Tuesday, November 15, 2005

SDForum Collaboration SIG (14-nov-2005)

I attended the first meeting of the SDForum Collaboration SIG last night. The meeting was mostly a panel discussion, with a little bit of audience Q&A. The panelists were:See below for highlights of the discussion - I've done some paraphrasing, hopefully without distorting the meaning. There's supposed to be a podcast of the entire event coming if you want to hear the original - check the SIG wiki for the latest.

WARNING: This is a long post - I'm fascinated by the collaboration space, so I found a lot of worthy highlights.

Introductory Comments

  • On his level of belief in the collaboration opportunity: "I was living a really good life after Excite - collaboration took me out of that good life and back into starting a company again."
  • There are two kinds of entrepreneurs -- top-down, who apply a well-established model into a new niche, and bottom-up, who recognize emerging patterns and take advantage of the flow. Joe is the second.
  • "Wikis are useful technology trapped in the land of the nerds" - Jot is trying to free them."

  • Most ‘collaboration software’ is absolutely horrible.
  • Most solutions add work for the people who are supposed to use them – that's a non-starter - they have to remove work.

  • There's a need for someone to solve the problem of scheduling business meetings.

  • When I see new solutions, I always ask "Would this pass the Mom test?" [dG: See the video of Six Apart's recent demo at Demo for someone who had fun applying the Mom test literally.]

  • We're helping support distributed and outsourced development by providing what OpenSource developers have already figured out -- "how to collaborate with people who aren’t awake at the same time as you"

Q: how is the collaboration space organized right now?

  • It’s not.
  • We track ~1000 companies; there are >150 in real-time alone. We use seven different categories, but they’re all merging together.
  • Much functionality is getting pushed down to collaborative infrastructure (e.g. presence in Vista).
  • By 2008, there will probably be only eight major vendors doing horizontal collaboration; everyone else will be in specific verticals/processes.

  • My pet theory is that email is the wellspring of a variety of specific collaboration apps that happen every 5 years or so.
    • e.g. 7-8 years ago, we all did IM over email; it got inefficient; out popped IM
    • e.g. organizing 25-person+ events over email; didn’t work so well; out popped evite
    • e.g. email Word docs around in ‘request for response’ mode; very frustrating; that's driving wikis
  • Look for opportunities to create new collaboration businesses by saying:
    • "What does email handle poorly?"
    • "Is it frustrating enough to get me to change my habit (of handling it in email)?"

  • The OpenSource community uses wikis, source control (one of the more successful formal collab systems), and IRC
  • IRC makes the presence of the channel the central tenet, not the people – it's in widespread nerd use, but has never made it to mainstream

  • The interesting piece isn't anything like the difference between real-time and async; it's about the rise of software-as-a-service. The winners aren't going to be Notes-like; they're going to
    • a) Be easy to try with minimal pain
    • b) Create barriers to switching
    • c) Get around IT (for the purchase decision)

Q: Are new startup companies being "built to be bought"?

  • I got a lot of reaction to my Built To Be Bought (Bubble 2.0) blog post.
  • There have always been companies like that, and others that are built to be self-sustaining. What's different now is that you can build companies on relatively small capital commitments and figure out if they work, so there are lots of companies doing that – testing small ideas on small amounts of money; and then (inappropriately) trying to raise VC without a big enough likely enough downstream upside (if the only exit option is acquisition).

  • "It's much easier to start a company now than it’s ever been."
  • It took $3M to get Excite from idea to product; it took Jot $100K. That because of cheaper hardware, Open Source software, offshore labor, and search engine marketing. [dG: see Joe's blog for a longer exposition of this point.]
  • It's much easier to start a company, but it's no easier to start a real business. Therefore, we're seeing lots of companies.
  • It's unclear how many new exit opportunities there are for all these new companies. I believe there are more exit opportunities (the new breed of companies are cheaper, which increases demand), but not enough more (supply is growing faster than demand).
  • It used to be that if you raised $5M at $5M pre, you'd need to sell for $25-100M to get an interesting return. Now, if you start with only $100K, you can be happy selling for $3-6M.

  • It's easier to build collaboraton software, but the value is in the people/process part – that’s not getting any easier. It's cheaper to build the software, but not to grow the business.

  • I'm not sure I agree about the 'grow the business' part.
  • Our goals at Jot were to be
    • a) tinkerable by others
    • b) a self-svc business – no large enterprise salesforce
    • c) cheap (not have the product price constrained by needing to support reps wanting to earn $240-300k/year)
  • Therefore, we had to build the company around search engine marketing. I believe that search engine marketing is actually under-hyped - the ability to acquire customers cheaply by sem is a revolution.

  • It's not any easier to create a compelling collaborative user experience.
  • You know when you've got something viral – the first time you use it, you say "how did I ever live without it?"

Q: Monetizing collaboration businesses is hard – who’s doing it well, and why?

  • eFax is doing amazingly well - $120M/year; 60% gross profit; $1.2B market cap. 95% of their users are free; 750,000 people pay $16/month [dG: I typed these numbers quickly - double-check them if the details matter to you.]
  • Not: sell enterprise sw to training dept
  • Yes: sell small recurring subscriptions

  • Pricing these days needs to be expenseable, not approvable -- what’s the max I can put on a personal credit card and expense back (as opposed to needing to make a case and get approval)

  • Yes – at the developer level, it’s <$100/month; at the engineering manager level, it’s <$1000/month
  • Try-before-you-buy

Q: What early-stage markets have huge untapped potential?

  • Scheduling and calendaring.
  • For 10 years, computers haven’t improved your ability to schedule meetings. There are huge disconnected islands of information. (It's like email in the early days – you can’t share outside of the local Exchange server.) Someone will do something there.
  • And – don’t change behavior – if it's not done primarily in Outlook, don’t bother

  • I don't have a particular space in mind, but I do have a theme that I’m really excited about -- in general, the most powerful technology revolutions are DIY (do-it-yourself) -- ones in which you enable a normal end-user consumer to do what was previously in the hands of experts.
    • e.g. PCs – computing out of the hands of experts to the rest of us
    • e.g. desktop publishing – out of the hands of typesetters to the rest of us
    • e.g. podcasting – radio out of the hands of experts to normal people
  • Do that in your market, and you increase your chances of success dramatically.

  • It's not so much about the software; it's more about people and process.
  • If we saw a vendor focus on handholding people to get successful use, we’d be very positive – the value is from people interacting with each other.

Q: What advice would you offer to someone who said "I want to take a shot at doing a Web 2.0 collaboration business" ?

  • Stop.
  • Back to Joe's comment about top-down vs. bottom-up entrepreneurs - you should want to do something that grabs you, should want to fill a void that you’re dying to fill. Great businesses are formed by really passionate people, who are excited about what they’re doing for the sake of what it is, and are flexible enough to morph it into the form that’s most valuable for the most users.

  • Look at the people buying collaboration technology - the buyers have changed.
  • It used to be innovators and early adopters – into tech; have vision.
  • Now it's the early majority – very different characteristics – risk-averse; tech-neutral at best; have a specific problem they want to solve

  • Some parts are more mature than others - e.g. audio-conferencing is a commodity, but in other parts innovation will keep accelerating
  • It's really easy to make a really bad collaboration product and/or business plan. But - the area is tremendous – it saves people time.
  • It's not about being smart, or being first – it's about being passionate, and meeting the needs of a specific group of people

Audience Q: Will wikis take over discussion boards?

  • A new medium rarely replaces the old.
  • Wikis are good because you can both add content and affect the structure of content -- you can collaborate on both content and structure.
  • It's better to be a trend-spotter than a trend-setter (since no startup can really create market momentum - even $5M doesn’t buy that much).
  • Find stuff that’s moving already - e.g. 2 years ago, wikis were hidden in plain sight – CEOs had never heard of them, but VPs of Engineering had a few of them - we bet that the press would write about wikis with or without JotSpot.

Audience Q: EBay acquisition of Skype?

  • eBay is bringing a knife to a gunfight with Google. Google wants all of eBay's business; eBay doesn’t want much of Google's business.
  • If I were eBay, I'd be feeling exposed - the direct merchant stores are most of their business, and those are not network effects businesses, and are therefore vulnerable.
  • eBay is smart to try to use their capital to do something else while they can.

  • These are the sorts of events that continue to excite and motivate entrepreneurs for the chance at that kind of outcome.

  • It's less about the collaboration space than about the disintermediation of the telco business - there's lots of money to be made there; Skype is one of those plays

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