Thought provoking conversation on Enterprise 2.0 by Jeff and his buddies (Sadagopan, Barry) + a retort by a VC at polaris. Surpisingly, the conversation helped me reconcile a part of my past with my current path. (original post )

First caveat is that I’m completely out of my depth when it comes to discussing SOA, master data management, customer data integration, and product information management (eh?). But I did dabbled my feet in the dot-com days in selling to enterprises (notice I didnt say enterprise software, small businesses is probably a better word) so perhaps I can share in literal terms about my experiences. In fact, Jeff was one of my board members, (I’m sure Jeff have already completely erased his association with our venture from memory ) .

We were a “B2B Marketplace” that allowed general contractors to find and manage subcontractors. Even in the beginning, we recognized that we were really a provider of web based application software to the industry, and that the “discovery/search” value proposition of the marketplace was minimal. In fact, at the time, there were so few “SaaS” (a term that appeared much later) examples, that hotmail was my main source of inspiration. We were blazing a trail but haphazardly, inconsistently, and perhaps even without a hint of self-awareness (for better and mostly for worse). We had some of the characteristics of so called “enterprise 2.0″ but because we lacked the self-awareness to created a coherent strategy & execution plan that would have become the ethos of enterprise 2.0/web 2.0. My failure was driven by naivite, inexperience, and in small part, the lack of precedence. . . . and that is the hardest part of enterprise 2.0 . . . having all the pieces wasnt enough, everything has to fit just right because there is no playbook . . . yet.

1) Direct enterprise selling sucks, is highly inefficient, and makes you do unnatural things in your product strategy in order to drive higher deal sizes. We vacilated between thinking that we were an enterprise productivity tool vs. enterprise software. Enterprise productivity tool should have been the right answer especially after spending time at eBay (its sellers are the SME sweet spot) . . that recognition changes everything you do from marketing to design . . . on one hand, we had a hotmail like viral acquisition strategy (self service, self signup, referals as expected functionality, and bottoms up adoption/sales cycle starting with the end user rather than the CFO) on the other hand, we also had a sales force focused on the enterprise RFP process. We couldnt reconcile freemium vs. value pricing . . . and we should have, by coming up with a revenue model focused either on services or scale rather than seats. This is how open source has thrived, and how salesforce.com scaled.

2) Large enterprise software vendors are not the future. There just has to be a way to grow our collective markets by appealing to millions of small business users and this isn’t going to come from SAP, Oracle, or IBM.
The million niches like construction are the future. . . its the gap between Intuit and SAP; the gap between accounting and ERP application that is the future. (both is usage & in segments)

3) The SOA-ification of big enterprise products has attacked a technical dimension, not an economic or business model one. In a somewhat bizarre turn of events, the historical strength of market leading business applications, the integrated suite approach, is being turned from an advantage into a liability.
Taking a productivity view of the product rather than an ROI, creates a whole different approach to development & design. Instead of focusing on ROI, inefficiencies, and risk managment of the enterprise, we could have focused on ease of use, adaptability, and integration at the end user interface level (rather than at the data level). Furthermore, click stream usage data becomes the overwhelming driver of development plan rather than feature/check box focused. It also focuses the company on serving its current customers rather than using product development to chase after deals which might not be in its sweetspot.

5) New big killer apps that are not going to be built for today’s enterprise. Most of the enterprise software market today is about finding gaps and filling them, linking products in new ways, and leveraging more value out of IT investments that have already been made. The consumer side of business may offer better opportunities.
Adobe calls a similar segment, “prosumers” . . . having all the characteristic of a consumer (usage & decision making) but with a profit motive as well. Small business owners evaluate sofware (webapps) like consumers and even pays like consumers, thus scaling sales is more important than chasing elephants. (eBay retrenched from its elephant strategy in 2003 if you read the press release carefully enough)

Lastly, I believe AJAX will have a much larger impact in the enterprise than in the consumer market. Consumers were anchored to the experiences of web 1.0 which made web 2.0 dynamism a refreshing improvement. On the enterprise side, end users are used to the interactivity and responsiveness of desktop applications already. As a result, some of the lack of adotion for webapps in the 1.0 (or dot com) days could be attributed to usability concerns. Ajax finally allows SaaS to compete on the same interactivity level as client/server applications. Web 1.0 simply did not have the RELATIVE impact on the enterprise world as it did for the consumer. I think Enterprise 2.0 could potentially be the step wise improvement of consumer web 1.0 and 2.0 combined for the enterprise world.

Frank Quattrone, the former Credit Suisse Group investment banker whose criminal obstruction charges may be set aside by U.S. prosecutors, retains the support of technology industry leaders who could help revive his career.

Quattrone, the son of a garment presser, was raised in a poor neighborhood of south Philadelphia. He joined Morgan Stanley in 1979 and became head of technology investment banking in 1990. In 1996, he moved to Deutsche Bank AG and in July 1998 to Credit Suisse.

Two weeks later, more than 130 investment bankers, analysts and other staff followed him from Deutsche Bank to Credit Suisse.

The group was based in Palo Alto, California, near the Sand Hill Road addresses in neighboring Menlo Park where many of the largest venture-capital firms are based. Over the years, Quattrone’s group handled IPOs for dozens of companies, including Amazon.com Inc., Cisco and Adobe Systems Inc.

More here from bloomberg

(I was part of that 130 bankers that moved with him to CSFB so I’m biased). . . Frank’s prosecution was a vestige of the web 1.0 (aka dot-com) era and the bust in 2002-2004 that followed. However, now that the web is back (as in 2.0), investors are going gaga once again over technology companies, and twenty somethings are once more on the covers of national magazines . . . looking for a scapegoat for the bust that followed sounds quite anti-climatic and counter productive. (proof that the valley does not have a master hypester, but an entire generation full of them) Even more so . . . the rest of us (VC’s, bankers, entreperneurs) who survived the bust and came out better than ever, not giving Frank that same chance seemed somewhat unfair. It wasnt that long ago that VC’s and dot-com snake oil sales guys (read entrepreneurs) were equally prosecuted by the mass media for bringing down the great american economy. A quick 2 years and a Google IPO later, they are again celebrated as the driver of great American global competitiveness. . . innovators and risk takers . . . the great purveyors of the equally great American Dreams.

At a time, when FuckedCompany’s Pud has joined the new party on the other side of the fence (not for workers and employees but for VC’s, executives, and techcrunch parties) . . . the bust has to be a distant memory . . .

Frank was unlucky to have to been the high profile scapegoat while the rest of us laid low and made our comebacks . . . letting frank take (the reputational not legal) blame for the excess that the entire valley participated in . . . . . And THAT is the reason Frank’s comeback is without doubt. . . Guilt . . .

Geoff Yang, a founding partner of Redpoint Ventures in Menlo Park, California, said he “absolutely'’ would work with Quattrone if the government dropped charges against him and he decided to step back into technology investing.

“I’ve always found Frank straightforward and honest in my dealings with him,'’ Yang said.

“I continue to believe he is a man of honor,'’ Barksdale, the former Netscape CEO, wrote in one of the letters to the court in 2004 in advance of his sentencing. Other Silicon Valley executives who wrote letters urging leniency included Adobe Co- Chairman Charles Geschke and Intuit Inc. founder Scott Cook.

“He’s a high-quality guy,'’ said Dick Kramlich, general partner of New Enterprise Associates, a Menlo Park-based venture capital firm. “He would be welcomed back, and he would be extremely effective.'’

“I actually wouldn’t be surprised to see Frank focus even more of his efforts on the California Innocence Project rather than get back into finance full-time,'’ Burnham, the author of the technology blog, said.

“If he does get back into the game, I think he’s much more likely to take part as a principal investor rather than a banker.'’

These are the words of men who knew in their hearts that Frank took one on the chin for the entire team.

(Plus an equally strong incentive. . . money. . . . Given that the current generation of valley bankers have yet to figure out how to help VC’s make money from pubic exits, they must be clamoring for some help from Frank . . . if he goes back to banking)

Edit: Jason Woodrow hits the nail on the head on the last piont I alluded to . . .

Greg Linden’s eBay, scammers, and self-governance brings up a good point. . . that the whole idea of community contributed value (content, commerce, social, etc) scaling infinitely is somewhat of a myth.

There was a time in my life, that I looked at eBay’s buisness model longingly (5 years ago before I joined) and thought that if one day we could just achieve critical mass, We would be PRINTING MONEY and I could just retire and watch the zero’s grow . . . boy was I wrong. . .

Yes the margins are great, better than the traditional one-to-many business models. But it does bring up a whole slew of other unexpected issues that threatens to negate network effects . . .

Here is a simple test that almost all company fails . . . if value added for a company is truly networks effect driven the difference between its cost of capital and ROI should increase ALMOST exponentially and infinitely. Put it another way (without stupid finance speak) Gross Margins should not only increase infinitely but exponentially as well. There not one company on this earth that has done this yet . . .

Even Google has seen its margins decrease and cash flow growth slow; further more, as much as people think Adsense/word is this self sustaining monster, there are thousands of cute/hot/buffed Stanford undergrads doing menial adwords tech support/filtering/placement etc . . . . just for a chance to date Larry (ok low blow . . . but mommy and daddy didnt mortage the house and get you into Stanford so you can attach one of the phone headsets to your head all day) .

Myspace is just beginning to run into this issue as well. To police its community it hired a Chief Whatever Officer to safequard the community from . . . itself . . .

Digg, with the whole issue of selling ID, digging for money etc, will eventually discover that there are certain things algorithm cant solve for and people will be needed to handle the exception cases.

I guess the summary is that nature has a way of finding balance. . . no one organism or company can grow unchecked forever. . . eventually the very thing that made it successfull will created some sort of negative externality and brings balance back into the world. (hmm isnt this in the pre-amble to Star War VI?). . . eBay with trust, youTube with hardware costs, MySpace with sex, and Google with too many Stanford undergrads . . .

If network effects can creat a platform which enables certain drivers to create value exponentially it can just as easily enable other drivers to destroy value exponentially.

From a New.com article, Google exec challenges Berners-Lee

“What I get a lot is: ‘Why are you against the Semantic Web?’ I am not against the Semantic Web. But from Google’s point of view, there are a few things you need to overcome, incompetence being the first,” Norvig said. Norvig clarified that it was not Berners-Lee or his group that he was referring to as incompetent, but the general user.

“We deal with millions of Web masters who can’t configure a server, can’t write HTML. It’s hard for them to go to the next step. The second problem is competition. Some commercial providers say, ‘I’m the leader. Why should I standardize?’ The third problem is one of deception. We deal every day with people who try to rank higher in the results and then try to sell someone Viagra when that’s not what they are looking for. With less human oversight with the Semantic Web, we are worried about it being easier to be deceptive,” Norvig said.

I’m certainly not in the level of Norvig or TBL to be participating in this discussion intelligently. But I think the point Norvig is trying to make is that the semantic web will eventually appear, but not the way TBL envisioned it. There will be a lot of “fuzziness” to the way webmasters adhere to the RDF (whatever standards/standard that will emerge). In the end, there will always be a need for an intelligent normalization layer that “attempts” to find pattern, context, and meaning out of all the loseness of the data that is on the web. A simple parser will not be able to “absorb” or read the semantic web (or atleast the entire semantic web). The Google search engine is probably in the best position out of all the EXISTING technologies out there to be that layer, it kind of is for humans. The unfortunate ramification (that TBL would be sad to admit) is that SOMEONE will own the semantic web, not as a standards body or content owner, but as the normalization/extraction layer. If Google is able to garner monopolitic growth without a naturally monopolitic product or business model (search engine), it is not without a huge leap of faith that in the future a player (maybe google) will be able to exact a toll for being the de facto router/translator of data on the web. . . this is a scary thought . . . the end of the open web? (and these guys are freaked out about net neutrality?)

Actually most of the Analyst Day Presentation is fluff that purposely hides some of the nuggets on eBay’s strategy for addressing its myriad of problems challenges. As always, Rob Hoff (who, btw, is the only blogger that actually writes about eBay ) has a good summary of the key issue cutting through all the marketing speak.

* Most interesting of all, eBay CEO Meg Whitman suggested that eBay’s reputation system, PayPal’s wallet, and Skype’s ability to let people have a constant online presence each could be decoupled from their respective services and offered as components of entirely new kinds of services. Meg didn’t specifically mentions offering them up to software developers, but said they could become the building blocks for a more customized Web.

So yes, eBay is now trying to stay ahead of the innovation curve by attempting to “micro-chunk” web services and not just content. Not so revolutionary from some perspective but defintely important for all the startups in the space.

In the end, its comforting to know that all the issues/ideas/projects do end up being bubbled up to senior executives . . . hopefully through the right business owners and not just another strategy thought piece ( ala the infamous McKinsey dossier)

Om Malik is known as the blogger that loves to rag on eBay. Exhibit A, B, C, D, and E . . . . . . . (somebody’s got to keep eBay honest right?)

Most recently Om suggests

1. Come up with eBay 2.0 and figure out a role for the company in the digital future.
2. Focus on core strengths. Buy Intuit (Quicken) to give eBay buyers and sellers accounting features.
3. Focus of the company should be Paypal and turning it into Citibank of online world. (Very Very Important.)
4. Figure out a way to get into shareware sales business. Perhaps acquire eSellerate. This is where Ebay can put its heft to good use.
5. Get into digital media sales. The recent Skype-EMI deal could be a good start.

I havent yet seen a journalist turned CEO become successful (turning VC’s works some time . .. Moritz for one) but I think Om is well on his way . . . (as you guys can tell, I’m exercising a huge amount of self control not to write a retort). So the only thing I’ll write is that some of these ideas are obvious, others too vague, and the rest are simply financially infeasible (to be honest, I do like one of them though). . ie not much better or worse than a McKinsey deck

A couple weeks back a “friend” of mine ( ) tried eHarmony based on a friend’s suggestion and got the following message:

eHarmony is based upon a complex matching system developed through extensive research with married couples. One of the requirements for successful matching is that participants to fall within certain defined profiles. If we find that we will not be able to match a user using these profiles, we feel it is only fair to inform them early in the process.

We are so convinced of the importance of creating compatible matches to help people establish happy, lasting relationships that we sometimes choose not to provide service rather than risk an uncertain match.

Unfortunately, we are not able to make our profiles work for you. Our matching model could not accurately predict with whom you would be best matched. This occurs for about 20% of potential users, so 1 in 5 people simply will not benefit from our service. We hope that you understand, and we regret our inability to provide service for you at this time.

What can I say? These eHarmony guys are simply brilliant. . . they understood that they are a network effects business and as such “nodes” in their network (ie people) must fit an exact profile/segment in order to add value to its network. The wrong people (saying nothing about my friend’s eligibility ) will not only NOT add any value but could potentially SUBTRACT value from its network.

Also, by rejecting people which it doesnt think it can serve efficiently, profitably, or satisfactorily eHarmony is reducing negative word of mouth. Progressive Auto insurance does this by not only sending customer away but to directly a competitor. If it doesnt believe it can produce the lowest insurance quote for that customer, it has the confidence that its competitors will LOSE money serving that particular person.

Furthermore, by simply rejecting a small percentage of applicants, eHarmony can create a falese (?) sense of exclusiveness and furthre reduce churn once an user is acquired. Its an age old technique employed by fraternities and the military to instill a sense of pride and ownerhsip which in turn translates to dedication and committment to the community he/she is finally inducted into.

It takes balls for an internet company to turn away users, but eHarmony is successful for a reason. . .

Writing about VAST a whole week after it launched . . . am I slow or what? . . . actually I wanted to play with it for a while before write something. Furthermore, this is obviously not a news blog so I dont feel the pressure to type up something cursory just to get on memorandum .. Working at eBay means that I track this space pretty closely so I am vested in digging around . . .

Vast is a classified search engine Google would have been proud to create. (wish is more like it given the mess that is googlebase) Edgeio is a classified search engine Yahoo would have been proud to create. And there lies the fundamental problem with Edgeio . . . its a worklow engine that relies soley on listings from the “edge” but the algorithm is still “core” focused. . . in the end, it is still a destination site that relies on its community to filter results, rank results, and filter spam. That is all nice a good for Craigslist who for some miracle (or first mover advantage) built a passionate community (I can say the same for eBay). Betting on that once again is hard to do . . . In the end, you either go edge all the way (like VAST) or focus on building core advantages and raise huge/thick walls to keep people like VAST out of your nicely manicured lawns (again like Craig). Doing it half way doesnt seem strategically consistent to me.

Vast on the other hand, truely aggregates from the edge, and its algorithm for relevancy takes into consideration data/content/link structure that is outside of its core data set. The incredible (and coolest) part is its stated ability to capture name:value attribute pairs as it crawl rather than as people submit listings like GoogleBase. Furthermore, reading Naval’s comment on VAST around the blogosphere, they seemed to have built somesort of machine learning/training scheme to use humans to train algorithms to recognize and build histograms of attribute pairs (or tag pairs). Some what like what MySimon did back in the days.

I had always wondered why Google didnt go this route like VAST, instead of relying on critical mass on its core platform to build its taxonomy universe, they should have aggregated from the edge (it from the entire web). The quick answer is that the GoogleBase team are mostly ex-eBay people who only had experience in building walled gardens . . . but I suspect that is not the only reason. I think GoogleBase tried to be too broad by trying to chew off the superset of problems (commerce, content, search for aliens, artificial intelligence, etc). This very hubris created an opportunity for VAST to creat a set of vertical commerce search engines that out performed GoogleBase. . .

I wonder what would happen if VAST was given the opportunity to crawl Gbase’s content with out the GBase specific attribute pairs exposed. Would it be smart enough to extract the majority of the tag pairs? If so . . . Google should be thinking about buying them just about now. . .

Mashups: who’s really in control? . . .

To put it bluntly, data owners hold the balance of power in this new world of Web mashups. Some data owners, like Google and Yahoo, provide formal APIs and are careful to explicitly define restrictions on what external developers may do with their data. Some data owners, like craigslist, don’t provide APIs and are more implicit and arbitrary about whom they allow to use their data.

Either way the fact remains that data owners can easily block off the air supply for mashups, either with a business decision (as in the craigslist-Oodle case), a policy update for an API, or by simply changing the data or technical rules around it.

So true. . . so true. . . another rarely mentioned point is that SEARCH ENGINES THEMSELVES ARE MASHUPS!. Search engines aggregate data (and meta data) around multiple sources to present information to users in an aggregated and controled manner. Take a look at froogle, its aggregating REVIEWS (how is that not data) from multiple sources and presenting it and manipulating it to the end user. So why are the search engines in control even if they dont own the data? Cause they own the traffic/attention. . . data owners can not stop the search engine from mashing up their data because they need the traffic. . . I’m sure everything Craig said was true, but he probably stopped Oodle because it was starting to send TOO MUCH traffic to craigslist that he need to stop it before the balance of power shifts from content owner to attention aggregator. . . when that happens, he could no longer shut them down without damaging Craiglist. . ..

From one of my favorite economic blogs, Marginal Revolution

Morgan and co-author Tanjim Hossain, an assistant professor at Hong Kong University of Science and Technology, held 80 auctions of new music CDs and Xbox video games to test how consumers respond to different price schemes. In the eBay study, they varied the opening bid price and shipping charges on identical CDs, ranging from Britney Spears to Nirvana, and video games, including Halo and NBA 2K2.

…A perfectly informed and fully rational consumer will merely add together the two parts of a price to obtain the total out-of-pocket price for an item and then decide whether to buy and how much to bid based on this total price.

But that’s not what happened in their eBay auctions. Instead, they found that lowering the opening bid price while raising shipping charges attracts earlier and more bidders and ultimately leads to higher revenues compared with doing the reverse. Those findings suggest consumers pay less attention or even completely overlook shipping costs when making bids…

Full paper here. But more snippets here.

While the finding is interesting. . . I think there is couple of flaw. . .

1) sample size is too small, a quick price check for completed listings on ebay will show pretty decent variations for prices of the same item

2) I bet the results wont hold for fixed price listings

3) price variations are probably driven more by (ie correlated with) opening bid price than with shipping. . .

anyways. . . who am I to question someone with a PHD?