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Viral + Monetizable = StartUp Magic Quadrant January 21, 2008

Posted by bernardlunn in Web 3.0 Semantic, social networks, start-ups.
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Hotmail is credited with inventing online viral marketing. I am sure there were earlier examples, but the whole point of viral is that it is so infectious that it obliterates memory of earlier attempts and they certainly did that. I was an early Hotmail user. It was just so simple, obvious and useful. Then all my emails had free advertising for Hotmail. (No, I don’t use it any more, it has been left behind by better alternatives).

Most of the Web 2.0 success stories have been viral. Apart from Hotmail, this was not true in Web 1.0. The game at that time (hopelessly flawed in retrospect) was raising tons of money to advertise (online and offline) to get traffic. Flickr, YouTube, Twitter, Facebook type services don’t need to advertise to get mass scale.

Then use Amazon Web Services or equivalent for your infrastructure; you don’t even need to raise money for capital expenditures, you just pay as you go as a variable cost.

That is a major revolution in business; it overturns the accepted wisdom that you needed mega millions to build a consumer brand.

But there is a problem with all this. I don’t believe I ever clicked on a Hotmail ad. I don’t think I even looked at them. Here is the nasty law:

“The more viral it is, the harder it is to monetize”.

These are the three streams of the Internet – communication, entertainment and research. You go online to communicate, have fun or find some information. The viral properties of each stream are quite different:

  1. Communication. This is perfect for viral. Think Hotmail, Twitter, Skype and Facebook. The viral property is built into the service.
  2. Entertainment. Think You Tube or Second Life or any online game. I tell people about a really entertaining video. The viral property is weaker as it depends on a stream of loss-leader hits.
  3. Research. Google got viral adoption because the alternatives were weak and it was a major problem faced by millions every day. As it was free and dead simple to use, there was no barrier to adoption; but the viral spread was only possible because it was such a big problem and it was so much better than the alternatives. This happens very rarely.

Only Communication is a sure fire viral success. It only works when it is a genuinely new form of communication (webmail, social networking, microblogging). You cannot launch a web mail or social networking site today and expect viral adoption. But when it is a genuinely new form of communication, the viral adoption is stunning in its speed. I can see one new form of communication out there today that could get mass viral adoption, which is video conversations as exemplified by Seesmic.

When you look at the three streams of Internet services – Communication, Entertainment and Research from a point of view of monetization, the order is reversed:

Research is simple to monetize. It leads to a database of intentions and that leads to any number of advertising models that have a) proven returns to advertisers b) proven use for searchers.

Entertaiment can be monetized through advertising and “freemium”. We are used to the idea of ads to get free entertainment on TV/Radio and used to paying to go to the Movies or rent DVDs.

Communication is really tough to monetize through advertising. It has to be free to be viral (and it can be free because the marginal cost is close to zero). So the only way to make money is some form of advertising. It is just really, really hard to find a good way to offer advertising around a communication service that works for both the user of the service and the advertiser.

The big debate about Facebook’s value and their Beacon debacle is a reflection of this fundamental problem. So is the online debate about Twitter monetization and the heat that eBay got for not being able to wring the expected profits from Skype.

There have even been attempts to offer free telephone services in return for listening to ads. They were ridiculed and have failed. Yet we assume that it is OK to do this with online communication.

The simple fact is that when we are communicating all our attention is on communicating, so ads don’t get our attention. Entertainment can have breaks; TV has accustomed us to this idea. But try saying “we interrupt your attempt to get a date to give you this message from our sponsor”. I think the sponsor would suffer some serious brand damage!

Facebook is trying hard with some new models to monetize the social graph. But they all hit a fundamental problem. On page 44 of “Wikinomics, How Mass Collaboration changes Everything” it says “relationships are the one thing that you cannot commoditize”. That is like the law of supply and demand, you can count on it and take it to the bank. So any attempt at making social network relationships into either an Amway scheme (I make money by selling stuff to my friends) or a Beacon scheme (Facebook makes money by me selling stuff to my friends) will ultimately fail.

This does not mean that you cannot make good money on a new form of online communication. If you have a new form of communication and you get mass scale virally, you will get good returns on capital. Even if ad monetization rates are very weak, you make up for low rates with scale. As it costs so little to get that scale, it is still an OK business. Somebody who needs scaled-up features to add to their platform will pay good money to acquire you.

However that is a small prize compared to a Research service that gets mass adoption.  Google is valued at over $200 billion because they got viral adoption for a Research service. They have even found a way to make email advertising effective. I now use Gmail and the ads are often bang on target and I have clicked on ads in Gmail. (They are also often totally, crazily wrong; my favorite was when I was writing about somebody called Cooper and got ads for Mini Cooper cars).

Services can mix Communication, Entertainment and Research. However the core proposition has to be clear. A new Communication medium is initially always Entertaining just because finding new ways to connect with people is a buzz. But once that “gee whiz” early adopter fades, the service has to be useful on a daily basis for mass markets. New entertainment models have to be social to break into what is already a hugely powerful entertainment industry.

Research is currently solitary. It is not fundamentally entertaining. I don’t see fun as a driver for Research beyond a gee whiz phase. However collaborative research, search with a communication angle, does look like the next big thing. My definition of Web 3.0 is:

“The combination of Web 2.0 mass collaboration with structured databases”.

If you can build a research tool that propagates virally and gets more useful with each person who uses it, you build a business with phenomenal power. That is a lot easier said than done. The purely technical challenges of creating structure out of lots of unstructured input is considerable. Much tougher is the chicken and egg problem; the tool has to be useful out of the gate, which is tough if the use derives primarily from the interaction of many people.

This means that funding has to be substantial to build enough value before the community kicks in to create value. That is why services such as Mahalo and Freebase raise VC measured in tens of millions of $. This is not like a pure Communication service that can get viral adoption out of the gate (but where the eventual returns are limited).

Playing against 5 Aces December 6, 2007

Posted by bernardlunn in Globalization, India, start-ups.
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NOTE: THIS WAS WRITTEN IN 1997
I wrote this article 10 years ago, having spent a lot of time in India at that time. I have written the “10 years later perspective” and posted that to Read Write Web.

American software companies dominate the competitive landscape. Americans have no genetic advantage over Indians, a fact that is proven again and again by Indian immigrants to America. No, the advantage is environmental not genetic. America is a much, much easier environment within which to create great software companies. American companies start life with 5 major advantages – their 5 Aces:

1. A large domestic market
2. Access to intellectual capital
3. Reliable, low cost telecommunications
4. A culture that rewards innovation and risk taking
5. A well developed venture capital industry

If you were playing poker, that would be like having 5 Aces. Yes, I know you cannot have 5 Aces but, American companies have so many advantages that it almost seems like cheating. Stacked up against all those Aces, India has only one good card to play, an abundant supply of well-trained software engineers at reasonable rates. Sorry guys, America has the better hand.

So should Indian companies give up the dream of creating killer apps and just stick to Y2K and other low value work? Well let’s look at some of those Aces in more detail first:

A large domestic market.
America has a vast domestic market that serves as an ideal springboard for global ambitions. Unfortunately India’s domestic market does not serve the same purpose.

There are many brave companies creating software products for the Indian market. They are the unsung heroes of the business. Usually they have tiny revenues and therefore they never appear in the usual roll call of Indian software champions. Yet what they are doing is far harder than shipping a bunch of engineers off to USA, which is still the primary activity of TCS, Infosys et al

Let’s face it, India is a tough market. Indian buyers assume that foreign products must be better. In fact Indian software gets much more respect internationally than it receives at home. The local vendor typically only gets a look in at the low end of the market, where price is the main consideration. For example, a lot of Indian companies are going after the “low end ERP market” because the giants such as SAP are not interested in this segment, at least yet. Will any of these domestic companies make it into the big time before SAP and other global players decide that the low-end market is worth tapping? This is a tough game that has been called “picking up peanuts in front of a steamroller”.

This lack of respect works both ways. The big Indian software companies contrast the wealth of opportunities in USA and Europe with the slim pickings in the domestic market. They naturally put their best people on international projects, treating the domestic market as a training ground at best. This is a vicious circle. Indian industry, which is facing its own struggle to become world class, is not keen to be treated as second best.

Access to intellectual capital
Intellectual capital is the reason why a healthy domestic market is so important. Intellectual capital is much more important than revenues. You can have a world class software company that has no revenues from India. You cannot have a world class company without world class intellectual capital.

Intellectual Capital usually comes from customers. Think about how most new software products get built. The process usually starts with a visionary customer who wants to make a major impact on their business by using new technology. Looking around the market they see no off-the-shelf product that meets their visionary demands. So they tie up with some bright software guys. The visionary customer is more concerned with innovation than size and understands that innovation usually comes from small companies with no vested stake in the old way of doing things. So small, innovative software companies get their first break.

Look at virtually any software company and this is the pattern you will see. Bill Gates, received his first break through a contract from IBM to deliver DOS. Other giants such as SAP and BAAN follow a similar pattern.

When people in India talk about intellectual capital and the Indian software industry, they tend to focus on technology. They point out that most technological innovations come from the USA and that this puts India at a major disadvantage. In fact, this is only a minor issue. The latest version of Visual Basic or whatever is available in India at much the same time as it is launched in America. Through the Internet you can research all the latest technologies and download what you need.

No, the intellectual capital gap relates to industry. You need customers that are innovators and world leaders in the area of Supply Chain Management or Derivatives Trading or Electronic Commerce and these are hard to find in India.

There is one industry where India has innovators and world leaders (or nearly) and that is software. Maybe that visionary customer is in your own back yard. There is a huge population of software engineers in India that is always looking for innovative ways of doing their job more productively. Maybe the Indian “killer app” will be a new software productivity tool?

Reliable, low cost telecommunications
When Bill Gates was being wooed by the high and mighty in Delhi, he was often asked, “what should the Government do to ensure that India becomes the next software superpower?”

Rather than respond with a whole laundry list of initiatives, his answer was very succinct: “make the telephones work”.

Telephones are the single greatest tool used by the software industry. Telephones provide the means to reach your market, to transfer software to your customers and to access all that intellectual capital on the Internet.

Coming from Europe and America I took reliable, affordable telephones for granted. When I started calling on Indian companies I became all too familiar with a young lady telling me that “all lines on this route are busy. Please call back after some time”.

If you have always lived in India your reaction is probably a fatalistic “so what…that’s life…keep on trying”. Well I was selling rather than buying and so I did keep on trying. What if I was buying? What if my next calls were to companies in Israel and Russia where I got through the first time? Would I have persisted in trying to buy from India? Probably not.

A culture that rewards innovation and risk taking
There was a story in Fortune magasine recently where the big consulting firms, prestigious names like McKinsey, Anderson, Booz Allen, were complaining that they were having a hard time attracting the pick of the MBA crop. Why? Because the best and brightest wanted to work in tiny start-ups in Silicon Valley where they can make a difference.

I doubt that the consulting firms face the same problem in India. The best and brightest would flock to the status and safety of the big firms rather than face the uncertainty of a garage start-up. Without the best and brightest, Indian software will not hit the big time.

The difference is a culture in the USA that rewards innovation and risk taking. There are so many role models for the budding entrepreneur to emulate. Indeed high tech entrepreneurs in America receive almost as much attention as the Indian cricket team!

The role models are available in India and some of them, such as Shiv Nadar and Narayana Murthi, receive a lot of press attention. It is increasingly clear that software is one of the industries where India can become world class and this will help to attract the best and brightest.

America has a very healthy attitude to risk and failure. Start-ups are risky by nature. A lot will fail. Does a young engineer in America, leaving a failed start-up find doors closed and people and looking at him in a funny way? Not usually. Indeed most people would assume that the person has learnt some valuable lessons and will succeed next time. Magazines are full of people who tried numerous ventures before hitting on the successful formula.

A well developed venture capital industry
Venture Capitalists in Silicon Valley vie for the opportunity to tell their story to first year students at Stanford University. They hope that the bright kid with dreams will come to them first. Can you imagine this happening at an IIT?

Actually, yes I can imagine that! Venture Capitalists are thirsty for new ideas and don’t care where they come from. There is plenty of Venture Capital right here in India looking to invest in software ventures. OK, there are not as many as in the USA, but how many do you need? You only need one to fund your venture.

The talk about a lack of Venture Capital in India is misguided. Talk to some of the Venture Capital firms operating in India and you get a rather different story. “Indian software companies do not understand Venture Capital. We have plenty of money to invest. What we lack are good business plans promoted by credible and seasoned management teams.”

You need to understand the Venture Capitalists and talk to them in their language, but that is the subject of another article. If you have the right idea and the right management team, you will get funding.

So should you continue to play when your competitors have 5 Aces? Maybe it would be more sensible to stick to bodyshopping.

“Insanely great products”, as Steve Jobs calls them, are not created by sensible people. They are created by obsessed individuals, who forge ahead when everybody is telling them that they are crazy. There are entrepreneurs in India today who can turn those 5 Aces to their advantage and add the Indian advantage of abundant low cost talent.

There are great software companies that grew up outside of America. Look at SAP from Germany, BAAN from Holland, Business Objects from France and Checkpoint from Israel.

These companies treat America as their home market. They raise capital in America, have most of their customers in America and bring in American management talent to help them to better understand this key market. In other words they make those 5 Aces work for them and not against them. You had better take those 5 Aces and make them your own and do it quickly, because American companies are taking the one Indian Ace, your talent. Most of the major US software companies are setting up 100% owned subsidiaries in India in order to tap Indian engineering talent. That Ace no longer belongs exclusively to Indian companies.

If you think that the situation looks tough from India, look at Israel. Israel is tiny compared to India and does not share India’s English language advantage. Yet Israel received over $800 million in high tech Venture Capital from the USA last year, more than any other country and far more than India.

So, yes it is possible to create killer apps outside America. It is possible to create them right here in India. Do you have the ideas and the drive to make this happen? Do you know where you want to go but lack a road map? The Dataquest “In search of India’s Killer App” series of articles will give you a road map.

In our next edition, Bernard Lunn will describe the financing options for entrepreneurs, helping you to have fruitful discussions with Venture Capitalists and Angel Investors.

Mahalo is Web 2.5 – its official October 4, 2007

Posted by bernardlunn in India, Web 3.0 Semantic, social networks, start-ups.
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Jason Calacanis tried spinning Mahalo as Web 3.0 and got flamed all around the Blogosphere. Being a savvy promoter and ex publisher I am sure he is tickled pink at the free attention he got for his start-up.

I have to admit I rather liked his definition of Web 3.0:

“Web 3.0 is defined as the creation of high-quality content and services produced by gifted individuals using Web 2.0 technology as an enabling platform.”

Leaving aside the entirely correct view that all this versioning is just silly (it is silly, but methinks it is here to stay, the concept of continous evolution is too messy to grasp, we need defined phase transition points), Calacanis is just a bit wrong. What he described is Web 2.5. I think he is onto something big with Mahalo and it is a potentially great model, particularly with a few million more knowledge workers coming on stream from “the countries formerly known as emerging markets”. Mahalo is an interim step and brilliantly timed.

The reason is that the real Web 3.0 when we combine the Web 2.0 user generated social web with STRUCTURE (like we had in all those boring 30-year old databases) is a technically very, very tough thing to pull off. There are some big attempts such as Freebase and Radar Networks but these are very early stage.

So the interim, using humans rather than relying solely on algorithms, will be a great business model. It might not be Mahalo that pulls it off. But the basic idea is bang on target IMHO.

What amazes me is that the Mahalo concept was not invented in India.

Page Flakes replacing MyYahoo – what else? July 24, 2007

Posted by bernardlunn in Blogging, Online Advertising, social networks, start-ups.
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MyYahoo has been my start page since 2000 and it has been great, but I wanted to try out the alternatives. I opted for PageFlakes as I saw management came from Yahoo so I thought it might be an intuitive switch. In 30 minutes I had my new start pages on PageFlakes. So it certainly meets the ease of adoption criteria. Here are the obvious benefits:

  1. Gmail in my start-page. As I started to use Gmail it started to become my home page, which was not what I wanted. Will I be locking myself out of Google widget ecosystem? I think that Widgets will be neutral to start-pages/social networks so I can get the best in whatever start page I choose.
  2. Personalized WorldClock, another simple time-saver, no need to open another window/tab.
  3. Changing layout is easier than in MyYahoo. Not a big deal as I don’t do that often.

In summary, ease of adoption = good, impact = nice to have but minor. Would I have switched if I was not interested in researching new technology? Probably not. I wonder if they get switchers or new users? This matters because it seems that in America at least the new users are not getting start pages they are going to social networks.

I notice that PageFlakes is from Germany and NetVibes (their main competitor) is from France. Do young Europeans use start pages more than social networks? If so will PageFlakes add social/colloboration features that are compelling? What I have seen so far was not that useful to me at least.

I think that WordPress i.e. my Blog is a more natural collaboration tool than my start page. I use my start-page to consume. So I consume RSS feeds from people who I want to keep track of on my start page and I create RSS deliverable content on my Blog for people who want to see what I am doing/thinking. There is no reason why producing and consuming need to be in one tool.

Blogger types and what this means for B2B Media July 11, 2007

Posted by bernardlunn in B2B Media, Blogging, social networks, start-ups.
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Traditional media is still figuring out how to work with Bloggers. Some in the Web 2.0 world are claiming Blogging is old and tired and declaring that Social Networks and Twitter will replace Blogging (by the time a new technology gets used by the masses i.e. crosses the chasm i.e. becomes economically interesting, the ‘”new, new thing crowd” has moved on).

So I thought it might be useful to think about a taxonomy of Bloggers and which ones are core Bloggers, which will move into a re-vamped media role and which will move more into Twittering and hooking-up.

  1. Unchained Journalists. I first started reading Blogs from Journalists that I had originally enjoyed in print. They became unchained by choice or were pushed into it when their magazine folded. Byte Magazine’s demise liberated a lot of great journalists as they came from (IMHO) the best technology magazine ever. This trend is likely to continue as more print magazines close down when most of their audience has migrated online.
  2. New Media Magnate. TechCrunch and ReadWriteWeb come to mind. Given low barriers to entry there is very little to stop an Unchained Journalist from becoming a New Media Magnate. While VC will look sceptically because “Content Businesses Don’t Scale Anymore” there is a good “lifestyle business” in many niches.
  3. Corporate Blogger. This is now so common in the technology and new media worlds that it is just another part of About Us. It serves a useful purpose that falls between the cracks of Press Releases and White Papers (i.e. we have something interesting to a small part of our market (sorry, lets be Web 2.0 correct and call it “community” rather than market) but not important enough to get picked up by traditional media.
  4. Hello World Look at Me. This is what will move to Social Networks and Twitter. If you are a very good friend I maybe interested in your latest thoughts about your cat, but….
  5. Niche Passion. These are the people who really don’t care if anybody reads their Blog, they are just writing about what they love. If you love the same thing, this is the best thing since sliced bread. This is classic long tail blogging.
  6. Already a Famous Hub. This is a way for highly connected and influential people – the people that everybody else wants to talk to – to get their thoughts out there. VCs and Angels in the technology world are the most common examples and Fred Wilson and Marc Andreessen are the two masters of the art. This serves two purposes. First it helps filter the people who come to them because they know what will interest them. Second it makes them look like reasonable human beings.
  7. Consultant/Service Provider Attention-Seekers. This is where Blogging and White Papers intersect. It is a form of open source. Create some useful analysis/insight so that your market sees that you could be useful and make contact.
  8. Journalist Manque. Journalism, of the Woodwood/Bernstein type, has some glamor and many people have harbored ambition along those lines and now they have a chance…
  9. Attention Seeker for a cause. Can be a marvelous way to rally people to a good cause or a horrible way to rant your prejuduce and both will continue to thrive.
  10. Attention Seeker for a company. PR Hack in another guise unless done very well. Blogging does rather dis-intermediate the PR role.

That is where we are today. Peering into that murky crystal ball (will somebody please wipe that muck off the glass):

  • The biggest number of Blogs (all those statistics about x gazillion blogs created in the last 15 minutes) will be Hello World Look at Me and that is the domain of “few to few” media like Social Networks, Twitter. This will take some of the hype out of Blogging as a mass medium. This is co-existence and complementary. Some social networking twitterers may move back into Blogging to meet some other need and Bloggers will also Twitter about their cat.
  • Niche Passion and Attention Seekers (for cause or commercial) will be the core Blogging long tail world.
  • Media firms (new and old will merge) and Corporates seeking attention will merge Blogging, Social Networking and other content forms as dictated by their market.

Full disclosure, I categorize myself as Consultant/Service Provider Attention-Seekers on behalf of my company as well as some element of Journalist Manquee.

Social Networks and other clubs, guilds, cliques and associations July 7, 2007

Posted by bernardlunn in Globalization, social networks, start-ups.
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Social Networks do seem to be the next evolution of the web as a communication medium, fulfilling a need as basic as email. The desire to network is as old as humanity. I have been thinking about the taxonomy of human networks from the perspective of basic motivation and how this might impact the evolution of Net-based Social Networks.

Looking at the the networks, I see two basic forms of motivation – Trust (I trust you because you are in my Network) and Visibility (I can make connections and enhance my status by being visible and seeing/contacting people who are important to me). Some Networks are more focused on Trust, others more on Visibility.

I believe we are still in the early days of the evolution of Net-based Social Networking and that we will say many different forms to meet many different needs – that. My basic taxonomy has:

  • Exclusive professional. The oldest form would be Freemasons and other Medieval Guilds, where you could only belong if you met certain professional accreditation standards. The secret Freemason hand-shake was an ancient form of spam control. The American Medical Association (AMA) is a modern example. You can only join the AMA if you can prove that you are a Doctor. This exclusivity has value based on Trust. A Doctor is more likely to talk honestly to another Doctor about an important issue if they believe that their “conversation” is not being overhead by the general public or, more importantly, by people who run Pharmaceutical or Health Insurance companies. These are “gated communities” for a reason.
  • Non-Exclusive Professional. This network is defined by a market, technology or other subject of interest. This could cover what I have heard described as “The Tech Crunch 5000″ (the 5,000 people who matter in Web 2.0). The more traditional version of this is covered by the 34 million subscribers to 1,200 trade magazines in America. The exclusivity/status is not binary it is a range. My position in the network is defined, formally or informally, by other people in the network. So in this network, Visibility is more important than Trust (which is still mostly created offline). Web 2.0 as a social network is different because it is so new and future-oriented, even established players are new and the rules are very fluid. So we should not make too many assumptions about the mainstream networks based on the the one that we work in today.
  • Family and Tribe. Family is the network that you don’t choose. In less developed parts of world it is loyalty to family first and then tribe. This network is more similar to Exclusive Professional as it is all about Trust and very little about Visibility.
  • Old-School Tie and Alumni. These are Exclusive Networks based on Trust.
  • Social snobbery. Another Exclusive Network but thankfully fairly porous as you can break in by making money, changing your accent, joining the right Charity and otherwise “fitting in”. As snobbery embarrasses people we are unlikely to see a “snobs network” :-)
  • Company. One impact of the Net is to reduce transaction friction, making it easier for networks crossing organization boundaries. From the viewpoint of history, the 1950’s era “organization man” and the companies they worked for are unusual and we can now see them as a transitory phenomenon. Companies are now far more “porous” (open to the external world) at every level and so in our work life we may be part of many networks not just the network defined by the organization chart. A few command and control type organizations may try to resist this but it is pushing against the tide. A healthy Company has many networks that are open to clients, partners and other stakeholders and they are based on both Trust and Visibility.
  • Franchisees, trading networks and other inter-company networks of mutual interest. Unfortunately we can also add Terrorist Networks to this list.
  • Ad Hoc Interest. As we browse we join and leave networks of interest regularly. As we get more committed we stop “lurking” and register or identify ourselves in some other way. As content is increasingly user generated we are getting our information from social networks (is Wikipedai a social network?)
  • Political parties. I have never been a political animal, so no comment.
  • School friendships. School is when friendships become so important. This is when cliques form and cliques are not much fun except for the clique leaders. I suspect that one key motivation for Web-based social Networks is to expand beyond these cliques and that means expanding beyond the physical boundaries of the neighborhood. As a parent I believe that the Trust issue is critical and the issues with this and MySpace have been well addressed elsewhere. I think these Social Networks have to evolve a lot further before they meet the delicate balance of needs that exist between children and the adults (parents, teachers) who take care of them.
  • College Friends. College is a formative experience because for most people it is the first time they are exposed beyond the very narrow boundaries of family, neighborhood and school. Suddenly Trust becomes critical as your choice of friends is much broader. I think this may explain the difference between MySpace and Facebook (but not being a member of either, please take that with a pinch of salt).
  • Clubs. It is possible that old-fashioned Club rules will become more prevalent in Net-based Social Networks. The two principle rules are a) a new member has to be proposed by an existing member and b) through some form of voting arrangement a member can be “blackballed” (thrown out of the club). These rules help ensure Trust through member/peer pressure.

Maybe you think I am stretching a point to see all of these as a social network? In 2002 I worked in a start-up that applied network theory to analyze all kinds of networks including human networks and I came away from that with the habit of looking at everything as a network.

Looking at all these types of social network (I am sure there are many more, these are just the ones that occurred to me while writing), I see 4 questions that will drive the evolution of Net-based Social Networks:

  1. When will the novelty of the medium recede and let the basic motivations come to the fore? When I looked at all the social networks that have existed in the real world throughout history and asked “what is different this time?” the answer was “it’s the medium, stupid”. (Clever guy that Marshall McLuhan). The evolution of consumer behavior on the Net has tended to go from “wow I can do that, way cool” to “so what, what does that do for me”.
  2. At what point does Visibility and Trust collide? I think this is the critical question determining the business value of Social Networks. There is an implicit assumption that Metcalf’s Law applies. However if Trust erodes, what’s the point of a Network? The open Internet is The Network, so if you want everybody they are here right now. The Social Network is valuable because it is exclusionary. MySpace is cooler/more valuable because older folks are not there. That implies some optimal network size. There is some good theory on this. However if this is true, it is a reverse network effect and that will have a crushing effect on Social Network valuations (but may do wonders for Social Network enablers like Ning). So count me a skeptic on the Facebook “social graph” theory; it is a great pitch but I don’t buy it.
  3. How can we be members of multiple networks? I have never been a clique type of person and find myself part of many networks but not really an insider in any of them. Maybe I am unusual, but it is certainly true that most of us need to be members of multiple networks and these change as we get older (school to college to work to parenthood etc). Something like OpenID is part of the answer but also tools to transfer our digital stuff between networks and decide what stuff goes in what network.
  4. How do we preserve the “strength of weak ties”? A network that is only strong ties (everybody knows everybody very well) is not valuable on its own. Genetically that can lead to birth defects, in companies it leads to stagnation, in social circles it can lead to snobbery/prejudice. The outsider with a new perspective is valuable. Today the Social Networks are very open. They are likely to close down to preserve Trust.

Ease of Adoption/Scale of Impact Quadrant July 4, 2007

Posted by bernardlunn in Enterprise Web 2.0, start-ups.
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For years I have had a crudely drawn quadrant on the wall next to my desk to remind me what to look for in a start-up:

On one axis – Impact

On the other axis – Ease of Adoption

This used to be a trade off. Before Windows, ease of adoption was unheard of. Microsoft got the adoption by riding on the PC manufacturers. Then Google barged right into the top right hand corner with massive impact and totally easy adoption. There was a view that ease of adoption without lock-in is inherently a weak and unsustainable position but the lack of traction of all the Google challengers seem to be proving that this is not the case.

Classic enterprise software was in the big impact/hard to adopt category. This was where there was a trade off. You could build something that fitted into another vendor’s ecosystem – easy adoption but limited impact – or you could work to create something that became an ecosystem by getting totally entrenched into major companies.

I believe those days are over. The new wave of Net Native Enterprise 2.0 software makes adoption much simpler and organic. There is much less need to (as Steve Jobs calls it) “crawl through the corporate orifice” to get adoption. You won’t get VC to fund a “storm the barricades” type of frontal assault with big sales and marketing budgets.

This will probably limit impact, unless there is a network effect, however I see fewer sustainable network effects leading to Windows type dominance in future. For example, WordPress and other blogging tools attempt this but I think it is a weak concept (much as I love WordPress) as no blogging tool will get dominance and nobody wants to limit their network to one arbitrary set of bloggers.

That is probably the reality of Enterprise 2.0. Despite the great efforts of marketing departments to drum up new paradigms, we are simply into a very long and sustained roll-out of Net native versions of what we have always had in the enterprise. This will lift the boats of every enterprise software player that plays well in that environment and enables some new niche players to emerge, but I doubt we will see anything of the scale of Oracle or SAP emerge.

Most of the Web 2.0 start-ups that I am seeing fall into the low impact/easy to adopt quadrant. I am sure that statement will raise a lot of hackles and I am not trying to offend. I have worked in many start-ups and I am very aware that any traction looks like massive impact for a start-up and should be shouted from the rooftops. I am certainly not trying to rain on any parade.

The barriers to entry are now so incredibly low – use Amazon S3/EC2 for infrastructure, mashup code and deploy online, use RentACoder to get cheap brains. Get it out into the Blogosphere and let the widgets propagate virally. So no problems on the ease of adoption front.

But big impact? Go outside the Web 2.0 Bubble (I am not referring to financial bubble more like “boy in the bubble”) and ask a random selection of ordinary people what recent innovations on the Net have made an impact on their lives? It is a bit sobering.

Usually massive impact means that the solution is solving some huge “pain point”. Personally I think the Web works pretty well. Sure there are some minor annoyances but not anything that I would spend any money to fix. I can see some Web 2.0 tools making life easier, but in small incremental ways, not really life changing ways – not like the PC, email and search.

The reality is that the massive impact deals only come about every decade or so. I don’t believe the next one will be in IT and I say that as somebody who has made his career in IT. The massive impact ones have to be addressing real “pain”. There are plenty of pain points out there – disease and global warming come to mind – and the Web will have a massive impact on helping with these big problems by spreading knowledge. These are all about big science. Fix the problem and adoption ain’t your problem (a real cure for cancer won’t need a marketing budget).

Of course there is a ton of money to be made in media niches and office/Net productivity tools. YouTube is entertaining, like those best of home videos on cable, but changing the world? It is the breathless we are changing the world hype of a lot of Web 2.0 that is a bit old.

The one thing that stands out as big impact is social networking, whether for dates (younger crowd) or deals (mortgage payers). It fulfills as basic a need as email did. I suspect we are at the early stages of social networking and something new will emerge that makes it more sustainable. I do not buy the notion of the “social graph” as the new platform. I believe that Social Networks actually have a reverse scale effect. When there are too many people in one network it loses the whole point of a relationship, it just feels like a big anonymous place and we avoid it to look for more personal ways (online and offline) to build and maintain those relationships.

The Internet is The Platform and nobody controls that. Thats just fine with me.

The Internet Changes Everything. The Ease of Adoption/Impact quadrant is no longer applicable. Possibly Crossing The Chasm is out of date (I am still figuring that one out). In an open “services” Internet, the idea of a dominant platform is almost certainly dead.

Mahalo and other human-assisted search challengers to Google. June 25, 2007

Posted by bernardlunn in B2B Media, start-ups.
1 comment so far

The New York Times article yesterday about Maholo and other search engines challenging Google by adding humans must have got a chuckle or at least a wry smile from “traditional” publishers. They have been doing “human-assisted search” for 100 years or so.

Yahoo is the best example of how to mix automation with human editors. Of course, given their current turmoil, the human-assisted search proponents are unlikely to hold them up as a poster boy. There are also plenty of very good examples of this within B2B Media, but these sound very unglamorous with names such as directories.

This really is old wine in new bottles. I also believe that the head-on assault on Google is fueled by a me-too approach by investors that will yield very low results.

When Google went public I, like many others, thought the switching costs were too low. I think we all underestimated the power of habit. I use Firefox and have a bunch of search engines in my toolbar, so it is totally simple to try alternatives. I do use alternatives to Google occasionally, mostly because I am interested in the subject. From this small sample, I think Ask may have a shot at being an alternative, but even when I use Ask I still use Google as well to make sure I have not missed anything.

The Google ascendancy is likely to be shorter than Microsoft’s, which was shorter than IBM’s. Shorter ascendancy seems to be one more consequence of Moore’s Law. That maybe interesting academically. However, from a business planning point of view, the way to make money in the next few years will be within the Google ecosystem. Thousands of companies did very well within the Microsoft ecosystem and I suspect that when the history is written there will be many times more from the Google ecosystem.

Research is still one of two killer apps of the Web (communication i.e. email to social networks) is the other. Search is not Research. It is only the start of (Re)search. Every $ earned by Microsoft leveraged many, many more $$$$$ for their ecosystem. Yes their $ at the head of the ecosystem was fantastically profitable and so is Google’s $ at the head of the new ecosystem, but once you get over that fact and learn to live with it there are tons of good opportunities.

Playing within the ecosystem in a niche market has its challenges. One has to be agile and constantly find new ways to add value. When Microsoft/Google says “we want to partner with you and we have no ambition to directly enter your market” you always have to add “at least not yet” at the end. This has been called “picking up peanuts in front of a steamroller” but in the early days of the ecosystem those peanuts are pretty big and the steamroller is still miles away and you can gauge the speed reasonable accurately.

There were very many Microsoft challengers that came and went and many had big funding, determined management and had lots of publicity. The David vs Goliath story is always popular because we all know that usually Goliath wins even while the romantic in us roots for David. A few high profile blow-outs then leave investors with the “don’t invest in a Microsoft/Google killer”.

Those who resented IBM’s dominance welcomed Microsoft in the same way we now welcome Google as they give Microsoft a run for their money. Some day we will do the same when we see a genuine alternative to Google, but I suspect that is many years away when the current crop of challengers will be long gone.

Reflections of a WordPress newby on Enterprise 2.0 May 24, 2007

Posted by bernardlunn in Enterprise Web 2.0, start-ups.
2 comments

As a newcomer to blogging – this is my second post – and somebody who is old enough to remember using a Telex machine to send a proposal, I needed to use something that was pretty intuitive. After about an hour working with WordPress I can say that WordPress is as good as it gets; it is as close to “free, perfect and now” as I have seen. I can see that there is tons of functionality that I have not yet used and I am motivated to experiment and learn more as my experience to date indicates that my frustration level will be low.

During 30 years in the software business, I have got used to the idea that software is mostly pretty bad – no, lets be frank very bad. Pre the PC I learnt that software was monumentally hard to develop, always (I mean always) over budget and and the green screen text stuff was for people in back offices and data centers only. My first hands-on experience was with a Mac (great) and then decades of frustrations with Windows. (Full Disclosure, I love how bad Windows is, as the support problems enable companies like iYogi – where I am a co-founder – to thrive).

WordPress is part of a new wave of software that looks like it may actually get it right. This looks like second generation Net native software. The first generation of Net native got the “wow” factor but rather the same way one goes wow when you see a dog walking on its hind legs (amazing that Rufus can do it, but he still does it very badly). The second generation takes Net native as a given and really focuses on usability. It has to be usable as adoption is based on thousands of individuals voting every minute with their mouse.

This is not how the Enterprise works. Somebody makes a decision and everybody has to use the clunky monstrosity. Of course people do still vote with their mouse but in destructive, passive aggressive ways that derail the project. These are the projects where the CFO at the post-mortem meeting asks “So are are you telling me that after 3 years and $x million we are facing a write-off decision? Can somebody tell me how we got here?”

I can see how systems like WordPress can avoid this by growing more organically. Add a few colleagues/partners as posters. Add some traditional semi-static pages. Add some social network, a bit of video and a podcast or two. Pretty soon I have a modern CMS, with minimal implementation costs and all on a pay as you go basis.

This is what the analysts are touting as Enterprise 2.0. At a 30,000 foot level it makes sense. History has a way of repeating itself and Web 1.0 went from individual to Enterprise and the big Enterprise Net roll-out is still in full swing. Does that mean WordPress type companies should hire some hot-shot sales guys to knock on CIO doors? As somebody who has knocked on a lot of CIO doors, I think not. The possibly vicious cycle goes like this:

  1. Get VC by writing a Business Plan with aggressive revenue projections
  2. Hire expensive sales guys who will promise whatever it takes to get that revenue target
  3. Build whatever clients want/demand without the time to design it right
  4. Clunky monstrosity here we come

This can end fine with a trade sale, everybody walks with some money vowing to do it right next time. Actually I think we have a lot of teams with precisely those scars who are determined to do it right this time.

The Net has not only changed the way we deliver software. More importantly it has changed the way people buy software. The enterprise gatekeepers have less power. The gatekeepers still have veto power but only if the software breaks the rules on privacy and security. It is not just start-ups buying this way, it is self-managed teams and departments. Try it free and use the credit card to buy a bit and expense it; the credit card vendors do a good job at expense tracking and those miles and other benefits are nice bonus.

Then at some level of usage, the corporate department may come in to give it the blessing and negotiate volume discounts. The trick is not letting those negotiations drive the featuritis that becomes spaghetti code (as in “we will buy 500 copies if you add xyz feature now”).

I am hopeful that this is a genuinely new era for software and that the teams who have enough experience with the old ways will stick to their design vision and keep it growing with Einstein’s famous phrase in mind:

“Everything should be made as simple as possible, but not one bit simpler.”