Before I say anything, I want to prefix this post by stating that I am an Advisor to Zoho, which can be perceived as a competitor to Ulteo, the company that just announced providing OpenOffice On-Demand. That said, I often I’ve repeatedly stated my belief that we’re at a state of early expansion for Software as a Service, and for now, the more players the better. It’s not about slicing the pie yet, it’s about making sure the pie will be huge:

Summing it all up, I believe the winner of the “on-demand race” will not be Google, Zoho, or any of their competitors – the winners will be the customers who will have a lot more choice in picking the right business solutions later this year.

So I am happy to see new On-Demand offerings that work – and am royally p***ed when they don’t. I tried to use Ulteo, repeatedly. At the first attempt in the morning, I got stuck with a blank screen:

Next I tried in the evening: I spent a minute or so at the above blank screen, but finally I got some signs of life:

Oops… I don’t know of another instance, I don’t have Openoffice installed on this machine, and a Vista glitch forced me to reboot since my early morning attempt with Ulteo. And I certainly have no clue who the *** user u7670 is or how I should close Openoffice for this user on the Ulteo servers. But let’s click Yes to continue anyway:

Why am I in document recovery mode and just what is it I am about to recover? Finally, I got into this somewhat broken screen:

Not a very positive experience, if you ask me. On the other hand, it’s still more than the previous web-office “announcement”: Live Documents, which is still to materialize…some time next year.

Like I said, I am happy to see more On-Demand services. Those that actually exist, and perhaps even work.smile_eyeroll

Update: Jason Brooks at eWeek had similar experience.


Google & Zoho: Friend or Foe?

When Zoho introduced the offline version of their word processor, Zoho Writer, no commentators (including yours truly) missed the chance to point out the irony that the solution is based on Google Gears, while Google’s own competing Docs do not have this capability yet.

Zoho, which competes head-on with Google Docs & Spreadsheets, managed to launch offline functionality on their product before Google did. The fact that they are using Google software to do this makes the story somewhat ironic. (TechCrunch)

it’s very ironic that Zoho Writer has incorporated off-line features before its competitor, Google Docs, did. And by using Google Gears software developed by Google itself! (Proud Geek)

Donna Bogatin @ Insider Chatter went further:

What IS up with the would be Microsoft Office killer, Google Apps? Chief Googler Eric Schmidt proclaims “Search, Ads and Apps” is the new Google worldwide domination motto, but he is helping competitors Sun StarOffice AND Zoho attempt to steal Microsoft’s thunder, while Google Office remains Microsoft Office killer MIA.

First, Google subsidizes free downloads of Sun’s supposed Microsoft Office replacement via its Google Pack.

Now, Google Gears powers direct Google Apps competitor Zoho in an offline initiative, while Google Apps itself remains firmly in the cloud!

Google is either planning something VERY big for Google Apps, or it is retrenching.

While I have no idea what the plans for Google Apps are – after the StarOffice announcement there was speculation whether the future is syncing to StarOffice or Gears-based offline – they are definitely not retrenching. This is not a matter of “who gets there first”. In fact it’s not even cut-throat competition. Of all the reports, I believe Techdirt got it right:

As we noted when Gears was first announced, Google was clearly interested in advancing the whole area of web-based software, not just in pushing its own apps. Just as Microsoft seems hesitant to give even the slightest endorsement of this model, Google recognizes that it will benefit, regardless of which offerings users choose in the short term.

Exactly. Any time you, me, any user makes a choice between Google Docs or Zoho Writer, Google Spreadsheet or Zoho Sheet, it’s clearly a competitive situation. But in other ways, Google’s and Zoho’s interests are well aligned. I’ve said a number of times before, it’s not about slicing the pie yet, it’s about making sure the pie will be huge . Both Google and Zoho have vested interest in promoting the paradigm shift from PC-based to Web-based computing. Competitors can be friends – it’s not unheard of, just think of arch-rivals Oracle and SAP: cut-throat competitors in the enterprise application market – yet as a database vendor, Oracle is an important SAP partner.

But let’s be clear, I’m not trying to give the impression the Gears-based Zoho development was the result of some grand Google-Zoho master plan. Nothing would be further from the truth. Google Gears is an Open Source project (check out Donna Bogatin’s post for details) , a significant one, and “Mother Google” is not trying to control who uses it for what. Let’s go to the source though: Dion Almaer of the Google Gears team said:

Of course, Google could have held Gears back and released it at the same time as a bunch of offline Google applications, but that isn’t the point. Gears is about making the Web a better place through offline, and we want the Web to be able to benefit.

That is why I am excited to see (Zoho) Writer join the list of developers that use Gears.

In fact Dion called to congratulate the Zoho team, and visited their Pleasanton office to interview Sridhar Vembu, CEO, and Raju Vegesna, Evangelist. Here’s the video:

And if that was not enough media, Raju is going live on the Computer America radio show at 7pm PST tonight. (I hope he won’t sing smile_wink)

(Disclaimer: I’m an Advisor to Zoho, however, the article above is a reflection of my own thinking, not a statement from Zoho.)

Further reading: Zoho Blogs, Insider Chatter


Frustrated by the Bug

The Bug has arrived,  It’s going to be big.

That’s the gist of what I can figure from a flurry of blog-posts on the new Open Source Hardware device to be launched soon.

I still don’t know what the Bug is, but it’s already bugging mesmile_sarcastic.   How is it that after reading top blogs like Fred Wilson’s, Brad Feld’sMashable,  I still don’t know what it is?   These guys all say it’s going to be Big,  but what does it do?   At last Dave Winer has some ideas…

I’m with Henry Blodget on this:

if Bug’s forthcoming product, The Bug, is to become a consumer hit (which is apparently part of the plan), the company first needs to do a better job of explaining what it does.



Enterprise Software is (Still) Not Dead

Recently I joined my fellow Irregulars (a work-group of bloggers, analysts, journalists who write about Enterprise Software) in jointly publishing an article on Sandhill: Software’s Sky is Not Falling.
All articles get edited, and that’s even more so with multi-author ones; therefore I thought I would post my original, pre-edit piece below.


With almost predictable regularity we’re seeing software obituaries popping up just about every month: the only variation in the theme is what’s being declared dead: sometimes it’s Enterprise Software, sometimes it’s email.  Just like I’ve already stated I did not believe email was dead, I strongly disagree it’s time to mourn Enterprise Software.

Since my fellow Irregulars mostly addressed the Open Source angle in Guy Smith’s post, Is Enterprise Software Doomed? I’ll reflect on the SaaS part of his piece.

SaaS is the bastard child of the traditional proprietary software vendor and the Open Source marketing paradigm.”

SaaS is NOT an offspring of Open Source, although they often get lumped together, especially in buzzword-heavy startup pitches; however, they are quite different animals.

With a great deal of simplification the single most important difference is in the deployment model, SaaS by definition being on-demand, while most Open Source products are on-premise, traditionally installed systems.

Guy sees the natural evolution of Open Source Enterprise Software vendors “retrofitting” their products to SaaS offerings, but in reality most SaaS offerings are commercial, and most Open Source is on-premise, these two being on decidedly different paths.

The common trait, as Guy correctly points out is the change in the sales & marketing process: PR, buzz, online sales cycle process management, free trials, inbound sales, customer-initiated pull process vs. sales push. Yet Guy sees this as a necessity forced by economics: “the reduction in unit revenue will force all Open Source (including Dual Source) vendors to change their marketing and sales cycle “ when in reality these are actively pursued changes that both Open Source and SaaS companies embrace. Without denying the importance of the underlying technology, the most important change SaaS facilitates is this very business model change, which opens up entirely new, unpenetrated business segments for Enterprise Software: small and medium businesses (not just the M but the S in SMB). In fact customer size is another differentiation factor, at least for now, SaaS penetrating the SMB segment, while Open Source is ideal for mid-size companies, that actually have the in-house IT-expertise to play around with OS.

So is it as simple as:

  • small business = SaaS
  • midsize = Open Source
  • large company = traditional software?

Not really, that would be oversimplification. But while it’s easy to declare that for small businesses without their own IT resources there is no better option than SaaS, there is no clear “winner” for large corporations. There shouldn’t be. This is not religion; it should be business decisions that these organizations have to make individually. Analysts fighting the SaaS vs. On-premise war often forget that software exist to resolve business problems. As Charles so eloquently points out, it’s the complexity of these business processes, the need for customization, the number of user seats..etc that matters, and as we move up on this scale, increasingly “traditional” Enterprise Software is the answer. I happen to believe that eventually SaaS will grow up to meet those requirements, but am not going to guess how many years it will take. In the meantime the SaaS-fans (admittedly I am one) can claim that SaaS is the future – but that does not mean Enterprise Software is dead.

If I were to launch a software startup, it would be SaaS. Dave Duffield and his PeopleSoft team have the luxury of starting from scratch launching Workday, a pure SaaS company – since they were forced to walk from PeopleSoft and it’s customer base. But SAP and Oracle, (btw, Guy, since when do we determine market leadership by the amount spent on acquisitions?) together “own” the large corporate space; how could they expect their customers to throw away their investment in traditional software?
On-demand “purists” (the religious types) criticize SAP for their half-hearted hybrid approach to SaaS –  but why would they do anything else?    After all, SaaS is still only 10% of all enterprise software sold. Even if we believe “the future is SaaS” (which is of course unproven, but I happen to believe in it), there is a lot of mileage left in the “old” Enterprise model, and market leaders like SAP have certainly no reason to turn their backs to their huge and profitable customer base.


Here are the other “Irregulars” un-edited contributions:


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Crowdsourced Software = Your Second Best Idea + Digg + Open Source Community + Incentives + … ?

Recently my friend, Chris Yeh organized a special SDForum event, “Your Second Best Idea“, where he brought together:

  • Creative thinkers who have a killer idea to build a company – if only they had the time
  • Entrepreneurial types who’d love to make it happen, but lack the “big idea”
  • Venture Capitalists, Angels who would fund it all (?)

Chris’s concept was that after brief idea-presentations the participants would “bid” to team up with the idea owner based on their initial plans to execute and an equity offer to the owner. And if all runs well, perhaps a VC will jump in, too. I had some doubts on how far the process can go in one short event, but it was certainly an interesting experiment. We heard ideas, the crowd discussed them, but we never got to the point of entrepreneurs bidding for the ideas – which somewheat masked the underlying big question:

What’s the value of an idea? In a different context, as part of the NDA discussion I’ve previously stated tha ideas by themselves were not that valuable, it’s the entrepreneur behind the idea that makes or breaks the startup. Well, if that’s true, than how much equity is an idea presented in 5 minutes worth? And if that’s all the idea-owner had, hasn’t he/she just given it away for free?

While the inaugural session did not answer these questions, I’ve recently heard about Canada-based Cambrian House whose entire business model is based on Chris’s concept .. and more. Here’s how they explain it:

So the creative types submit an idea, the community votes (here’s the digg-effect), others will develop it, Cambrina House markets the product. All contributors to this “supply chain” will share the profit, according to a Royalty Point system. All projects start with 1500 Royalty Points, and submitting an idea is worth 75 out of the 1500, so if my math is correct, that’s a 5% equity for the raw idea – pretty high, if you ask me. 

What noone can predict for now is whether those Royalty Points will ever get converted to real money, and at what rate.

Does Cambrian House have a sustainable business? I have no clue… and I suspect nor do the contributors, or even the Founders of Cambrian. In todays heated entrepreneurial environment apparently being radically different is good enough (and being a serial entrepreneur doesn’t hurt, either), so they landed $2.5M in funding from aptly named Adventure Capital in Alberta, Canada. This funding will go a long way, as they essentially outsourced everything, not paying contributors until profits roll in. I guess we can say their currency is hope:-)

The Cambrians certainly know how to create awareness: in 16 days of existence they had 100K site visitors, there daily reach per Alexa is in the top 100 in Canada. 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 luch, 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.

Related posts:

Update (3/23/07): Read/WriteWeb just published an excellent overview of crowdsourcing.

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Open Source Hotel Rooms

I’ve just checked out of my hotel at SAPPHIRE 06 and am shocked looking at the bill:

You can click to view the original Zoho Sheet.

Since I am still in a “software state of mind” (and btw, will return to SAPPHIRE posts soon), I can’t help but draw the analogy to the software industry:  Support and Maintenance charges in the Enterprise Software business are in the 20-25% range.  There is an ongoing debate about the viability of Open Source as a business model but several companies are experimenting with giving away the product and focus on additional revenue sources, i.e. support, maintenance, training ..etc.

Since the hotel industry is up to 18% in surcharges, why not make a dramatic move, “opensource” the rooms and make their numbers on all these other (bogus) fees?    (OK, before I get ripped apart, yes, I do realize running hotel rooms has actual material costs vs. downloading software, and that the Open Source model is a bit more complex … in other word, my analogy is far from perfect, but hey, it’s Friday afternoon, I am waiting for my plane and can have a little fun, can’t I?)

I see a lot more potential surcharges (on top of  the free rooms), like: clean hotel fee, airconditioning surcharge, towel fees at the pool, hot water fee in the bathroom, warm water fee at the pool,  low-noise airconditioning surcharge, no-cigarette-smell fee in the nonsmoking rooms, Broadband fee (yes, I know they already have it, but this would be extra for connection that actually works vs. trickles), private room fee (that is when you don’t get the keys to a room already occupied like it happened to me), fast or medium service surcharges at the restaurant..etc.  Of course when you can’t sleep at night because the damn airconditioning is so noisy, or when your nonsmoking room smells.. .etc, you don’t have to pay.  This could become the feedback / QA mechanism for the hotel industry, a’la the Open Source community support / QA in software.

The opportunities are tremendous, and we should not stop at the hotel industry.  Open Source the World!


TiEcon 2006: Software Luminaries Panel : The Software Richter Scale: 1, 3 or 7?

Liveblogging the Software Luminaries Panel at TiEcon 2006.  (Note: I am obviously publishing this, as well as other TiEcon posts after the Conference, but will only do very basic editing, and some linking, essentially posting my original notes.   I’ve also deviated from the role of passive note-taker here, as this is a subject where I am somewhat competent, and can’t help but insert my own comments here and there – you will see those in italics.  I invite Panelist, participants to feel free and correct / add to my notes in the form of blog comments. Thanks).

There were parallel sessions run with industry luminaries in ballrooms next to each other. Moderator  M.R. Rangaswami opened on the humorous side: the audience picked the right session, as he peeked into the next room where the Semiconductor luminaries session would take place, and saw a sign there saying “semi-luminaries” 🙂   M.R. is Co-Founder of the Sand Hill Group and host of the recent Software 2006 conference (an annual event).  .

As introduction he uses his Software 2006 slides about  Software’s quiet revolution. Three major realities:

  1. Changes represented by SaaS , Open Source, while CIO’s indicate increased spending on software.
  2. Real business is in the Enterprise (but consumer technologies find their way into the Enterprise)
  3. Thriving ecosystem critical


  • Larry Augustin , Angel Investor, Founder VA Linux, SourceForge …etc.
  • Amit Chatterjee , VP Strategy SAP
  • Mark Gorenberg , Partner Hummer Winblad Venture Partners
  • Jason Maynard , Research Analyst Credit Suisse
  • Zach Nelson , President and CEO Netsuite
  • Sanjay Parthasarathy , Corporate Vice President Microsoft Corp. (Chief Evangelist of Microsoft Church)

Starting with a few canned questions for warmup, then taking audience questions.

Question:  Will there be a billion-dollar software company in SaaS? 

Jason:  Yes, Salesforce, NetSuite to begin with.. Client-server, on-premise screwed customers, overpromised, underdelivered. SaaS will be huge, it has barely  scratched the surface so far. 

Mark: Agrees.  Hummer Winblad did 12 pure-play SaaS investments. SaaS is most disruptive.  Siebel was the uncontested market leader and the appearence of killed it. (I can’t help but insert my own opinion here: Sure, Salesforce squeezed Siebel from the bottom up, but two other factor were just as significant in their demise: the “overpromise, underdeliver” syndrome, i.e. customer dissatisfaction after expensive and lengthy projects; and the fact that SAP that already owns the Enterprise market significantly improved their own CRM  offering, and the integrated approach offers a better value proposition to their customers then the standalone Siebel CRM-only solution).  

Sanjay: We’ve already seen billion-dollar  SaaS companies:  eBay and  Google, just not in Enterprise.

Amit:  SaaS by itself is not a business model… for larger organizations hybrid models work better …with increasing process complexity and integration requirements there is a need for a mix of  on-demand and on-premise solutions.

Question specifically to Zach: Larry Ellison (Oracle CEO, owns over 50% of NetSuite, which is expected to pull off a billion-dollar IPO this year) stated that SaaS is only for SMB’s not for large corporations. Is that so?

 Zach: He is generally trying to avoid speaking for Larry. (They clearly have an interesting relationship, Larry has to be somewhat anti-SaaS, and Zach can’t really get into a public debate with his absolute majority owner. It seems to me that Larry is betting on two horses at the same time)  Nobody will switch software because they want to, or because SaaS ismore fashionable. First and foremost customers have a functionality challenge, which the software company has to meet.. Functionality is the primary consideration, and the delivery model supports it.

Sanjay:  We shouldn’t be talking about software as a service, it’s actually software + service.

Mark: A number of companies are selling to both small and large organizations. What’s exciting is that this is the very first time when medium sized companies can get the same functionality as the large guys! ( I tend to think the same is true for small businesses, in fact that may be an even more radical change, and it’s a mistake that analysts often only think of the midsize market when they speak SMB )

Jason: Disagrees with SAP’s Amit on the notion of need for hybrid.  Software needs to become a utility.  There is no room for innovation in most corporate  IT budgets, 80% of which is spent on running the infrastructure.  Let go of thee server!  I know it’s hard …it’s your baby … you may get visitation rights at your SaaS provider:-) (huge laughter at audience)

MR  makes a comment/question on recent high-profile outages in the industry, largely at but elsewhere, too.

Zach: Not all delivery models are created equal.  Sforce runs on “big iron”, (find article here) while Netsuite opted for a grid-like system based on cheap boxes. When a server goes down, it effects the majority of customers,  when NetSuite loses a box, a maximum of 50 customers are effected. This setup  also helps rolling out new versions smoothly, in a phased fashion,  while has to do it in “big bang” style.   Zach predicts Salesforce moving to a grid-like environment soon.

Larry: It’s about ease of adoption.  Software has become a lot easier to create, it’s acquisition is a painful process, and that’s the part that SaaS improves.

Sanjay: Service orientation helps picking best-of-breed solutions, mix and mach. The current trend of consolidation in the industry is actually contrary to it.

Amit: SOA is critical, some services in the cloud, others in the enterprise. 

Zach: Picking composite applications to mix and match is difficult, especially as business processes get more complex.. Composite transactional  applications are a fantasy –  far to difficult to synchronize.  Example: Microsoft CRM and Great Plains are hard to synchronize, even though MS owns the code for both.  Integrated transactional systems are unbeatable – that’s why SAP owns the Enterprise.

Question:  Consolidation, Oracle acquisitions .. getting bigger and bigger – is there room left for innovation?

Larry: Oracle is buying since it’s not doing a great job of innovation itself.  Startups have the benefit of new distribution mechanisms, SaaS, Open Source, user base helps them.

Amit: Lot of room for innovation by partners id they participate in verticals.  He “only” has 6000 developers, cant cover the whole world.(audience laughter)  Larry interrupts: I’d like that problem, I have 12. With 6000 how can you NOT cover the world? (even bigger laughter). Amit: Citibank has more developers then SAP.

Question about data privacy, Security. 

Zach: Especially for small, midsized businesses NetSuite’s security is better than running on local server next to coffee machine. 

Larry: Security is still a huge  unsolved issue.

Sanjay: The real data challenge is mashing structured and unstructured data. 80% of corprate data is unstructured  without business processes: xml is the glue. 

Larry: Html amplified the problem of huge amount of unstructured data, the future will be to move to have data in xml and html is just the presentation.

Question: Are there profitable SaaS companies?.  Sforce is barely profitable.

Mark: is barely profitable, .Rigthnow is making decent profit,  employees (?_) is largely profitable.

Jason: Many are profitable,  SaaS lowers the cost of distribution – there is price elasticity in the market.  SaaS also helps reducing R&D, support costs – salesforce only needs to support one version, SAP, Oracle multiple ones.

Zach: When he joined NetSuite their sales model was direct. Now with success ecosystem develops.  Typically start with direct, build customer base, then ecosystem develops.

MR‘s comment/question: Software 2006 had a panel: Open Source: money machine or money pit? 

Larry: Open Source is a young model, there can not be a lot of profitable companies yet,  Red Hat beng an outstanding example.  On $10M in R&D spends 100M in Sales & Marketing..  It’s cheaper to create software then sell it > Open Source helps eliminating the huge sales costs.

Jason concurs,  sales is 80% of cost.  Enterprise Software companies don’t make a lot of profit on software sales, their profit comes from maintenance.  Smart Open Source companies jump out of this expensive sales cycle and focus on support only.  They will increase botttom line while reducing top line.

Larry:  There is also a culture change: people did not understand software, they had to be educated and had to pay for that education.  Now everyone is computerized, carries a PDA, cellphone ..etc.  This means the  education need is reduced, good opportunity for Open Source’s pull model.

Question: SAP , MSFT will you be giving away your products free? 

Sanjay: Fuzzy answer on giving away software and promoting distribution. 

Amit: Support, explore Open Source, but not fully embrace.  SAP does not have the distribution channel that MS has. SAP needs to build ecosystem.

Question:  Will MS look into buying SAP?  Tried. Jason: pragmatic approach: it won’t happen, if for no other reason, the fight with the  EU..

Question: What Open Source opp’s exist? 

Mark: Recently made two investments into companies that develop applications for the lamp stack.  Issue: IP ownership, integration.  Sales issue: agree with the Open Source effect on lead generation, but how to close sales?  What happens when you move to markets that people don’t understand?

Question: any Open Source  companies to go public?  

Jason:  Potentially MySQL.  Markets pay 10-times sales, 30-times cashflow. Fewer, but better , more sustainable companies.

Question (more a remark) on SAP’s new compensation plan. Hasso Plattner recently  announced he is aiming at doubling the market, if they achieve that, the top 100 execs will make 100’s of millions.  Is that a realistic objective? 

Amit: The announcement certainly helps: -) but the true driver for growth  is product innovation.  

MR askes the panelists for their final remark

Mark: We’re in the greatest disruptive times. Hummer Winblad invested more in the past few years than in the previous 17..

Sanjay: Software industry does not spend enough time with users. 

Larry: Fantastic time to be a software entrepreneur.  Small team , little $, reach to market – not possible 10 years ago

Zach: It’s a great time to start a software company, when you do it, remember  you need a great application to run the business. (audience laughter; good plug for NetSuite …possibly the last one before going into pre-IPO silent period?)

Amit: Customers matter. SAP needs to focus more on the ecosystem.

Jason: MS announced spending additional $2B on emerging areas. Look at areas they are spending… go in those “white spaces”, since  they are good in seeing the  opportunities, but can’t exploit them properly.

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TiEcon 2006: Web 2.0 – Why Now?

Liveblogging  Mike “TechCrunch”  Arrington‘s  Web 2.0 – Why Now? panel at TiEcon 2006.  (note: I am obviously publishing this, as well as other TiEcon posts after the Conference, but will only do very basic editing, and some linking, essentially posting my original notes.  My added comments appear in italics)


  • Manish Chandra: Founder, CEO Kaboodle,  5 jobs so far, started at Intel, then 4 startups
  • Emily Melton: Associate, Draper Fisher Jurvetson. Left DFJ in 2002, re-joined 2005
  • Kevin Rose, Founder,  Digg. Prior to that Hosted national TV program, TechTV
  • Tony Conrad, Founder, CEO Sphere, also Investor
  • Jeff Nolan, SAP , Apollo Group,the  “Attack Oracle” team (he actually has this on his business card), until recently with SAP Ventures, top blogger.

Mike:  For warmup, let’s talk about the individual companies. Kaboodle is basically bookmarking, social shopping. Statistics show that 80% of all Internet activity is research, not transactions. Kaboodle does not close deals, trying to make money on research side. How did Manish come to the idea?

Manish: Was remodeling home, a lot of pain to find stuff – hence the idea (do all consumer sites really start based on personal experience, or are these just sellable stories?) 

Emily: Since she is a VC, will talk about a portfolio company that she’s a Board Member of: TagworldMike: That’s a  little startup that’s going up against MySpace and others – how can it have any chances? (The little guy vs. big guy issue came up in the morning session as well) and Emily’s reaction is similar: people want to  have presence on the web, relationships ..etc – Tagworld provides tools.

Mike: Huge fan of  Digg:.  50% of TechCrunch’s traffic comes from digg. TechCrunch has significant traffic on its own, but when one of his articles gets digged, the combined traffic typically brings startup sites down.  Kevin: It started as an experiment giving power back to community. Coolness is not determined by editors like it is on Slashdot, but by member votes – “diggs”.  It’s also a social application, digging an item also bookmarks it to your name, you can share, set up friends…etc. 

Tony: Sphere, the new blog search engine. Previously he invested in Oddpost, (acquired by Yahoo, fastest return of all his investments), that’s when idea started. He saw when celebrity bloggers like  John Battelle and Dave Viner blogged about them, their traffic spiked: that was his “aha” moment re. blog-power.  Blog search engines typically bring posts in reverse chronological order… trying to dig up interesting stuff using a more intelligent algorithm.

Jeff didn’t get to talk about his company (SAP), since it’s not exactly a startup or a Web 2.0 🙂 However, previously as VC he backed several startups and in his current role (or outside that role?) he is SAP’s internal Web 2.0 evangelist.

After the warmup round Mike moved on to audience questions.

Question to Mike on criteria for picking what gets covered in TechCrunch.  –

 Mike: anything new, exciting Web 2.0-related.  What is Web 2.0?  He has a user-focused definition. Web 2.0 is about conversation.   In the years after the crash the Internet did not “go away”,  innovation continued behind the scenes. Joe Kraus’s famous quote about how cheap it is to build a company (new cheap tools).

Kevin: Spent $99 on a shared server, used Open Source stuff … total pre-launch cost for Digg was less than $1K. 

Jeff: LAMP stack important.  Php, Python powerful. Tension  between what developers built and what users want resolves itself in the increasing number of  mashups.

Emily: There is a major mindset-change. everyone has access to computers, pdas, cellphones .etc. Even the kids have web presence.  It’s become a lot easier to self-publish and even  build applications.

Question: Is Web 2.0 real or a bomb waiting to go off?

Mike: There is real innovation.   Web services, mashups. 

Jeff:  Web 2.0 is not really new, it’s the realization of everything that’s been happening for 5 years.  Barrier of entry for startups is low.

Manish: Closed platforms are out of fashion , the trend to opening  up leads to  mashups. Power goes back to the individual. People create new shopping pages of their liking on Kaboodle.  This is like walking into a store and rearranging the shelves the way we want it.

Tony:  Brings up the example of the Chicago Crime Scenes mashup. Nice application, hugely popular, even useful, but likely not a business.  Business opportunities are for those that open up their API.  The Blog space brings about businesses (e.g Technorati) with significant core IP, but most mashups are just nice presentation layers without core IP.

Question:  How to market?  Importance of early adopters? 

Mike: refers to the Same 50K people meme – echo chamber.  TechCrunch readers themselves often  re-blog his posts. They are all early adopters, which is demonstrated by  the browser stats:  65% use FireFox.  

Emily: VC’s also check out TechCrunched applications – then forget them, don’t come back (I have positive personal experience on this, when VC’s who earlier heard about SQLFusion  came back with renews interest after the Open Source Fusion beta.  So it does not hurt to to get on VC’s “keep an eye on” list).  Emily: Simply quoting high registration numbers is not compelling to her – repeat user base is.

Manish: Blogs can create  good initial exposure, then incresingly use  SEO, SEM… early days 6-7% was organic search (google, yahoo), now it is 20%.  Real viral effect occurs  when people start marketing your product.

Tony: Despite the criticism, the early adopter crowd makes sense, after all we’re in tech businesses, of course we attract the geek crowd… like if you’re in the sailing business, you go after sailing enthusiasts.

Mike: Asking Panel for example of successful marketing that gets beyond early adopters.

Tony: Flickr is definitely way beyond the early adopter crowd.  Mike:  Flickr is geeky,  overall it has a lot less users  than Yahoo photos (even though Yahoo acquired Flicker, they are treated as two separate domains for now), or even Easyshare by Kodak. 

Short debate between Tony , Jeff, Mike on the role /importance of early adopters.  Tony : blogging needs to get into topics that attract the mainstream, be it the Chicago Cubs, christianity .. whatever.

Manish: Skype forced adoption by uncles & aunts in Chicago, Ohio …etc. since it has a very attractive value proposition compared to expensive telephone services.

Jeff: many companies are building features ONLY for the early adopters – they will not transition to mass market, will not become businesses, just features.

Kevin: Digg has 9 million page views, 1 million unique users a day, with $0 spent on marketing.  He still thinks they are early adopters, the site hasn’t hit mainstream yet.

Tony : Sphere received 1 million pageviews in the first week, from  136K unique users. 

Jeff: Blogs are key in early adoption:  Even if you’re not a techie you will  search on a car, a new TV ….etc,  you’ll get blog entries mixed with other search results (My personal experience confirms this, blogs even penetrated news at “elite” positions).

Tony: Bloggers have huge influence.  Rob Hof is here in the audience, he is the  Silicon Valley bureau chief for Business Week and also writes a personal blog.  Jeff: Matt Marshall is here, too – I don’t read the Merc anymore, but SiliconBeat.

Manish: Print media still has bigger effect. He suggests Web 2.0 companies should look at both print media and blogs for marketing.

Mike: The New York Times is crap.  .

Question: Can open API’s can bite you in the ass? (pardon my French, I’m just quoting here)  Giving away your best stuff, people won’t come back to your site – i.e. Google or Craigslist if the mashup is better.

Manish : Open API’s bring huge adoption.  Get users first then figure out how to make money.

Mike: At the same time ate least you can’t have negative margin – this could be Youtube’s problem.  There are essentially three types of business models:

  • advertising revenues
  • fees
  • no revenues at all

Tony: There were debates in the early days about email as a business, since it’s supposed to be free. But would Yahoo exists without email?

Jeff on network effect: Flickr, are used in a lot of other applications..

Question:  Is the barrier of entry different between Web 1.0 and Web 2.0? 

Mike: It’s become easy to to recreate applications.   I could hire offshore programmers and recreate Digg cheaply (especially considering Kevin’s own statement that it cost less then $1K to launch).  This is where the network effect and being first to market becomes important.  We need to understand how network effect and first to market are related.  Tony has the 8th or 9nth search engine (Sphere), Emily’s Tagworld is also a “latecomer” yet they have a chance to make it, they are not dependent on the network efffect of the huge existing user base, and they have new IP.  Digg is a different story, it’s not core IP, it’s all about the huge network effect.

Kevin: There are too many copycats doing he same things…like online notepads… Disagreeing with Mike, does not see value in being a me-too, startup should do new things.

Out of time, (session got cut short due to security for the Schwarzenegger keynote) Mike asked all panelists to name their favorite Web 2.0 companies (except their own).  The list:

Flickr, Myspcae, Digg, Digg Spy, (yes it is part of Digg, but Emily made the point of specifically listing Spy) TechCrunch, Youtube, Akismet, WordPress,, Riya, Skype.

If you were a panelist /participant in the discussion and I misinterpreted you, please feel free to correct / expand on your ideas in the form of comments.  Thanks.

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Innovative Software Business Models

Joseph Weisenthal at The Stalwart felt it was time to dust off Shai Agassi’s infamous half a year old speech and warm up the Open Source as IP Socialism debate again. (hat tip: Jeff Nolan) Why now is beyond me, but in a way it’s perfect timing: draws attention to the Who Pays For Software? New and Old Business Models event tomorrow, where Open Source, SaaS and VC Panelists will discuss the old and new business models.

Talk about Business Models, I haven’t had a chance to write about Intalio’s innovative business model, which I heard about at the World is Flat breakfast organized by Ismael Ghalimi, Intalio CEO and IT Redux blogger.

As Marten Mickos pointed out: “Open Source is not a business model, it’s a software production model and philosophy”. How do you turn it into a business is the million-dollar question now: there is no gold standard, creative entrepreneurs are experimenting with their own models.

Intalio recently moved 80% or so of it’s offering into Open Source. The fully featured product is avaialable free as long as it is run on an Open Source Database, however, customers have to pay an Enterprise Licence if they intend to use it on a commercial DB. Services and Training are chargeable – so far that’s the “traditional” Open Source model, if there is such a thing…

However, Intalio started an innovative experience outsourcing their product management to none other but their customers. They publish the future product development roadmap, along with the estimated timeline and cost of features, enhancements. Customers then can “bid” as to how much they are willing to pay to rep-prioritize the plan and get their requested features developed sooner. To move an item up on the schedule the entire cost has to be covered and at least two customers have to request it. As the model scales up, the requisite minimum “vote” may move from two to a higher number of customers – the more the better, the closer they are to a standard core product. 50% of what customers pay will be made available to them as discount towards future Enterprise Licence purchases.

So let’s tally it up. If the model scales up, Intalio expects most of it’s development paid for by customers – albeit at cost level. But when you start from zero development cost, zero sales cost (there is no sales organization, it’s all a download-try-buy pull process), add revenue from training and services, provide incentives for customers to purchase licences (the 50%) – I’d say it looks pretty good to me. Let’s review the model in half a year or so…

Update (7/11/06): More details from Ismael on Intalio’s business model.

Update (3/18/07): A year later Ismael declares the model a success.

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Who Pays For Software? New and Old Business Models

Philippe attended an event titled Demystifying Open Source – How an Open Source Strategy Can Make and Save Money for Your Business.  He sums up statements by one of SQLFusion’s customer; the CTO of Del-Jen ( a Fluor company):

Over a period of 4 years the cost of open source software did go down. The more they use it the less it cost.
On the other end the cost of commercial software increased constantly during the same period. The cost includes licensing and consultin

The product Fluor is using is Open Source Fusion Enterprise;  The small-business version, Open Source Fusion on-demand has opened for beta a few weeks ago.

Tomorrow I’ll be attending another event where I suspect we’ll hear a lot about Open Source: Who pays for software: new and old software business models – What’s next?

The panelists:
Josh Stein, Director, Draper Fischer Jurventson
Brian Bhelendorf, Founder and CTO of CollabNet.
Philippe Courtot, Chairman and CEO, Qualys.
Scott Dietzen, Ph.D., President and Chief Technology Officer, Zimbra
Marten Mickos, CEO MySQL.
Bernard Pesh, CTO of

This promises to be a hot event, pre-registration is now closed, but ad-hoc attendance appears to be open. Zbutton

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