Enterprise 2.0 - some great posts on the beauty of edge-in adoption

Nic Brisbourne at Esprit has put together a really concise post about the market entry strategy of Enterprise 2.0 companies. I totally agree with his premise and have thought it's one of the most exciting opportunities in the current arena. Maybe I've just missed it, but I'd really like to see a great example of this having worked. Please point me to any great examples, excepting perhaps Salesforce.com, which seems to be used as an exemplar for every enterprise software strategy in the last five years!

Fotango to smother Zimki on Christmas Eve

Canon's subsidiary Fontango had created something really interesting in "Zimki", a platform for building scalable applications- a kind of David vs Goliath approach to the space Amazon EC2 is trying to pursue.
Whilst the management at Fotango were keen to opensource the platform, Canon felt differently, with the result that the project has been pulled. Anyone who can explain how this was a good outcome for Canon I'd love to know!
Gervase Markham points out that by Canon pulling the platform, ironically, they've helped prove one of the main reasons why the platform needed to be opensource to work. Simon Wardley, Fotango's now ex-COO must feel thoroughly justified.

The kind of feedback tech startups need

Blue Prism just got a great write up about their work with the Co-operative Bank, where their software is increasingly being used to automate processes.
It's great when a large company is willing to help spread the word for a relatively young company like Blue Prism, it's a simple and comparatively painless way in which a large company can support a supplier.
What I find slightly disappointing is that it seems to me that very often the large purchaser will not offer their vendor this kind of support. For example, Blue Prism has some other similar companies who appear more reluctant to go on the record about their work with the company.

Outsoucing Development for Consumer Internet Startups

Nic Brisbourne from Esprit Capital has a thought provoking post about outsourcing development for early stage consumer internet companies. I think this is a useful discussion as the issues are clearly a little different for this kind of company than they are for a mature enterprise working in a more stable competitive environment.
We've had portfolio companies try various places on the spectrum from "mainly outsourced" to "nothing outsourced"- and we have CEO's who'd advocate strongly taking particular positions. My own instinct is that core "difficult" bits of software (like perhaps some kind of ranking agent or P2P engine) are best inhouse. Also, stuff which might have to change rapidly and frequently as you develop your service (e.g. some kind of web scraping thing), might work more easily in-house.
On the other hand stuff which can be simply and robustly defined at the start and are which is more "commodity" coding (e.g. replicate this competitor feature) might be better outsourced, partly to keep the company's fixed costs down, but also to help keep the core team focussed.
Something else that might form part of the equation for this kind of company is that the cost of capital is so high for most early start companies that time to delivery (including time specifying,negotiating & contracting) can be more important that it'd be for an established company looking at taking the same choices.
Finally, I'd suggest that we've seen companies where outsoucing has helped because during development stages the balance of development skills changes. Perhaps the company's built an inhouse team expert in standard ajax, php and database stuff, but there's a key element which requires skills in developing search agent stuff. Often the inhouse team will prefer the idea of building up their own skills in this area, but that can mean the company is paying (in cash and time) for learning curve towards a skill which is not expected to be a long term requirement.
I guess putting this together means that our experience favours mostly in-house, but I'm sure there's much more to talk about on this issue!

Economics of Software-as-a-Service

Talking to a former exec from an IM supplier to SMEs I gleaned some useful insight today. His company had sold a fairly standard type of secure IM to SMEs. To start off with they'd sold the software, installed on the customer's servers, on a rental model, mimicking the "Software-as-a-Service" approach which is now so popular with startups. However, he explained that the company had gained much more sales traction with customer when, after some time, they reverted to a classic upfront software licence and downstream support payment model. Whilst I could understand one or two customers feeling this way I was initially surprised that it was such a transformational change. I was surprised that customers weren't fairly uniformly delighted with being able to link the timing of the cost to the timing of their benefit.
Without knowing the details I can only speculate, but it did strike me that the USP for this provider's product was really about helping them feel secure in an application, IM, where their particular customers were less comfortable (otherwise I'd argue that there are loads of similar alternatives). So to some degree they were selling to maybe the "late majority" rather than "early adopters". Maybe these people in particular could be said to be rather slower to adapt to new models for buying software, but also perhaps to be characterised by a different cost of capital.

Cost of Capital

In economic terms most SME's, but especially early-stage technology companies, have a VERY highcost of capital (I've seen it figured out to be around 80%), whereas the customer's cost of capital- particularly if it is itself stable/mature (i.e. late majority), maybe more like 12-20%. It therefore makes little sense from a purely economic standpoint for an early stage company to use a "rental" type payment model for software provided to a customer who's an established business. Perhaps more simply put, an early-stage company may have to pay precious early-stage venture equity rates for money to fund the working capital element of providing a "rental model".

Summary of differences

I've attempted to put together what I could think were the key selection differences between a "rental" model and an "upfront" model.

"up-front" model	"rental" model
Favourable where vendor has higher cost-of-capital	Favourable where the vendor has lower cost-of-capital
Suits better laggard customers	Suits better early-adopter customers
High investment can make for reluctance to change out	Contractual commitments can keep customers "locked-in"
"Capital" budget can be harder for vendor to access	Contractual details on termination, rate increases etc can be harder to negotiate through purchasing
Upfront revenue particularly helpful where costs of acquiring customers are high	Rental revenues helpful where costs of supporting customers are high

(Please use the comments section below- I'm sure this is far from exhaustive- and I'll add your contributions into this table as best I can.)
You may be surprised to realise how strong the Cost-of-capital effect is in practice. Take the following example:

• Company A sells their system on a rental model for £10,000
• Company B sells the same thing on an upfront plus support basis for £15,000 upfront and £2,500 annual support charge.

The Net Present Value of both of these revenue streams for a early-start company with a 50% cost of capital is actually about the same (my workings are here), whereas I suspect that most of their customers would very much prefer to pay that little bit more for a perpetual licence!
As always your comments are very welcome.

Web 2.0 + Enterprise = Enterprise 2.0 ?

Alastair Bathgate raises the excellent question of whether Enterprise 2.0 is missing something?. I think that in general there is a bit of a tendency to suggest that taking a web2.0 businesses like Facebook ,and then suggesting it to enterprise customers, doesn't really make it "enterprise grade". There's a whole set of essential enterprise needs such as searchable archives, recognition of organisational structure, management access and access control as a minimum. But Alastair also points out that more abstract ideas like processes, audit and compliance really matter in this context too.

39% of IT Managers think Excel is Rogue IT

BluePrism, one of our investees has just conducted a survey into "Rogue IT". It was a surprise to me on first inspection that "complex Excel spreadsheets were Rogue"! On reflection, I guess that's understandable, you can build a great deal of mission-critical stuff in Excel, even without doing Macros/VB (I know we do!).

Investment in online and offline software

According to Elliot Noss, CEO of Tucows(c/o TalkCrunch) more than half of users now use webmail, I wouldn't be the least bit surprised to find out that many don't even know that they do. When you take into consideration the (non-caching, typically business) users of MS Outlook/Exchange, I would guess that having your email locally is likely to become the exception rather than the rule. So if web-based applications can gain user acceptance, then there are plenty of reasons to argue that most of our desktop applications could migrate to the web over time. But at the same time there is a contrary movement towards people chosing laptops instead of desktops, with "Two in three retail PCs being notebooks". Implicit is that, at least to some extent, users are now more likely to be working without fast access to web-based applications. Whilst some would see the gap between these two situations being bridged with technologies like HSDPA or WiMax, the other option is to "simply" cache the data between the offline and online data stores- as Outlook can. But this makes it MUCH harder to program the application, and more or less impossible (?) for a purely browser based application. I listened to the TalkCrunch podcast "Here Comes Adobe Apollo". Adobe are placing an interesting bet with their Apollo technology to allow a common "Ajaxy" application to work between the offline and online world, but it sounds from this podcast that quite a lot of the detail on database synchronisation is likely to be left to the developer. Taking a slightly different technical approach, today I spotted this "Dojo Offline Toolkit Kicks Off" on Ajaxian. Somehow this sounds cleaner to me, even if it is more restricted. This is clearly a hot area, and therefore I'm sure that there are others working on tools to bridge rich webbased applications with offline use (suggestions please?). My own view is that early-stage VC's and business angels are likely to favour such approaches to building product because:

• Lower development costs (potentially) esp. if cross-platform is important
• Lower support costs (probably)
• More choices on monetisation (ad supported, premium, subscription etc.)
• Improved lock-in; it's going to be hard to get your data out in some cases
• Alternative route(s) to market
• Different exit options

What do you think?

Opensource Business-Model Guru?

I'm really interested in some of the hybrid business models being pursued in the US, where code is licensed under both something like the GPL, and also on a commercial licence in parallel for those that need it. It seems to me that there's a challenging line to draw between being too commercial to be accepted and to build a community, and between limiting your upside by going down the support model. However, in the UK Open-Source businesses do not (as far as I can find) succeed in raising Venture Capital, unlike the US (I'd be delighted to be shown how ignorant I am on that!) I've been trying, without luck so far, to track down someone in the UK who really understands these models as it's applicable to a number of our current and potential invstees- please let me know if you know anyone.