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TechCrunch Turns Into F**kedCompany 2.0 – says Dare Obasanjo.

Really? Tell me something I don’t already know.   Have we all forgotten that TechCrunch acquired FuckedCompany.com over a year ago?   OK, that was just an April Fool’ s Joke , but you can really say TC is unprepared for a downturn – after all, they own FuckedCrunch.

OK, on a more serious note: I also said, way back in January 2007 that TechCrunch Did Not Build it; It Can’t Knock it Down Either:

TechCrunch did not build this boom. Yes, a well-timed review helps a startup gain initial traction, but Mike does not make those companies successful: whether they make it or not, they do so on their own. And when they fail, they fail own their own merits, too.  Failures are part of business reality, and reporting on them only makes TechCrunch balanced. Without it Mike would be just a biased cheerleader (something he was accused of in the past).

I still mean what I said there, except that in the downturn there will clearly be more failures, and it won’t always be on a startup’s “own merits”.  Reporting on them is part of reality.

But what I really hope for is that TechCrunch and other influential blogs that are a strong part of the startup ecosystem will take a constructive approach, and instead of becoming doom-reporters they start discussing ways of survival – i.e. how to tweak one’s business model to establish a healthy revenue stream.

I’ll have more on this soon.

Update: I’m often amazed at the image selection Zemanta proposes. The word “train” does not once occur in my post, yet it recommended this image of a train-wreck.

Tags: Blogging, business model, fuckedcompany, recession, revenue, Startups, techcrunch

Yes, you read it right: the first announcement of Zoho Mail’s general availability, with Google Gears-based offline support did not come from Zoho, but from the Google Gears team, which released this video discussing Zoho’a use of Google Gears, synchronization, the Marketplace and  a lot more a bit prematurely:

Somewhat used to it (see TechCrunch Releases New Zoho Service: Invoice) the Zoho folks decided to play along and released their own announcement.

This announcement somewhat symbolizes the interesting dynamics between Zoho and Google: competitors, yet collaborators.   ReadWriteWeb is probably right:

But also Google probably sees Zoho less as a competitor at this point (even though Zoho does compete directly against Google Apps) and more as an evangelist for its technology - such as Google Gears.

First of all what’s in today’s announcement:

• Zoho Mail has been in private beta for over a year now. As much as we like to switch to native collaboration using web-based tools, email is still where most productivity workers spend 80+% of their time.  Mail is the glue that brings it all together – so it’s important for Zoho to step out of background testing mode and make Mail publicly available. It’s also an integral part of the Zoho Business Suite.
• Features: It’s an email service (everyone gets a user@zoho.com email account) and an email program that can consolidate several other email accounts, Outlook-style.  It combines old and new: supports hierarchical folders a’la Outlook as well as Gmail-style labels, chronological view as well as the threaded conversation views made popular by Gmail.
• Access anywhere, any time: Offline access is provided via Google Gears (for now Firefox and IE only), and it’s also available on the iPhone.
• Integrated Chat – this is another “glue” application within the Zoho Suite, and several other features listed here.

So with all that, why am I unhappy?  I’m a die-hard Gmail fan, mostly for its productivity boosting features:

• Conversation threads
• Labels
• Search

Zoho Mail handles the latter two well, but I am not too happy with the way conversation threading works.  My business conversations last weeks, include dozens of emails, and on a traditional mail system the threads are basically a pain to put together before responding to someone.  Gmail handles it automagically, and as a side-effect, it presents a lot more information on it’s list screen - since the dozen individual emails are now compressed into one line.

But we all have different usage patterns. When debating the importance of threads, I looked at other Zoho Mail users whose conversations are typically one-off, so they won’t value threading feature at all.  In fact not everyone needs productivity.  Not everyone wants to go through a paradigm change.

AOL, YAHOO, Hotmail are the absolute web-mail market leaders,and they should do whatever it takes to keep their customers.  Their mainstream users are corporate employees who use Outlook in the Office, whether they like it or not is irrelevant, they are used to it. When they go home, they may not email a lot. Some will check their emails daily, once a week, or less. They want a personal email that resembles to what they already know.  For them familiarity is more important than productivity.

As much as I hate to admit it,  I am NOT the mainstream Zoho customer.  I am probably more a part of the TechCrunch 53,651 (even though it’s 1M now) than the mainstream customer base Zoho targets.   And if it wasn’t clear before, the current crisis brought home the message loud and clear: only businesses with real revenues survive.  Which probably means that for all my yelling and screaming, Zoho is quite right coming out with an email system that meets the needs of businesses who actually pay for it.  After all, this is what enables them to offer all the other apps I like for free.  And I like free.

(Disclosure: I’ve been a long-time Advisor to Zoho and they are exclusive sponsor of my main gig, CloudAve. This article has been cross-posted there.)

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Tags: business model, Collaboration, email, gmail, Google, google gears, iPhone, offline access, zoho, zoho mail

Lot’s of noise today, RIP Good Times,  IT’S OVER! POP GOES THE BUBBLE, Sorry, Startups: Party’s Over etc.   I think the panic is overdone.

Sure, a lot of startups will fall – and some of them would have done so without a recession anyway. Times are officially tough, but the truly strong businesses will survive, and some of the Web 2.0 whiz-kid baby-CEOs  will come out of this as battle-hardened Entrepreneurs.

Talk about Executives… some can wreck the business on their own, they don’t need a crisis: see Entellium wrecked by fraud.

Finally some startups think they can keep on re-architecting forever – see NetBooks, ViewPath (the latter just came out with a new product though.)  Good luck to them… wonder if their market runs away…

These are some of the thoughts I’m discussing on CloudAve today – read more here.  Even better, grab the feed here.

Update:  Want to get off the “Sky is falling” treadmill? Need inspiration?  Find it here.

Even better, get really inspired at Defrag.  Use discount code zoli1 to get $300 off.

.

Tags: business model, defrag, entellium, entrepreneurship, management, netbooks, recession, SaaS, Startups, vc Funding, venture Capital, viewpath

Are we heading into Recession?  The “Big R” talk of early this year quickly subsided, economic growth returned, the markets appeared to vindicate the optimists.  US Presidential Candidate John McCain repeatedly said the economy was fundamentally strong… until just days ago, when he quickly switched to declaring a crisis.  The Wall Street Journal says we’re in the Worst Crisis Since ’30s, With No End Yet in Sight.

I don’t claim to be an expert economist, so whether the Big R is looming is not my call – but if you believe we’re in a strong economy, I have a bridge to sell you.  Let’s just focus this discussion on how Software businesses can survive in a financial crisis, which is undeniably here.

Not all will survive, and it’s probably healthy they won’t.  Tim O’Reilly, Father-of-all-things-Web-2.0, asked the question at the Web 2.0 Expo last week:

Global warming. The U.S. losing its edge in science and technology. A growing income gap. “And what are the best and the brightest working on?” O’Reilly asked, displaying a slide of the popular Facebook application SuperPoke, which invites you to, among other things, “throw sheep” at your friends.

“Do you see a problem here?” he posed, showing another slide of the popular iPhone app “iBeer,” which simulates chugging a pint. “You have to ask yourself, are we working on the right things?”

The poster-child of the Web 2.0 boom may very well become the symbol of what went wrong:

• useless
• consumer-only
• ad-driven

Actually, the problem is not what they do, but how seriously they were taken.  Will Price, a very smart VC said long ago:

It may well be that Slide raising $55m from mutual fund companies at $500m+ pre-money will be the “what were we thinking” moment of the current cycle.

I’m glad they did not go public, at least not a lot of people will get hurt holding the bag.   But enough of what’s wrong, here’s what works:

• go where the money is, and that’s businesses (“Enterprise” vs. consumer, even if it means small business)
• deliver value – useful functionality that improves business
• charge for it – companies actually prefer to pay for reliable, good service.

The last point brings up the price issue.  Credit will dry up. Whether we’ll officially declare Recession or not, the fear of the Big R is enough for corporate budget cuts, the disappearance of any CAPEX spending. Even worse, an entire sector almost disappeared as IT buyers.  Did you know that Lehman Brothers spent over $300M on IT in just the last quarter, right before declaring bankruptcy?   How do you sell in this environment?

The after-bubble nuclear period of “no IT spending at all” found me at a startup in 2001-2003. We did not exactly hit it big, but did not go under, either, and that’s because our model allowed us to get in the door way below the threshold that would have required higher authorization. Not classic SaaS, rather SES (Software Enabled Service), we were essentially data providers and often got into an “enterprise” account at $3k for the first month … eventually ramping up to annual $60-$100K.   Anyone familiar with Enterprise Sales knows the term Economic Buyer:  typically getting involved later at the sales cycle, approving or nuking the deal.  Well, we saw no Economic Buyer: being under the threshold, we sold to the User directly.

Of course my little business is not the only proof: Salesforce.com & WebEx thrived during the last recession. The secret is the business model: pay-as-you-go.  SaaS offers lower risk to enter, no initial cash layout, the subscription fees come out of OPEX vs. CAPEX, and is often approved by the User, not the mysterious Economic Buyer.  The barrier of entry is much lower: once you’re in, it’s up to you to grow.

In fact I suspect the looming downturn will accelerate the structural changes in the software industry: SaaS players will thrive,  traditional on-premise vendors will shrink, many will disappear.

That leaves a final point to discuss: financial solvency.  For startups, it will be increasingly hard to find investors.  For larger businesses the lack of late-stage investment, the credit crunch may be a serious impediment to expansion.   Discover the beauty of bootstrapping – you actually get to do what you believe is right for your business, not what your Board tells you.  Do less, take small steps.  Frugality is key to survival.  Small is beautiful will get a new meaning.

In summary, Software businesses that combine good old business sense: frugality, spending wisely, delivering value to businesses and getting paid for it, with a new business model, SaaS are likely winners in the downturn.  The rest are playing musical chairs. (Oh, and the bridge is still available)

(This post originally appeared on CloudAve.  Keep informed by grabbing our feed here.)

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Tags: bubble, business model, cloud computing, enterprise sales, Enterprise Software, entrepreneurship, On-Demand, recession, SaaS, salesforce.com, Software, Startups, webex

(OK, I sinned. Mea Culpa.  I’ve just cross-posted an entire article, which is not the best behavior. But it’s not every day that I launch a new group blog - so consider this my shameless self-plug, and please subscribe to the feed.)

We must be a crazy bunch on a suicide mission.  Why else would we launch a new blog focused on Cloud Computing and Business, when it’s just a fad that will collapse in two years?

Harry Debes, CEO of Lawson Software is a respected Enterprise Software industry veteran, but I’m afraid for all his achievements he’ll go down in history as the man who grabbed headlines with a fatally wrong call.  Of course not all wrong calls hurt one’s reputation: IBM’s Thomas Watson is still an industry legend despite the famous quote incorrectly attributed to him:

” I think there is a world market for maybe five computers“

The small difference is that what Thomas Watson could not fathom in 1943 ended up putting IBM on an amazing growth trajectory,  while Harry Debes’s view may just turn out to be fatal for Lawson - or to quote my Enterprise Irregular friend, Vinnie Mirchandani:

“That’s what American and Delta said about SW. And GM and Ford said about Japanese cars. And Sears and Wards said about WalMart.”

Another quote by Vinnie, closer to our industry:

“Dun & Bradstreet, which GEAC acquired for a song, was one of the most spectacular slides in the software market. In less than 5 years it went from dominant position to a distress sale as it missed the client/server wave in early 90s.”

I’ve seen that one close, fortunately for me from SAP’s side - the winner in that round.  We’re witnessing another tidal wave now, the shift to Cloud Computing.  It won’t happen overnight, but those who completely ignore it will vanish.  Some of my fellow Enterprise Irregulars elaborate more:

• Vinnie Mirchandani points out that SaaS is what more and more customers want, and those who stop listening to customers inevitably hit the wall sooner or later.  Need proof?  How about this 100% SaaS customer, showcased at the recent Office 2.0 conference?
• Jim Berkowitz  of CRM Mastery fame agrees,  adding that calling people, potential customers “stupid” never leads to any good.
• Bob Warfield makes the case that even if we ignore what customers want and only consider profitabilty, Debes is wrong, Salesforce.com is almost as profitable as Lawson, but grows much faster, while Conquer, another SaaS success story is actually more profitable than Lawson is.
• Jason Corsello adds that Lawson actually launched a SaaS offering last year, but experienced lackluster customer response largely to pricing and deployment issues … so now that they couldn’t pull it off, the declare the entire market doomed.
• Josh Greenbaum concludes: “SaaS isn’t collapsing, it’s only just getting started“.

I can live with that… it’s only starting… so we’re not a suicidal bunch, after all. But thank you, Harry Debes, for sparking a great discussion.

If you read just the few articles I’ve quoted above, you get a fairly good picture of the many benefits the Software as a Service model offers.  Let me add a few of my personal favorites:

• Extended reach - small businesses can now have business functionality previously only available and affordable for large enterprises.
• Commoditization of the software market - commoditization hurts most companies, except the few who drive it, but guess what - it’s great for customers.
• End of Bloatware  - for the first time SaaS vendors can run stats and observe what features are actually used by customers, so they can cut out the fat and enhance the in-demand features.
• New Business Models, like benchmarking - based on anonym aggregate data provide your customers with performance metrics.  Even newer business models we have not even imagined yet.
• Dramatically changed Sales and Marketing model: pull vs. push.  Instead of the traditional sales model it’s all about transparency, information, letting informed customers find you.  The Product sells itself and your Customers are your Marketing team.

We’ll be writing about these and more. I’m a “business application guy”, so I mostly talk about SaaS - but our name is Cloud Avenue, not SaaS Avenue, for good reason: fellow blogger Krish will talk about it soon.  By the way, Krish and I got to know each other through our blogs - just like my fellow Editor, Ben Kepes, and just about all other contributors. We also have our CloudLab - for product / service reviews.  Yes, we will report on products, but do not strive to be a mini-TechCrunch: we have no intention to report about everything new.  We’re not a news-blog.  We’d rather sit back, analyze a market, find key players, then produce a series of reviews / comparative analysis.  Quality before quantity or urgency.

We’re believers in Cloud Computing, but  not over-zealous cheerleaders.  Just as I’m finishing this post, another SaaS debate erupted, which prompted Anshu Sharma to note: “there must be a Sky is Falling Support Group“.  The really notable part of the Cloud-Filled Debate @Forbes is Nick Carr’s responses: not because of the Big Switch author’s unquestionable “cloud-bias”, but because of how realistic he is:

Forbes.com: Is cloud computing over-hyped?
Nicholas Carr: At the moment, yes, and that’s typical for technological advances.

What’s your imagined time line of the adoption of cloud computing? Will it take years? Decades?
If you’re talking about big companies, I would say it will be a slow, steady process lasting maybe 15 to 20 years.

On what Gartner Research analysts call “the cycle of hype and gloom,” where do you think cloud computing is currently positioned?
It’s definitely near the peak of its hype. The doom period, when the media and IT managers realize the challenges ahead, is likely coming soon. But regardless of hype or gloom, the technology will only keep progressing.

Overhyped, slow process, doom is coming… has Nick Carr switched sides?  No, he is just being realistic - and that’s what we need to do here  @CloudAve, too. We will talk about integration problems, security issues, privacy concerns, even legal ramifications - many of these I don’t claim to know much about, which is why it’s great to have a diverse team of authors with complementary areas of expertise. And our door is never closed: we welcome guest posts, and who knows, you may feel inclined to join us as as a regular writer…

Finally, we could not afford to bring you CloudAve without sponsorship.  My regular readers know I’ve been an advisor to Zoho for years now - I’ve found them to be a showcase for a lot of my ideals.  Zoho stepped up as exclusive sponsor of CloudAve.  This does not make us a Zoho PR outlet, in fact they can expect less coverage here than they got on my personal blog.  We enjoy complete editorial independence.

What we do not have, and will not have is any form of advertising.  None of those flashy banners, boxes, making the site close to unreadable. Just pure content.  And since we are not dependent on page views, we can afford to offer our content under a Creative Commons licence.  Yes, it’s all yours, take it - just don’t forget attribution.

So here we are - welcome to CloudAve. We hope you will follow us.   And once again, thank you, Harry, for all the attention to Cloud Computing.

P.S.  The CloudAve platform  is not exactly in nice order yet. It’s work-in-progress.

So for now, all I can do is apologize for the shabby appearance, like I did at a previous move - that one turned out quite well, didn’t it?

And talk about move - I am not abandoning this blog either, so I hope you continue to follow me both here and on CloudAve.

Tags: benchmarking, business model, cloud computing, cloudave, commoditization, Enterprise Software, Gartner, hype cycle, office 2.0, pull-model, SaaS, software sales

Office 2007 Reaches a New Low - reports Joe Wilcox @eWeek.  He means low prices:  while Office Standard is still above $300, the Home and Student Edition can be purchased for as little as $89.99.

He then speculates on the reasons for this “Crazy Eddie”  pricing, with percentage of likelihood:

• “It’s end of the back-to-school buying season, when Microsoft and retailers often discount consumer Office (50 percent).
• Microsoft is seeding the consumer market with the Home and Student Trojan horse for supporting Web services such as Office Live Workspace (25 percent).
• The low pricing is way of psychologically preparing the consumer market for $69.95 Office Equipt, which packs 12-month subscription versions of Office 2007 Home and Student Edition, Windows Live OneCare, Mail, Messenger and Photo Gallery. (20 percent).
• Microsoft is shoring up marketshare as proactive response to freebees like Google Docs. (5 percent).”

I strongly believe in the last one, which is way underrated at 5%.  With freely available OpenOffice, Google Docs and the Zoho Suite, people have little reason left to purchasing Microsoft Office.  I’ve said this before, while discussing the perfectly rightful clampdown on piracy:

The danger for Microsoft is not the direct financial impact of these users turning away from their product, since the never paid in the first place. It’s losing their grip; the behavioral, cultural change, the very fact that millions of people - students, freelancers, moonlighters, small business workers,  unemployed - realize that they no longer need a Microsoft product to work with MS file formats.  Microsoft shows these non-customer users the door, and they won’t come back - not even tomorrow when they are IT consultants, corporate managers, executives.  That’s Microsoft’s real loss.

But this post is about commoditization, and there’s more to it than putting price-pressure on Microsoft. Yes, SaaS disrupts the traditional software market, but there’s another equally important trend happening: some of the early pioneers who evangelized SaaS but retained a 1.0 business model are being squeezed by more nimble competitors. 

Days after my post on SaaS and the Shifting Software Business Model I received an email from Salesforce.com, announcing new, promotional pricing for Salesforce Group Edition.  The promo was supposed to end July 31st, but I suspected this would become a permanent price cut.  Why?  Group Edition is where Salesforce.com feels intense price pressure - see the comparative matrix here.  Today I checked again, and what a surprise (not really) -  the promo deadline is now gone, Salesforce.com silently turned the promotion into a permanent price-cut. 

No wonder there wasn’t much fanfare: price cuts are a red flag for the Street.  Commoditization can be a death-spiral to businesses - except for the few that drive it. But it is beneficial to customers, and in the end, that’s what matters.

(Disclaimer: I am an advisor to Zoho, the company with a mission of Deflating IT).

Tags: business model, commoditization, crm, microsoft, ms office, office, Office 2007, On-Demand, price cut, SaaS, salesforce.com, Software, zoho

Barely two years ago we debated whether little-known Zoho was worth paying attention to. The majority view was that their Office applications were weak contenders that would never challenge the Microsoft suite’s position. I think I was in the minority stating that I really did not need more than 10-20% of Word or Excel’s functionality, but online-anywhere access and collaboration made the switch worthwhile.

Today Robert Scoble reports he is seeing online applications wherever he turns:

Today I’d say the skill set is shifting once again. This time to something like Zoho Writer or Google’s Docs. Because if you visit Fast Company’s offices in New York, for instance, they want to work with you on your copy in live time. Fast Fast Fast is the word of the day. It’s in our title, after all. Now some people still use Word, but last time I was there one of the editors told me he was moving everything over to Google’s Docs because it let him work with his authors much more effectively.

These are no longer yesterday’s wannabe applications. Zoho Sheet recently added Macro and Pivot Table support , going way beyond the average user’s needs (and certainly exceeding my spreadsheet skills, which are stuck somewhere at the Lotus 1-2-3 level). Zoho Writer today added an equation editor and LaTex support. Heck, I don’t even know latex from silicone, what is it doing in my editor?
As I found out it’s important for Zoho’s academic and student users, once again, going way beyond an average user’s needs. (the other update today is mass import from Google Docs: nice, special delivery for Dennis, but I still would like to see a list of all my online docs, be it Zoho or Google, open them, edit them, and save to whichever format (and storage) I want to.)

Online applications have arrived, they’ve become feature-rich, powerful, and are the way software will be consumed in the future. They also change the business landscape.

Software margins choked by the cloud? - asks Matt Assay at CNet, pointing out a shift in Microsoft’s tone about cloud computing, recognizing that in the future they will host apps for a majority of their customers, and that their margins will seriously decline:

There’s not a chance in Hades that Microsoft will be able to charge more for its cloud-based offerings–not when its competitors are using the cloud to pummel its desktop and server-based offerings. This is something that Microsoft (and everyone else) is simply going to have to get used to. The go-go days of outrageous software margins are over. Done.

Matt cites Nick Carr who in turn recently discussed

…the different economics of providing software as a Web service and the aggressive pricing strategies of cloud pioneers like Google, Zoho, and Amazon.

This is fellow Enterprise Irregular Larry Dignan’s key take-away from the Bill & Steve show, too:

Microsoft CEO Steve Ballmer acknowledged the fact that a lot of computing is happening in the browser and not in applications. He also said that the future of software will have “a much more balanced computational model” and that Microsoft will have to compromise.

Of course it isn’t just Office. The obvious business application is CRM, where Salesforce.com pioneered the concept and delivered the first On-demand product. But now a funny thing is happening: the pioneer is increasingly being replaced by more inexpensive competitors, including my Client, Zoho. Yes, SaaS disrupts the traditional software market, but there’s another equally important trend happening: the commoditization of software.

Commoditization is beneficial to customers, but a death-spiral to (most) vendors. Except for the few that drive commoditization. Zoho makes no secret of doing exactly that.

Tags: business model, cloud computing, commoditization, crm, excel, microsoft, On-Demand, SaaS, salesforce.com, Software, Web Applications, word, zoho, zoho crm, zoho sheet, zoho writer

Cambrian House, the poster-boys of Crowdsourcing are essentially dead - assets being sold in a garage sale for a fraction of what investors put in. TechCrunch and Mark Evans speculate the House collapsed due to poor execution.

Of course.. in fact they were doomed to fail, and it was obvious ever since the 1000 pizzas episode. This is what I wrote back then:

They are not afraid of unusual publicity stunts, although frankly Feeding Google was more about noise than being smart: followed by cameras, completely unannounced, they descended on the Google campus with 1000 pizzas at 3pm.
Did you get that? Google, as in Google the company famous for it’s free gourmet food, at 3pm, as in just after lunch, before dinner - no wonder they were soon escorted off campus.
Cambrian guys, I have a free idea for you: next time set up camp with your 1000 pizzaz at Stanford, you’ll be heroes and won’t leave without 100’s of new ideas…and I don’t even want 75 points, just invite me for the pizza-fest.

OK, I admit I am being sarcastic. And I liked the concept, too bad it did not work.

Tags: business model, cambrian house, canadian startups, crowdsourcing, digg, Google, Outsourcing, royalty points, Startups

I was very lucky in the early 90’s being in an industry that was not only shielded from recession, in fact it was thriving.  Corporate America was taught to fight their way out of the slump by Business Process Reengineering, and what better way to execute it than by implementing new integrated business information systems.  The slump for the rest of the country was a major boom for SAP, and the entire ERP industry born in their footsteps.

Today we’re amidst another technology change, one that may just ensure relatively smooth sailing through a recession for the Software sector - at least those who are on the right side of the change.  The belts will be tightened, says the New York Times, but technology will still grow, just at a slower rate:

Overall growth in technology spending may fall from 7 percent last year to 4 percent or less this year, according to estimates by IDC, a research firm.

But that won’t be nice 4% growth for the entire industry; I strongly believe pioneers of Software as a Service (SaaS) will be amongst coming out of a slow-down as winners, leaving others in the dust. 

TechCrunch is optimistic for the entire Web 2.0 business:

All of those Enterprise 2.0 startups out there, or even Amazon trying to sell Web-based computing infrastructure, are actually at an advantage. Customers are more likely to try cheap cloud computing when they can no longer afford the alternatives.

ZDNet’s Dan Farber disagrees:

Most of the Web/Enterprise 2.0 startups can’t get a hearing with CIOs and tech buyers at corporations. While consumer applications are influencing corporate applications and coming in through the back door, Enterprise 2.0 apps (blogs, wikis, predictions markets, social networking, mashups, collaborative cloud-based apps and technologies such as RSS and tags) are just beginning to reach the radar of larger corporations, and they are not considered mission critical, which is where the money is funneled first

I think they are both right - and wrong.  I don’t agree that the entire Web 2.0 sector is immune to a down-turn: the advertising market will shrink,  the “lets-grow-insanely-who-needs-a-business-model” types will suffer. As Software VC Will Price says:

It may well be that Slide raising $55m from mutual fund companies at $500m+ pre-money will be the “what were we thinking” moment of the current cycle.

I also agree with Will, that a movie we’ve all seen will be playing again:

The last downturn saw the valley swing violently away from consumers to the enterprise - bastions of value, hard ROI, tangible value propositions, enterprise pain points and budgets, etc became the mainstay of investment decisions and the consumer, I kid you not, was literally a bad word…
The valley became all enterprise, all the time.

It will not be all, and not only Enterprise, but Business Software, whether for the Enterprise or small businesses will come back with a classic, “old-fashioned” business model of actually charging for value (product or service) delivered.  Of course there is still the dilemma of selling business software - much better if you don’t have to, it is getting bought instead.   Yes, Dan is right, “Web/Enterprise 2.0 startups can’t get a hearing with CIOs and tech buyers at corporations” and their  apps are not considered mission critical, but the whole point is that a lot of these Enterprise 2.0 tools are not sold at the CIO level.

The after-bubble nuclear period of “no IT spending at all” found me at a startup. We did not exactly hit it big, but did not go under, either, and that’s because our model allowed us to get in the door way below the threshold that would have required higher authorization. Not classic SaaS, rather SES (Software Enabled Service), we were essentially data providers and often got into an “enterprise” account at $3k for the first month … ramping up to $60-$100K annually.   Anyone familiar with Enterprise Sales knows the term Economic Buyer:  typically getting involved later at the sales cycle, approving or nuking the deal.  Well, we saw no Economic Buyer: being under the threshold, we sold to the User directly.

As Zoho CEO Sridhar Vembu adds to the discussion:

It is useful to remember that both Salesforce & WebEx thrived during the last recession - in fact they were relatively unknown during the last boom. Cost was a major part of the reason they thrived in the bust.

Indeed. Software as a Service and the typically associated pay-as-you-go model allows businesses - enterprise and SMB - to use software without the typical upfront investment the traditional model would require, therefore SaaS providers have a good chance of withering a Recession.  Another noteworthy idea in Sridhar’s response is that they really don’t have to have a “massive win”, a total move from the desktop to the cloud: a “marginal” business  is good enough.

Of course this “marginal business” is not as attractive to many startup entrepreneurs as fast forwarding to the IPO, preferably over $1.5B. In fact it’s really boring… building a business gradually; no IPO thrill; serving millions of customers, helping them actually conduct business.  Oh, and making millions of dollars of real revenue in the process - not bad, if you ask me.  And it’s quite bubble-proof.

Related posts: Vinnie Mirchandani -  Why it will be very different this time, Fred Wilson- This Time Will Be Different.

Update (1/28): Forrester Research predicts gains for Enterprise Web 2.0 apps in 2008.   Also read: Between the Lines, ReadWriteWeb.

Tags: bubble, business model, cloud computing, enterprise sales, Enterprise Software, entrepreneurship, On-Demand, recession, SaaS, salesforce.com, Software, Startups, webex, zoho

I’m sitting at the Office 2.0 conference watching a barrage of 5-minute product demos. FreshBooks’s CEO just dropped a bomb at the last 20 seconds in his presentation: being software as as service, they can aggregate customers’ data, categorize it by industry, size ..etc, and once they do that, why not turn it into a product?

Customers can receive generalized metrics as well as benchmark themselves against their peers.

Stop here. Think about it. This is big. It’s not about FreshBooks. It’s *the* hidden business model enabled by SaaS. It is so logical, we all had to know it would be coming - but carefully avoids talking about it. No wonder… SaaS adoption is growing but still at an early stage, and security, trust concerns are huge. The last thing software vendors want is to feed those concerns, i.e get their customers worried about the competition accessing their data.

The benefits are obvious: all previous benchmarking efforts were hampered by the quality of source data, which, with all systems behind firewalls was at least questionable. SaaS providers will have access to the most authentic data ever, aggregation if which leads to the most reliable industry metrics and benchmarking. Yet it raises a number of serious questions: How far can they go? What are the security / confidentiality / privacy implications? Are they reselling data that the customer owns in the first place? If the customer owned the core data, who owns the aggregate?

The business of metrics, benchmarking is potentially huge, but it can’t take off until the industry, along with customers, can answer these questions - and more.

Update (10/16): I’ve just checked who else talks about this Unheralded SaaS benefit, and voila! Two posts from fellow Enterprise Irregulars, ex-Gartner Vinnie Mirchandani and Yankee Group’s Jason Costello.

Update (10/30): Read Dennis on Valuing Data and on Freshbooks.

Tags: benchmarking, business model, data security, Enterprise irregulars, freshbooks, industry metrics, office 2.0, Office20con, On-Demand Software, performance metrics, SaaS