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Blog Entries from Mural Ventures Team Members
February 2007 - Posts
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OfficeLive is a significant dilemma for one of the world’s greatest innovators. I am specifically referring Ray Ozzie, http://www.microsoft.com/presspass/exec/ozzie/default.mspx
Chief Software Architect at Microsoft. In the spirit of full disclosure I had the great pleasure of working for Ray for 3.5 years at Groove Networks. I can tell you that he is an incredible human being on many levels – but even he has his hands full with the classic Christensen-style dilemma http://c2.com/cgi/wiki?InnovatorsDilemma posed by OfficeLive.
No where is the OfficeLive dilemma more obvious then in the public Q&A that occurred yesterday with equity investors at the Goldman Sachs conference in Las Vegas http://news.yahoo.com/s/nm/20070227/tc_nm/microsoft_ozzie_dc_3. Not only does Ray have to explain how OfficeLive will help Microsoft counter the numerous competitive threats posed by Google, but, he also has to explain how OfficeLive will not accidentally cannibalize Microsoft’s traditional (and very profitable) software licensing model.
Further complicating the dilemma is the fact that Ray and Microsoft have openly acknowledged that OfficeLive is designed to enable Microsoft to counter Google by directly owning the small business SaaS subscriber relationship. So what does this mean for Microsoft’s traditional channel partners (telco carriers, hosters, and VARs)? Clearly this is a significant dilemma for the channel which, ironically, creates a tremendous opportunity for service provides to move quickly to introduce their own SaaS offerings so they, themselves, can own the subscriber relationship.
In summary, OfficeLive at heart is a direct play for Microsoft. OfficeLive is not currently available for redistribution through the channel. The fact is that small business with limited IT expertise have a real need today for simple-to-use software applications delivered as a service. Therefore, broadband providers, VARs, and hosters need to move quickly to capitalize on this demand.
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A friend of mine directed me to this article http://news.bbc.co.uk/2/low/technology/6400639.stm. It's an amazing read and presents some powerful (but simple) logic for how to satisfy customers when providing basic broadband services.
In sumary, the Broadband Customer Satisfaction Survey conecuted by Point Topic www.point-topic.com reveals that customer satisfaction rates are going down:
"a year ago, 92% of customers were very or fairly satisfied with their broadband provider. That figure has now fallen to 77%, and those very or fairly dissatisfied have nearly doubled to nine percent.
The survey also shows that a majority of the dissatisfaction is attributable to new entrants who fail to provide ample after sales support:
"New entrants, such as TalkTalk and Sky, are the main focus of dissatisfaction. Nearly 17% of TalkTalk customers and 14% of Sky broadband users were very or fairly dissatisfied with the service on offer. The main complaint is about after-sales support. "
The first point is this -- if you're going to provide broadband services in a heavily commoditized market, then you better make sure to provide "white glove" after sales support.
The second point is this -- if you're going to evolve your broadband offering to a level where you're also providing hosted apps, then the need for "white glove" support is even higher.
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I was in London last week for a full slate of meetings with our partner BT and host of other folks including the Wiki Wednesday group http://www.socialtext.net/wikiwed/index.cgi?london_wikiwed_21_february_2007, Dennis Howlett http://www.accmanpro.com/ who is a truly intersting and smart guy, and Howard Rosenberg from BePro www.beprofessional.com.
It was an excellent trip on many levels. But most importantly, it served as further confirmation that there really are a lot of people in this world -- from all walks of life -- thinking about ways to simplify social media tools and technology for purposes of enabling small businesses to become better "conversationalists" on the web. To learn more about the definition of a web converstionalist -- check out www.5conversations.com.
In terms of BT, it's clear that their leadership is in the business of making conversations happen. They are truly tuned-in to the concept that the the web is a paltform for enbling an entirely new range of conversations. And they definitely understand the importance of making things simple. Only time will tell if they get it right but the early indicators from www.bttradespace.com and www.btworksapce.com are indeed positve.
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This blog article on whir.com titled Microsoft's Hosted Business Application Push, Should Exchange, SharePoint Hosts Worry? by Mathew Baldwin reinforces the fact the Microsoft is going to be a big player in the SaaS space. They are a large fish in this ocean of opportunity, and as a large fish other big players (incumbent broadband providers) need to be paying attention. The open questions are:
1. What size customer will they target?
This article assumes that Microsoft focuses on large, fortune 500 customers. While that might historically be true, is it true in light of launches like Office Live? One completely unsubstantiated report we've heard is that nearly 40% of the current Office Live beta users are Consumer and SoHo. That's a big portion of the SMB space. So the time is likely now to react.
2. How should incumbent service providers compete?
As the article states:
"The best way to compete with Microsoft on this front is to offer differentiating features. For Hosted Exchange, this might be Good and BlackBerry services, a lower cost archiving service, a better anti-virus/anti-spam service; For SharePoint, this could be partnering with SharePoint ISVs to create add-on templates or services to the base Microsoft SharePoint stack."
We couldn't agree more. Incumbent providers, especially broadband providers who are providing all of the underlying network infrastructure for Hosted Apps as a free lunch, need to look at moving up the stack. Innovation on SharePoint capitalizes on all the power of the Microsoft platform. SMBLive is an example of a SharePoint-based ISV specifically built for distribution via the incumbent broadband providers. See TELUS ePoint, BT Workspace and BT Tradespace for in-market examples of what's possible for an incumbent provider to build on SharePoint.
3. And per the article's closing question:
"And finally, what does the announcement of Google launching Google Apps Premier mean for Microsoft and the rest of the hosting community?"
From our perspective, it's further validation. Large, multi-billion dollar companies don't pursue markets unless someone sitting in the finance department with an MBA from Wharton has built an impressive spreadsheet that says it can move the dial. Moving the dial is NOT easy for a multi-billion dollar player. Moving the dial requires a big market with a big revenue opportunity. The fact that both Microsoft and Google are in the Hosted Apps market with offerings that appear to be directed at the SMB segment means that the market opportunity is real, and real big. Incumbent hosters and broadband providers should all be taking notice, and formulating plans.
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To see how British Telecom continues to evolve their Business Broadband, take a moment to review this webinar:
http://www.bttalkingbusiness.co.uk/online/viewer.php?venueurn=58&ref=2
Here is the description:
You've got broadband, but is it really doing all it could for your business? BT has a wealth of Business Broadband Tools which can galvanise the power of your broadband and bring benefits to your business way beyond simple email and web searching.
Talks about the products BT Workspace and BT Tradespace.
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A friend of mine told me about this fascinating article http://www.nytimes.com/2007/02/05/technology/05ecom.html?ex=1328331600&en=d00c3868ce032643&ei=5090&partner=rssuserland&emc=rss
in the Sunday New York Times. It's a story about how online retailers are increasingly using video blogs on the web to enage customers in meaningful conversations.
In particlar, i abolutely love this quote from one small business owner, "The irony is that we're using technology to be much more personal with our customers, and recreate the relationship I had 30 years ago, where I knew all the customers that came into my shop on First Avenue,"
It a simple, powerful, and timely example of what the Conversational Web is all about. The bottomline is that anyone (and especially small businesses) are increasingly drawn to easy-to-use social media tools that enable them to have conversations with their online prodpects and customers.
BT Tradespace www.bttradespace.com is another excellent example of how web conversations are coming to life for small businesses. Whether it's publishing a professional web site, optimizing for paid and or natural search, blogging, pod casting, or video blogging -- the fact is that these conversational tools are becoming easier to use and are facilitating a whole new range of easy and natural interactions between small businesses and their customers.
The web is becoming more conversational for all types of people -- even those with limited IT skills. End of story.
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But the Conversational Web is not just about selling and ratings. It's not just about the number of stars you get from a relative. It's also about how the web is transforming every type of communication a small business might traditionally have in the course of doing business. The Conversational Web impacts prospecting and selling, to be sure, but it also impacts partnering, customer delivery, internal operations, employee communication and satisfaction, and personal information management. The web site is no longer just a marketing piece....certainly not just collateral. And it's not just a simple online storefront. The web site is also a work site, a place to do business, a virtual water cooler for remote and tele-working employees, a collaboration hub, a customer satisfaction tool, a community and more. SMBLive is beginning to break down all of these elements into 5 core conversations that small businesses need to manage effectively to take full advantage of the Conversational Web, this Web 3.0. Through applications like TELUS ePoint, BT Workspace, and BT Tradespace, SMBLive is working to expose the basic tools required for SMBs to capitalize on these conversations while at the same time stripping out ALL of the complexity, feature creep, and confusion.
First though, we should all agree on what the 5 Conversations are.
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Some raw thoughts to begin:
- The conversational web is what the internet has become. It’s about people having conversations with other people. It’s conversations about every day affairs such as religion and politics. It’s conversations about commerce and the things that you need to buy your kids for Christmas. These conversations are occurring with increasing regularity between family, friends, and total strangers alike -- especially in the context of that ancient ritual known as commerce. I have something you need. I want to sell it. You want to buy it. You don’t know me. I don’t know you. We need to have a conversation. How do we do it? What’s the best way? Is it a private conversation? Is it a public conversation? Does it matter to you as the buyer? Does it matter to me as the seller? Are there other participants? Is there a referee?
- The conversational web is driven by a proliferation of new media tools such as blogs, podcasts, video blogs, online discussion forums, voice over internet, chat, and instant messaging. Conversations via the web are quickly transcending traditional communication technologies such as telephone and facsimile. Web conversations tend to be ad hoc, unscripted, and spontaneous. The conversational web is the modern day equivalent of buyer and seller interacting in the ancient bazaar with hundreds of other buyers and sellers swirling passively around the edge. There is however, one major difference -- web conversations today are occurring in an increasingly public arena whereby other buyers and sellers swirling around the edge are active observers – not passive. The public is watching. The market knows if a seller is perceived as good or bad by his/her customers. Ratings matter.
- The way people use the web is fundamentally changing. People increasingly search for the things they need and want. Through the power and maturation of internet search tools such as Google and Yahoo – people generally find things that match perfectly with their needs and wants. Furthermore, people are increasingly checking with other people to see what they have to say about particular products and particular sellers – good, bad, indifferent. Finally, people increasingly try things out via a free trial before making any final purchase decisions. Then, maybe, if you listen and converse with your prospects, they’ll buy one of your things. The process is summarized as search, find, try, and buy. Sellers have less control. Buyers have more control.
Up Next - Why is the Conversational Web important to your small business?
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AT&T acquired USi this past year for $300 million http://www.thewhir.com/marketwatch/091206_AT&T_Acquires_USinternetworking.cfm and signifcantly bolstered its ability to deliver hosted and managed application services to large enterprise and mid market companies...but what's the plan for the SMB market?
I am not personally sure if AT&T has plans to leverage their new found SaaS capabilities to target SMB markets -- but it would seem to make good sense given that their (and SBCs) traditional voice business (local and LD) is clearly under signifcant commoditization pressures
http://www.forbes.com/2003/04/24/cz_sw_0424sbc.html?partner=yahoo&referrer=
Furthermore, given their tremednous SMB assets (mainly in the form of existing billing relationships and brand power) it would seem that AT&T would be wise to leverage thier brodband network to make a serious push to deliver hosted apps to the SMB market, just like British Telecom www.btworkspace.com and www.bttradespace.com.
Time will tell if they have the focus and energy to work to evolve their broadband platfrom into the applications realm? I think they will.
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Here are some statistics to set the stage for how big and impact the SMB market can have on the ocean of SaaS opportunity:
1. 15 Million small-and-medium businesses (crossed the chasm, and the SMB market is the next consumer base.
2. In primary markets (US, Canada, UK, Australia, New Zealand), broadband penetration to these small businesses is over 90%.
3. IDC states that the SaaS market was $5.5bn market in 2005, and they predict it will grow to $11bn by 2010. That's a 20% compound annual growth rate (CAGR) versus a 6% projected growth rate for the overall software market.
4. Edge Strategies studies reveal that even a year ago (2006), 24% of SMBs have an interest in hosted applications (SaaS), and 5.4% planned on buying in the next 12 months.
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Microsoft (with their OfficeLive beta offering) and Google (with GoogleApps) are in the early stages of targeting the small and medium business (SMB) market with hosted applications delivered via a software-as-a-service (SaaS) model.
Both of the these giant companies have a voracious appetite for growth (see The Innovator's Dilemma), and both companies are planning for their applications to get a 'free ride' on broadband networks owned and operated by incumbent Telco service providers. Further, neither Microsoft nor Google is strategically motivated to create a compelling SaaS resale opportunity for the incumbent Telco channel.
With billions of dollars in resources, massive numbers of existing SMB billing relationships, and powerful brands trusted by millions of small businesses, the incumbent Telcos are guaranteed to fight aggressively to control their share of the market for SMB SaaS subscriptions.
With what and how are the Telcos going to fight? With their core assets, brand and customer relationships. The how is for future entries.
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