Now that The Crunchies, the Internet Startup world’s equivalent of the Oscars are over, the winners announced, a lot of champagne consumed, let me go back to a few thoughts that have been on my mind throughout the whole show.

First of all, it was nice to see so many startups recognized, meet familiar faces again, and I join the chorus in thanking TechCrunch, ReadWriteWeb, VentureBeat and GigaOm for putting the show together. Special kudos to Om Malik for coming only three weeks after his heart attack.

Second, I can’t help but think that some of the categories were .. well, almost deterministic, leaving zero chance of winning for the “little guys” lumped together with a giant. Right out of the gate, the first category, Best gadget/device: iPhone, Kindle, Ooma, Pleo, Wii. C’mon, did anyone doubt for a minute the iPhone would win? Or look at the Best mobile startup, where the finalist were AdMob, Fring, Loopt, Shozu, Twitter. Oh, please, 3 relatively unknown names against Twitter, a mega-phenomenon…

The other thought I’ve been pondering ever since the show is whatever happened to business software? The Crunchies were yet another proof that “enterprise isn’t sexy“: this was all about consumer-glitz, with a few startups who cater to businesses. That said, at least there was an Enterprise startup category, and I was really glad to see my friends at Zoho win it. Although I wholeheartedly believe they deserve it, this was by far not a slam-dunk category, with Zoho and 37signals, which has a religious cult-like fan-base being the two chief contestants.

Perhaps the Zoho team felt a bit of extra satisfaction, given that 37signals originally questioned their viability, and called them copycats rather than innovators. Well, the innovation debate definitely ended a few weeks ago, when PC World picked Zoho’s Notebook as one of the 25 Most Innovative Products of the Year. While the Crunchies were clearly a popularity contest (with over 100,000 votes) PC World’s list was compiled by professionals. This list was notably full of gadgets, and the only other software products preceding Zoho were Google Gears and the Facebook API.

Back to the Crunchies, Enterprise category, 37signals and Zoho are diametric opposites in many ways: 37signals product philosophy is all about simplicity, “products that do just what you need and nothing you don’t” while Zoho believes in functional richness, and their customer service attitude is quite different, too. Yet I believe they are both good companies, and there’s a clear demand for their products, which is well proven by the hundreds of thousands of loyal customers. Neither of them are really Enterprise software companies though. 37signals caters for what they call the “Fortune 5,000,000″ and Zoho clearly stated their mission to be the “IT for Small Business” - not that a subset of their portfolio, the Office Suite could not become Enterprise-ready, but for now it’s not their primary focus. And focused they are …

I think the Crunchies used the term Enterprise quite liberally - I would have called this category Business Software. Now, if the names IBM, HP, SAP, Citigroup, Boeing, BMW, Shell, McDonalds, Pfizer sound familiar, I’m sure you agree that the company who claims these and others customers is truly an Enterprise Software company. Yet Atlassian ended up in the International category, to their bad luck, as they got paired up with Netvibes. The two are apples and oranges. Atlassian is a very successful company, but the people who buy enterprise software are not the types who hang out at the Web 2.0 tech blogs or vote for the Crunchies; Atlassian stood no chance against Netvibes, with their tens of millions of individual users, all potential voters in this popularity contest.

What do three so different companies, Atlassian, 37signals and Zoho have in common? All three are bootstrapped, fast growing, financially successful and follow the “old-fashioned” business model of making good products and charging for it. I could not help but think of these guys while listen to the announcement of the Best Bootstrapped startup category, decided between FriendFeed, PoliticalBase, ProductWiki, Techmeme, UpNext. Or while listening to the panel discussion moderated by Dan Farber, where Matt Marshall expressed his astonishment how far the ad-based business model propelled us, and was wondering if advertising as the only business model would work in the downturn (no R-word!). If we had to pick the survivors of a potential downturn, these three companies are certainly safe candidates. The good old business model of charging for your product, which, incidentally, your customers love works wonders.

Of course there was a lot more to the Crunchies, but it’s been all more then adequately covered, and I wanted to focus on business software now. But…well, I am a guy and guys love cars… so I have to mention the Cleantech category, won by Tesla, makers of this beautiful electric sports car. The only problem is, the car does not exist yet, release date has been pushed out repeatedly, the company had to go back for repeat funding, just fired a bunch of people, including the VP Manufacturing, Lead Engineer if the motor team… but hey, why not give them the Award and keep on dreaming (about the car).

Update:  Apparently I am not the only one questioning the rationale of some category assignments at the Crunchies; read CenterNetworks on user-generated content.

Tags: 37signals, atlassian, business software, crunchies, Enterprise Software, entrepreneurship, internet, oscars, SaaS, Startups, techcrunch, tesla, web 2.0, zoho

(Updated)

This post is a continuation of Web 2.0 in the Enterprise - Round 2 in which I reflected on some thoughts brought up by Stephen Bryant in Five Reasons Web 2.0 and Enterprises Don’t Mix.

The Web 2.0 in the Enterprise TIE event I previously referred to was hectic, trying to cover way too many subjects in 90 minutes, with one common underlying assumption: Enterprise means large corporations. The theme of the night was how these Web 2.0 technologies and business/communication approaches will “seep in” to the large enterprise from the bottom up.
What is then Enterprise Software? Typically SAP, Oracle et al come to mind, and I can hear the roar “Enterprise Software is Dead” – well, is it?
If we define Enterprise Software as the traditional heavyweight, expensive, pay-huge-license-fees-upfront, then try-to-implement-forever model it is certainly challenged from two ends, by Open Source and the SaaS model. But there is another definition that is largely being overlooked:
Software that allows a company to conduct it’s everyday business, supporting most of the core, fairly standard business processes any company performs repeatedly.

With this definition, Enterprise Software has a whole new, largely unpenetrated market to enter: that of small businesses, referred to as the SMB or SME segment. Such enterprise functionality has traditionally been beyond reach for a typical small business, for two major reasons:

• Cost (license, hardware, implementation, maintenance ..etc)
• Lack of IT resources (integrating applications, designing processes, dealing with multiple vendors ..etc)

SaaS is the right answer for both, since it allows the SMB user to start using the functionality without an upfront investment, does not require implementation, upgrades, maintenance, worrying about backups and security ..etc.

Of course several Open Source packages are available completely free, which is a perfect solution for the cost problem, but I think most of these packages are by geeks for geeks; i.e. you really have to be quite IT-savy to implement, integrate, upgrade them, and as we stated most small businesses simply do not have that type of resource. Yes, that means the Silicon Valley tech-startups are not a true representation of the SMB world
Likewise, I don’t believe SOA, best-of-breed packages working together are an option for the SMB market, for the same reason. They will play an increasingly critical role in larger enterprises with a professional IT organization, but for a few more years SMB’s are far better off with integrated, All-In-One type On-Demand solutions.

Of the Web 2.0 companies Stephen mentions in Five Reasons Web 2.0 and Enterprises Don’t Mix two are offering Integrated On-Demand solutions:

• NetSuite
  Stephen lists NetSuite along with Salesforce.com, and while they are in the same club, the significant difference is that Salesforce.com is only CRM, while NetSuite offers an integrated CRM+ERP package. They both are trying to become a “platform” via NetFlex and AppExchange, respectively. Both companies are definitely pushing upstream, going after the Enterprise market as in the first definition, i.e. large (or midsize) corporate customers.
• 24SevenOffice
  Coming from Europe this company is lesser known. They focus on the SMB market and offer a modular but integrated system with a breath of functionality I simply haven’t seen elsewhere: Accounting, CRM (Contacts, Lead Mgt, SFA), ERP (Supply Chain, Orders, Products), Communication, Group Scheduling, HR, Project Management, Publishing, Intranet. Essentially a NetSuite+Communication, Collaboration. I’ve taken their test-drive (currently IE only) and liked it. I would debate how they structure their menu-system, as functions like Product, Inventory, SCM are all hidden under Financials.

Back to the economics: if SMB’s could not in the past afford Enterprise Software, the same held true for the Software Industry: they could not afford SMB’s, since there was just no way to make the numbers work. The cost of customer acquisition vs. the very low license fees made it an uneconomical model, whether via direct or channel sales.
Once again, technology comes to the rescue: the Internet, and largely Search Engine Marketing changes everything. Joe Kraus, Founder of JotSpot and previously Excite sums it up:
“ Ten years ago to reach the market, we had to do expensive distribution deals. We advertised on television and radio and print. We spent a crap-load of money. There’s an old adage in television advertising “I know half my money is wasted. Trouble is, I don’t know what half”. That was us. It’s an obvious statement to say that search engine marketing changes everything. But the real revolution is the ability to affordably reach small markets. You can know what works and what doesn’t. And, search not only allows niche marketing, it’s global popularity allows mass marketing as well (if you can buy enough keywords). “

Another benefit of SEM is that while traditional advertising can pick the right demographic groups, it cannot pick the right time, only a fraction of the target audience is in “change mode”, looking for a solution. That’s the beauty of Search Engine Marketing: obviously if you are searching, you have a problem and are looking for a solution, which is half a win from the vendor’s point of view.
Small Business Trends recently published a survey on “Selling to Small Businesses”, which supports the increasing importance of SEM: “A full 73% of vendors attract small business customers through search engine results”

Finally a quote from Ziff Davis again: “Products for the long tail and SMB market, where 72 million businesses spend $5k or less each year, are a much easier play” Wow, I don’t know where those numbers come from, but if I were a SMB-focused software vendor, I’d certainly like them … there’s a goldmine out there.

Update (2/22): Perfect timing for this report to come out just now: U.S. SMBs to Spend $2.2 Billion on Software in 2006, Says AMI-Partners

Update (4/17): Interprise Suite (recently debuted at Demo 2006) claims to be “The FIRST Accounting / ERP / CRM Solution to Bring the Power of the Internet to Small and Mid-sized Business“. While I take issue withe the claim to be “first”, considering the breadth of functionality it’s definitely an option to consider for SMB’s .

Related posts:

• SaaSsy
• SaaS for SMBs
  

Tags: 24sevenoffice, Accounting Software, business model, crm, Demand Generation, enterprise sales, Enterprise Software, erp, Interprise, Interprise Suite, Jotspot, netsuite, Open Source, oracle, Sales, salesforce.com, sap, Search Engine Marketing, SEM, small Business, smb, sme, TiE, web 2.0, web20enterprise

Forget checklists, playing the Web Bingo … go to the one-and-only automated Web 2.0 authentication tool (hat tip: Vinnie Mirchandani).

Here’s the verdict on just how compliant some blogs are:

• techcrunch 8 out of 17
• crunchnotes 2 out of 18
• businessweek/the_thread/blogspotting/ 5 out of 18
• battellemedia/ 2 out of 17
• dealarchitect.typepad 14 out of 20
• micropersuasion/ 7 out of 14
• blog.softtechvc/ 8 out of 19
• bubble20.blogspot 4 out of 19
• ross.typepad/ 4 out of 16
• sapventures.typepad 5 out of 16
• horsepigcow/ 10 out of 14
• Minding the Planet 6 out of 20
• zoliblog 6 out of 15

Oh, well, the Web 2.0 workgroup must be 100%, let’s see:

• web20workgroup/ 7 out of 18

How about some applications?

• zimbra 3 out of 15
• zvents 5 out of 18
• writely 1 out of 20
• sphere 3 out of 18
• meebo 0 out of 14
• loomia 6 out of 19
• Goowy 2 out of 17
• flock 4 out of 18
• TailRank 5 out of 19
• sqlfusion 2 out of 18
• 24sevenoffice 1 out of 17

Search Engines? Wow, look at who has the lead:

• google 1 out of 18
• yahoo 3 out of 17
• msn 4 out of 20

Surprising results from the “Old World“:

• sap 4 out of 17
• oracle 2 out of 19
• ibm 3 out of 16
• walmart 2 out of 18
• ge 3 out of 19

All right, for all of you not happy with your own score … do you have a suspicion? Confirm or clear it here.

Then, perhaps, buy the T-shirt here. (Charlie, I’m expecting a fat commission check…)

Update (11/16) : The Great Web 2.0 Joke List

Tags: bubble, Bubble 2.0, Compliance, entrepreneurship, Startup, techcrunch, Validator, web 2.0, Web20