experience some serious commercial consequences.

None of this is really a SaaS topic. It’s more a matter of not paying for mission-critical availability for a non-mission critical system. For an extra $5/user/month I imagine Salesforce could substantially reduce downtime. But for most customers would prefer to save the money and do without a contact management and pipeline tracking system for a few hours a week. If you were making this same decision for a manufacturing execution system or an order entry system or a telecom OSS system, you’d make a different decision.

There have actually been mission critical systems available as a service for decades now. Payroll through ADP is one example. Also many small community banks get their highly mission critical payment systems as a services from larger banks that can afford to maintain the infrastructure. They just come with mission critical prices.

Enterprise software acquisitions

2007-05-28T16:02:00.000-07:00

The pace of acquisitions has been fast in furious in enterprise software recently. I thought I’d do a quick roundup.

Workbrain acquired by Infor and Kronos taken private by Hellman & Friedman. The major players in workforce management are all off the public market. Around this same time, all the major players in product lifecycle management (PLM) except PTC get taken off the public market as Siemens acquired UGS PLM (granted already private), Dassault acquired MatrixOne and Oracle acquired Agile Software.

The acquisition of the rest of the mid-sized ($100 million - $1 billion in sales) best of breed vendors seems like almost an inevitability at this point. The only categories I’m aware of that still have standalone mid-sized vendors are warehouse management (Red Prarie, Manhattan), procurement (Ariba) and business intelligence (Cognos, Business Objects). I suspect these guys will disappear from the scene shortly.

Spotfire acquired by Tibco. I got a chance to meet Spotfire’s founder & CEO Chris Ahlberg back when I was in grad school. A really smart and likeable guy. Spotfire’s product is a suped up data visualization/BI tool that enables human centric data mining. It’s a great product, a pleasure to use. I’m still scratching my head as to why Tibco is the right acquirer here. Spotfire’s customers are typically scientific types in pharma research, oil & gas exploration and in financial trading shops. This flanges up much better with someone like SAS in my opinion.

SAP acquires Pilot Software and Outlooksoft. Continuing the trend of making relatively small, targeted acquisitions, this rounds out SAP’s portfolio in Corporate Performance Management.

HP acquires BEA. OK, this one hasn’t happened yet, but I think it’s a pretty reasonable prediction. HP has shown commitment to the software industry with its acquisition of Mercury Interactive. If you combine Mercury for testing, BEA for development & runtime, Instinet for the repository and OpenView for monitoring, you have a full lifecycle suite, most of which is already well integrated. HP has enough distribution muscle to pull well out ahead of Oracle and Sun. IBM will be tough to catch thanks to the breadth of the portfolio and the power of Global Services. With its recent quarterly miss, BEA is also looking more affordable. It’s time for this to happen.

[Software Acquisitions]

Vacation reading roundup

2007-05-20T22:47:00.000-07:00

More vacation (honeymoon!) reading. Before I headed off to the beach I picked up a number of books. Here’s the quick blow by blow:

Extreme Programming Refactored is the most extensive treatise against Extreme Programming (and by extension agile development) that I could find. As an avid proponent of agile (in my case Scrum, not XP), I thought this book was a must read. After all, it would be useful to know if what I’ve been doing is completely wrong.

The authors raise a number of good points and many, many more bad ones. The two good points:

1) Constant refactoring as espoused in agile can get out of hand and is difficult to estimate as part of the project schedule.
2) The concept of the “on-site customer” in XP (or agile generally) is fragile and is basically a gap in the methodology.

Without getting into too much detail (it’s a 400 page book), most of the other complaints raised against XP are pretty specious and validated by straw men the authors diligently construct to tear down, typically by taking XP to a perverse extreme and then arguing against the extreme. The authors are also shilling their own methodology (ICONIX) and books but they don’t reveal this fact until chapter 9 which I found very irritating.

Peopleware – Productive Projects and Teams. If you’re a Joel Spolsky devotee as I am, reading this book will be treading over some familiar ground, but there was plenty of new stuff in it for me as well. It is a great summation of a number of key practices that should be in place to manage software projects and teams. The book is nice and short and peppered with some studies to validate key points. This will be useful for you if you’re trying to protect your development team from the latest CMM, Six Sigma, cubicle farm trend running around your company.

Founders at Work. Basically war stories from high tech company founders. I always find these stories to be inspiring and I occasionally pick up a good bit of advice for future reference. Best stories came from Mitch Kapor (personal hero), Steve Wozniak, Max Levchin, Tim Brady, Joel Spolsky, Joe Kraus and Charles Geschke. Only weakness of the book is that it’s a bit like the Actor’s Studio. After the first two seasons, all the good actors were interviewed and Lipton was left interviewing J-Lo. The book has its share of J-Lo’s.

Invisible Engines. A thorough review of the software platform business from a technological and economic viewpoint. I got bored early in because 1) there’s a limited number of companies that are in the platform game 2) There are several chapters of warm-up that, if you are in the platform game (as I happen to be), are very elementary. I suppose the net is the authors didn’t put a whole lot of thought into the intended audience.

Happy reading!

How can you be sure a company is dead?

2007-04-09T22:26:00.000-07:00

Much digital ink has been spilled on Paul Grahm’s “Microsoft is dead” article. Now that the dust has settled, I wanted to throw one more point of view on the pile.

Paul gets some things right. Microsoft does not strike fear in the hearts of startups they way it once did. And there's a significant chance that Windows goes the way of IBM's Z series - a huge cash machine that doesn’t bother anybody except the customers who have to pay the bill. So Microsoft can be alive, but not very relevant. If SAP did nothing but add features to R3, we'd be in a similar boat.

But Paul also gets a lot of things wrong. In many ways, his article reminds me of Mark Andreessen’s famous comment in 1995 that Netscape will “reduce Microsoft to a set of poorly debugged device drivers.”

Back then, as now, a bunch of young engineers fresh out of university were surprising everyone with what was possible on the web.

Back then, as now, someone decided it was a good idea to poke the giant with a stick.

Back then, as now, most of the products the upstarts launched were not all that hard to build. I think it took Microsoft something like 20 people and 6 months to come out with a competing browser.

Back then, as now, a lot of people were confusing “lucky” with “good.”

Back then, Netscape’s stock cratered and the company was sold off to AOL which in turn cratered the following year. Now….?

The point being Paul is willfully blind to history and he is definitely tempting fate, which most people would say is a bad idea.

I also think Paul undersells Microsoft’s accomplishments a bit. The X-Box is looking like it's going to shape up as a big success. The enterprise infrastructure business (e.g. BizTalk, SQL Server, etc) is growing and highly profitable. And out of the 1,000 bets Microsoft has on the table right now, I'm guessing one or two biggies will pan out over the next decade.

Paul bats about .400 with his remaining observations. Yes, broadband is a big deal. Yes, the desktop matters less and less. But then Paul veers off into tin foil hat wearing, “I live in a complete bubble” territory:

Ajax as a Microsoft killer. OK, Ajax is great, but it’s probably the 7th or 8th iteration of web UI technology. There will be a 9th and a 10th before you know it.

OS X is one of the 4 biggest trends contributing to Microsoft’s lack of relevance. I would think OS X’s market share would be ample evidence that this assertion is far off the mark.

Microsoft needs to buy every "good" web 2.0 company out there to become relevant. What Microsoft needs to do is prove it can be as relevant on the web as it is on the server and on the desktop. I don’t know what Paul’s definition of “good” is, but does buying Zillow or Riya or (insert feature here) really help Microsoft reach the goal of web relevance?

Then, in Paul’s “Cliffs notes” he talks about SAP:

"They make a lot of money. But does anyone developing new technology have to worry about them? I doubt it."

Go ask Tom Siebel, Mark Hoffmann, Keith Kratch, Sanjeev Sidhu and Joe Liemandt if "not worrying about SAP" is a good idea. If you have to look up those names to understand what I’m talking about, I rest my case.

Might Microsoft or SAP or Oracle go the way of the IBM mainframe? It’s certainly possible. But the opposite is possible too. History wouldn’t make me nearly as confident as Paul seems to be.

[Microsoft]

No day at the beach for web services standards

2007-04-04T20:02:00.000-07:00

Innoq was kind enough to draw up this nifty map of today’s extant Web Services standards.

This of course was throwing a proverbial softball to WS-* standards cynics like our friends over at MuleSource.

Oh the complexity! So confusing! So hard to learn! What where they thinking???

Standards weenies are an easy target. They’re anal retentive, they spend 5x more time in committees than developing software and more than infrequently, they generate an impractical standard (CORBA anyone?).

But I think the kvetching over the WS-* complexity is pretty overblown. What struck me looking at Innoq’s diagram is how similar it is to the Java class library (or any other major language’s class library for that matter).

There are major categories and sub categories, commonly used categories and more esoteric ones. While Java gets its own share of abuse for complexity, it hasn’t hindered its adoption. In fact Java is an indisputably successful language in terms of adoption. And learning all of the Java libraries is much more extensive than all of the WS-* standards.

My first point is in both cases, you don’t have to learn all the inner workings of either standard to make good use of it. You either:

1) Learn and choose to leverage only the most useful bits of the standard that are relevant for your project. For example, most every Java EE developer has utilized the standard’s messaging, JDBC connectivity, servlet engine and garbage collection. Most everyone skips the container based persistence model. Same thing with WS-*. I think most enterprisey folks would say WSDL is pretty useful and BPEL and WS-RM are getting a lot of pickup. But that doesn’t mean you have to use the other 20. Or you:

2) Utilize some combination of tools and platforms that hide the complexity of the underlying standards. For Java or C#, these are abundant, from app servers of all shapes and sizes to IDE’s to model-driven code generators. For XML and the WS-* stack, it’s still early days, but we’re starting to see tools and runtimes emerge. Sure they’re incomplete, slow and often difficult to use, but does anyone remember Java circa 1997?

My other point is that this evolution of the WS-* stack further reinforces a trend that’s already apparent to some: XML is the platform. Those of you who already read or write about the “programmable web” are probably saying “duh” right now, but I think that’s still a small minority of the tech community. I had a rather extensive discussion on this with my fellow Enterprise Irregulars and I heard back a variety of suppositions like “EC2 is the next major platform” or “Apex could be the next platform.” Nein. XML is the platform. Say it to yourself, think about it, sleep on it and be born again.

When XML fully realizes its potential as the next major platform, it's going to have a much greater impact than what most people anticipate today.

[Platforms], [XML], [WS-*]

Vinnie joins SAP?

2007-04-01T11:32:00.000-07:00

Thomas' April Fools post lasted about 3 hours before Vinnie woke up and negated it. It's a pity, I thought it was quite plausible. We all know negotiating discounts out of vendors no longer presents a challenge to Vinnie. By joining SAP's pricing committee, Vinnie can face the only true remaining challenge: negotiating with himself.

End of an era

2007-03-29T06:41:00.000-07:00

SAP hired me out of graduate school and for reasons unimportant to this story, I had to go through a rather extensive set of interviews to get the job. The final stop on the tour was a 45 minute interview with Shai Agassi. At the time, Shai was responsible for NetWeaver, some xApps and a partner organization.

In the weeks preceding my interview, almost everyone I met at SAP had something to say about Shai. Typically it was something like “We’re so lucky to have a leader like Shai” or “Shai is just so smart that…” I had heard this so frequently that I was starting to doubt that I would take the job as I am extremely suspicious of cults of personality.

My Shai interview started with a few simple questions about SAP’s product strategy that quickly expanded to fill the entire allotted time. He had a rhetorical style, never making statements, just asking questions. You could tell the questions were intended to lead you to a certain place, but at the same time he was hoping you’d produce a surprising answer so he might learn something too. It felt good to be intellectually stretched but also to be respected. By luck or skill, I passed the interview and took the job. Over the course of the past 2 years, I’ve had a handful of other interactions with Shai. He’s technically deep, strategically smart and most importantly has exceptional empathy. It’s been a kick to get some time with him over the past few years and if he made this sort of impression on me, you can imagine how it’s been for those that worked with him day in and day out. I’ll close with a few of the things at SAP that are forever changed because of Shai:

- SAP is a credible player in the market for infrastructure software

- SAP is a platform company

- SAP is the most globalized high tech company in the industry

- SAP has released countless new products in the past 5 years (XI, Duet, CAF, MDM, xRPM, GRC, etc)

- SAP has a new generation of executive talent that will leave a lasting impact on the industry

- SAP has an ecosystem where software partners can thrive and make money

So I’m not going to pretend to bury Ceasar, I’ll just come right out and praise him. For the rest of us, I think the lessons are: 1) Think big. 2) Do your job like you’re not afraid to lose it. 3) Show passion, and the team will be passionate too.

Good luck Shai, you’ll be missed.

Oracle hearts Tangosol

2007-03-26T19:48:00.000-07:00

In other news, Oracle recently acquired Tangosol, a Somerville, MA based middleware software startup. Tangosol is an impressive company with an impressive technology. At its core, Tangosol does data caching and session management for high performance applications. So if you have clustered applications, it enables you retrieve and persist data very quickly and in a way that preserves transactional integrity.

Tangosol was a real Joel Spolsky type company which is why I’m all the more pleased to see it come to a happy ending (minus having to work for Larry). Tangosol started with a bunch of smart geeks and no venture investors. They managed to get several releases of their product out during the technology recession of 2002 and 2003. My sense is most of their customers came from word of mouth through the developers that frequent sites like The Server Side. By the time they were acquired I’m guessing they had well over 100 customers.

I’m not really sure why IBM or BEA didn’t buy Tangosol years ago. In my opinion, they are the rightful owners for a technology like this. But they didn’t get off the dime and now it’s Oracle’s which I think IBM and BEA will come to regret.

Updated (thanks for the correction Geva and Shalom): Tangosol leaves behind a handful of competitors including Gemstone, Gigaspaces and Terracotta Technology. Interestingly, the degree of market traction for these companies seems to be inversely correlated with the amount and prestige of the venture capital raised. Teracotta has since open sourced their product which seems to be the new last resort move when you’re trailing the competition. Like the other companies that have purused this strategy, I'm skeptical this is a viable way to vault ahead of the competition. Meanwhile IBM and BEA could still use this sort of asset so I'm guessing you'll see something play out similar to what happened when the app management vendors (Cyanea, Wily, Xaffire, etc) got snapped up. In this game of musical chairs, why does the market always seem to generate one more startup than there are available chairs? Same story in ESB. Same story in data integration. Same story in app management.

Germany doesnt just make software for great big companies...

2007-02-17T10:41:00.000-08:00

Germany makes great big bunnies too:

Google in the enterprise part deux

2007-02-08T23:05:00.000-08:00

I found this article that Google is planning on charging enterprises for their newly-acquired/built webapps like Google Docs.

I thought this sort-of announcement was pretty poor timing as many are starting to wonder if Google can get anything right besides search. Witness:

Blogger was down for an extended period of time last Wednesday.

Their Groups product has poor performance and almost daily glitches.

Their Gmail periodically seems to drop messages (or possibly munches them in the spam filter). And other people experience rather frequent Gmail outages.

Now their Finance product is also crashing

They lure you in with the sexy front-end and then they disappoint you with terrible reliability. The ever-present “beta” label may work in consumer web, but that’s not going to fly as an excuse in the enterprise.

This stuff is free to me, so I suppose free is as free does and I put up with the erratic performance. But if you start charging customers money they’re going to start, like, expecting things from you. They’ll want you to do really unusual things like fix a bug, keep a system running or stick to a deadline. Given what a drop in the bucket Google Enterprise revenues are for the overall business, I'm skeptical that the tail's going to have permission to wag the dog.

[Google]

What's the big deal about Enterprise 2.0?

2007-01-31T21:26:00.000-08:00

Entire blogs are dedicated to covering the topic, and we can’t forget the exceptionally tortured semantic debate over what would be allowed to live under the Enterprise 2.0 tent.

There are many opinions on what defines “Enterprise 2.0.” I myself lean towards Andrew McAfee’s definition. If Enterprise 2.0 comes to mean “anything new happening in the enterprise,” it becomes a meaningless term.

I fervently believe in the value of collaborative, emergent technologies like blogs, wikis and tagging. I also believe it’s inevitable that this stuff permeates the enterprise. Working for a software company I consider myself to be the quintessential knowledge worker. No accident that many of these tools are already heavily utilized inside of SAP. The underlying philosophy of Enterprise 2.0 strikes me as highly simpatico with the true nature of knowledge work:

- Iterative
- Cross-organization, cross-geography
- Knowledge intensive
- Collaborative

But is Enterprise 2.0 a big deal? Here I’m not as sure. When I hear things like knowledge and collaboration I think Lotus or Microsoft. Does Enterprise 2.0 just mean “groupware 2.0?” This is fine and good, but relatively unexciting. Every 10 years or so a new groupware format takes hold in the marketplace: e-mail and message boards are two good examples of this. If Enterprise 2.0 means “keep your eyes out for the next Lotus,” I’m not sure what all the fuss is about.

Let’s contrast this with the internet which was definitely a big deal in the enterprise. The internet:

- Changed core business practices
- Altered the mix of users of enterprise technology
- Enabled completely new enterprise technology markets to form like SRM, Content Management, SOA, E-Commerce, etc.

You could do the same exercise with client-server and realize this too was a big deal in its day. Apply the same exercise to Enterprise 2.0 and it comes up short.

What in my mind keeps Enterprise 2.0 on the cusp of big deal status is its latent potential to work alongside traditional enterprise applications to enable businesses to do new and cool things. Enterprise applications are typically predicated on rules, constraints, policies, controls and processes. Groupware applications are typically predicated on open workspaces, threads, iterations and tacit knowledge capture. These two domains seem so distinct when you sit down to use the software applications they look as if they came from two different planets. But in fact most of our jobs require us to sustain both modes of work simultaneously. I may be a knowledge worker, but I don’t operate completely outside of policies, processes or budgets. Sometimes those processes and policies actually help me.

The questions in my mind are:

1. Should we combine the emergent with the routine? What significant things can you do for the business if you do?
2. How can you combine these two different paradigms? I think there are a couple of different candidate approaches here that are equally valid.
3. What are the killer apps for this converged world? If we can imagine multiple large markets stemming from this convergence, we’ll know we’re onto something.

I think that’s enough for now. If this sparks some discussion or response, I may flesh out some potential answers to these questions in future posts.

[Enterprise 2.0] [Emergent Software]

One more 2007 prediction on Web 2.0

2006-12-30T09:58:00.000-08:00

I loved this Wall Street Journal article that Sadagopan found. It’s a debate between Todd Dagres (formerly of Battery Ventures, now at Spark Capital) and David Hornik (at August Capital) on whether or not we are in a Web 2.0 bubble.

First and foremost the article is interesting, but the sweetener is how perfectly Todd and David embody the East Coast/West Coast high tech stereotypes.

Todd Dagres’ picture depicts him as the classic masochistic east coast curmudgeon VC. Surprise, surprise, Todd thinks Web 2.0 is overrated and a bubble.

David Hornik has that beatific look that you only see on a guy who experiences 300 days of sunshine per year. Surprise, surprise, David is the optimist who thinks there’s still gas in the Web 2.0 tank.

I think both sides make good points and while I count myself as a crotchety enterprise technology guy, I have to side with David.

Signs it’s a bubble

Investors don’t know what they’re investing in

This was a hallmark of the Web 1.0 bubble and it's back in Web 2.0. Picking winners has never seemed more like guesswork; and when veteran investors with a lifetime of experience in semiconductors start backing web calendaring companies, you should start to fret a bit.

Large incumbents wait in the wings

As the last bubble was bursting, incumbent retailers and enterprise technology vendors started to close the distance between themselves and the upstarts who had been eating their lunch. I have to belive that incumbent media companies have a similar ability to, after a great many years, learn and adapt to this new world. Witness Newscorp and InterActiveCorp.

Signs it’s not a bubble

There’s not very much money at risk

With a few exceptions, individual Web 2.0 companies have take down very little capital, and in many cases none. Moreover the few Web 2.0 companies that have raised big bucks have done so only after they’ve shown tens of millions in revenues with some positive cash flow. This is a stark contrast to the last bubble where $20 million B or C rounds were going to companies with small revenues or a big cash burn.

The Web 2.0 fatality rate looks quite low

In Web 1.0, a company’s fixed costs were relatively high and revenues came from commerce which has low gross margins and can be volatile. When those businesses slowed down, revenue could zero out and fix costs would quickly bury you. With Web 2.0 businesses, your fixed costs are quite low and your primary revenue source (advertising) is high gross margin and less volatile than commerce. I think it’s likely we’ll see a number of Web 2.0 walking dead, but not so many expensive Web 2.0 fatalities.

There do seem to be barriers to entry

You have to ask yourself why no one has challenged MySpace’s user base or revenues. Same question for Facebook, YouTube and Flickr. Then look at Google’s inability to gain market share in areas like e-mail, instant messaging, peer payments, commerce, etc. This stuff does appear to be sticky, either due to user network effects or other forms of lock-in.

Web 2.0 is not an overfunded category

I did a quick and dirty comparision of Web 2.0 to the relatively non-bubbly software industry.

According to VentureOne, in the last 12 months, venture capitalists invested $455 million in Web 2.0 companies. During those same 12 months according to the PWC MoneyTree survey, venture capitalists invested roughly $4,300 million in software companies.

In 2006 worldwide online ad spending was approximately $17 billion (Jupiter) This is projected to grow to $26 billion by 2011.

In 2006 worldwide software spending was approximately $165 billion (extrapolated from SIIA figures). The industry is growing at roughly 5% overall so by 2011 it should be at around $212 billion.

Through the magic of long division you can compare ratios.

So based on today's market sizes, Web 2.0 is sanely funded relative to software. Every dollar of venture investment is chasing roughly 40 dollars of market opportunity. But the future size/state of markets is more salient for long term venture investment. By that yardstick, Web 2.0 is still underfunded relative to software with one dollar of venture investment chasing 63 dollars of market opportunity.

To net it out

I don’t think 2007 will go down as the year the Web 2.0 bubble burst. If venture investing in Web 2.0 doubles during the course of the year, then 2008 is going to get ugly. For now the current pace looks sustainable.

[Web 2.0] [Venture Capital] [2007 Predictions]

A few 2007 predictions

2006-12-27T21:22:00.000-08:00

As we’re in prediction season, I'll indulge in a few of my own:

The last of the SOA middleware vendors get merged, acquired or shut down

In 2005 and 2006 we’ve seen Fuego, Infravio, Blue Titan, Actional, Collaxa, Systinet, Proactivity, The Mind Electric and Sonic get snapped up. Still at large are Amberpoint, Savvion, Lombardi, Cape Clear, Fiorano and Above All Software.

No open source companies will exit throughout 2007

This will give many VC’s jitters about the $400 million laid out over the course of 2006.

Oracle will acquire one or more sizeable application software companies within the first half of the year

This will happen just in time to prevent observers from making the apples-to-apples same quarter comparisons that have been next to impossible for the last 2 years. I know what you're saying right now: "Oracle will acquire someone? Very impressive Nostradamus."

A significant handful of SaaS companies will make it through the IPO window

Probably NetSuite, Successfactors and at least one more.

Tech boom enterprise applications startups come back to life

It’s been a long, hard, and capital-inefficient road for venture backed enterprise applications companies, most of which got their first funding more than 5 years ago. But customers are wrapping up their cleanup and digestion period and are ready for new products. Pure play vendors in Contract Management, Pricing, and Supply Chain Optimization, will all do solid double digit growth.

That’s all I’ve got for now. I’m looking forward to checking back on everyone's prediction accuracy in 12 months.

[2007 Predictions]

5 things you didn't know about me

2006-12-21T19:46:00.000-08:00

Alright Jason, I’ll take your tag. 5 things about me:

I am an extremely bad but persistent surfer

Favorite local spot is Bolinas, a sleepy surf town for ageing bay area hippies and out of shape yuppies.

Everyone in my family is an economist

Myself (B.A.)

Brother (PhD)

Father (PhD)

Mother (MA)

I’m a bit of a contemporary art buff:

Favorite artists include

Joseph Beuys

Bill Viola

Pipilotti Rist

Miguel Calderon

Andreas Gursky

815 is my lucky number

I was born on August 15th
At 8:15 at night
And weighed 8 pounds, 15 ounces

True story.

I’m a live music fan and try to see as many shows as my work and travel permit

I also needlessly obsess over missing the all time greatest concerts that I was too young or too square to attend:

U2 at Red Rocks

Talking Heads Stop Making Sense tour

Velvet Underground reunion in Prague

The Flaming Lips’ Boombox Experiments

I'll tag Nick Carr, who wrote my all time favorite quote on a blog:

I think the word "delight" should be banned from all business writing.

Amen to that.

Happy hollidays,

Charles

[Charles Zedlewski]

Why I work in enterprise technology

2006-12-18T21:29:00.000-08:00

This article in the weekend’s New York Times sums up perfectly why I work in enterprise technology and not consumer web. If you haven’t read it, the article interviews a few VC’s who are increasingly using feedback from their kids to make investment decisions in consumer web companies.

I haven’t been in too many VC partner meetings (OK, I haven’t been in any), but when I picture a bunch of partners contemplating an enterprise technology investment, I imagine it sounds something like this:

“How many customers have paid money for this product so far?”

“Did they get the return on investment they anticipated?”

“How long did it take them to evaluate and install the product?”

“How many similar customers are out there who could buy this?”

“How likely is it that IBM can get into this market?”

Etc, etc.

The NYTimes article confirms my greatest fear that the same VC partner meeting evaluating a consumer tech investment is more like:

“I dunno, I wouldn’t use it.”

“Yeah, well I would use it.”

“My daughter has 400 friends on MySpace and she wouldn’t use it.”

“Well my nephew has two iPods and a Zune wired into his Lego Mindstorm and he’d use it.”

Consumer is a lot more lucrative than enterprise right now, but the last tech bubble taught me that if you don’t have some comparative advantage to offer, you're probably working on the wrong topic.

[venture capital], [consumer technology]