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Can a Startup Be Successful in Both the Enterprise and Consumer Markets?

In the last few years we have seen an explosion of enterprise software startups that are embracing consumer technologies and delivery models to revolutionize the enterprise software ecosystem. The industry has baptized this phenomenon as the “consumerization of the enterprise” and has produced complete industry segments such as enterprise social networking, gamification or enterprise mobility within the enterprise software market. In the middle of this phenomenon we can regularly find people within large enterprises that use consumer based technologies to do their job and bypass the complexities of the equivalent enterprise technologies.

All these factors have made me questioned if a startup can be really successful in both the enterprise and the consumer market. At this point, my answer would be that is possible but highly unlikely.

The financial attractions and the clear opportunities for building meaningful business in the enterprise market, have drawn more and more consumer-focused startups to attempt to make inroads into that space. By and large; most of those attempts have resulted on either failures or mediocre successes. From large companies like DropBox to a decent number of the social and mobility players, we’ve witnessed consumer startups continuously being unsuccessful trying to growth a presence within the enterprise. It certainly has taken giants like Google or Microsoft years to be relevant in both the enterprise and consumer markets.

Without doing a forensic analysis, I believe we can trace the roots of most of these failures to the drastic differences between the technical DNA and the business models of consumer and enterprise software. As a startup, defining a successful business model and capturing a solid market segment is a very difficult endeauvor that will consume most of your time and resources. Trying to be relevant in drastically different areas such as the consumer and enterprise markets will entail an exponentially higher effort that can, sometimes, drive the company in completely opposite directions in a lapse of a few weeks.

Even though there are a few exceptions to this rule, I don’t think a startup can be really successful in both the enterprise and the consumer markets without hurting their identity and customer base. After chatting about this topic with a few VCs friends and other executive advisors to companies, some of them have bluntly confessed that they often see a startup trying to tackle both the enterprise and consumer markets as a clear sign of a lack of vision and execution focus and a clear recipe for disaster. In my opinion, as a startup, is always better to stay focused on a specific market, gain solid traction, learn some lessons and try to expand into different areas from there.

What do you think? Can a startup be successful in both the enterprise and consumer markets?

 
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Posted by on October 1, 2012 in Uncategorized

 

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Microsoft-Yammer Deal is the Florence of Enterprise Software

Florence and Siena are the two Italian cities that had the most impact in the Italian renaissance. Even though the movement itself was originated in Tuscany, Florence is often associated with the expansion of the  renaissance movement throughout that Italian peninsula. Is we can, for a minute, trace a parallel between the rebirth of  enterprise software and the Italian renaissance then Microsoft’s Yammer acquisition can become the Florence of enterprise software.

During the last few days we’ve heard strong rumors that Microsoft will be acquiring enterprise social media pioneer Yammer for a price between $1B-1.6B. As a matter of fact, if the rumor holds true, the deal is likely to be announced in the next few hours. Yammer provide enterprise social networks capabilities to thousands of organizations across the globe and has a very strong presence within Fortune 500 companies. After a few financing rounds, Yammer’s valuation is reported around $500M but the value is far from directly correlating to revenue numbers which is reported to be around $20M.

Regardless of your opinion related to the terms of the transaction, there is no doubt that, to the day, Yammer’s acquisition represents the most important moment in the history of this new generation of enterprise software. While this new movement has already experienced outstanding successes such as Jive’s IPO or the acquisitions of Rightnow, Success Factors and Taleo for multi-billion dollar valuations, Yammer’s acquisition is set to have a more profound impact in the enterprise software industry.

Why is that?

Yammer’s influence in the new enterprise software movement goes way beyond its technology contributions and expands onto the commercialization, economics and adoption models of enterprise software technology. If you think about it,  Jive’s IPO had very little influence in the new enterprise software models and SAP’s and Oracle’s acquisitions of Taleo, Rightnow and Success Factors were strongly validated by revenue models and traditional customer acquisition processes.

Yammer, on the other hand, has established a strong enterprise customer base by challenging a large number of the traditional enterprise software concepts. Microsoft’s Yammer acquisition strongly validates that the economics and dynamics of enterprise software are changing. With this deal, Microsoft is telling the world that the old school of enterprise software might benefit from a few lessons from the new boys:

  • Market share matters as much as revenue: As in the consumer market, enterprise software valuations can be correlated to market share rather than actual revenue. While Yammer’s revenue numbers might not be impressive, their number of customers and the dependency those customers have on Yammer’s technology is a great asset for Microsoft.
  • Fremium works: Yammer was one of the pioneers of the fermium pricing model for enterprise software. Microsoft’s acquisition validates that these new type of pricing models can be very effective within enterprise customers.
  • Sexy and simple interfaces win: Yammer is not a super feature rich product and its main value proposition is a very simple one: improving the communication within the enterprise. However, Yammer accomplishes this goal by providing a super sexy, incredibly intuitive and astonishing simple interface. Compared to most enterprise software products, Yammer’s interface might look ridiculous but, as always, we should remember that in this industry simple and open tends to win.
  • Partnership matters: If you have been following the market, Microsoft acquisition of Yammer should not come exactly as a surprise. Since last year, Yammer and Microsoft have partnered to expand SharePoint’s social networking capabilities with Yammer. This acquisition is a testimony that long term partnerships can evolve into successful outcomes for both parties.
  • Mobile-First Matters: Mobile devices are one of the main channels by which people use Yammer. By acquiring Yammer, Microsoft is acknowledging that mobile-first consumers are also relevant in the enterprise.

You can probably tell I am super excited about Microsoft’s Yammer acquisition. I believe Microsoft will get an all-star team head by David Sacks and a rock solid product and Yammer directly benefits from Microsoft’s dominant presence in the enterprise software world.

What do you think? Is Microsoft-Yammer deal as important as I think it is? Is $1.2B too much? ;)

 
 

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The Half Ass Consumerization of the Enterprise: Flexible Pricing Models

In a previous post, I detailed some of the main elements needed to transform the ”consumerization of the enterprise” into a mainstream movement. This time, I would like to focus on one of the most important aspects of the new generation of enterprise software: pricing models.

For years, selling software to enterprises has been a privilege of the traditional enterprise software vendors. Armies of professionally-dressed, not very tech savvy sales people and ridiculously long sales processes is what we’ve known is required to convinced organizations to adopt your software. Those dynamics has drastically change in recent years with the initial renaissance we are experiencing the enterprise software industry. Technology movements like software as a service and efficient software delivery mechanisms such as application stores have provided organizations with the necessary flexibility to embrace the new generation of enterprise software packages. However, there is an essential ingredient that is required to simplify the software acquisition processes in the enterprise: flexible pricing models.

Capitalizing on the more efficient software distribution models at our disposal, the new generation of enterprise software has adopted new pricing structures based on the combination of two fundamental elements: subscription-based and fermium models.

New Enterprise Software Price Model = Subscription-based + Fremium

This formula seems to make perfect sense, whether the fermium model allows organizations to adopt the software at no cost the subscription based structure enables them to scale as the use of the software increases. I talked about the advantages of the fermium model in the enterprise in a previous post. While both the fermium and subscription-based elements should be foundational to new enterprise software packages are far from being sufficient to convince customers to adopt your software. Thinking otherwise, is clearly underestimating the complexities of the software acquisition processes in the enterprise.

At the end free is just free and cheap is just cheap ;)

Establishing the correct pricing model for you and your enterprise customers is far from being a trivial endeavor. I’ve spent a lot of time thinking about this problem and I still manage to make a few rookie mistakes. While there is no direct pricing formula that guarantees success, there are a few key recipes that any successful enterprise software price model should include:

  • Find a way to acquire customers at a minimum cost: If you are going to offer your software for free, it is vital you find different engines of growth to acquire customers at minimum expenses. See my post about engines of growth in enterprise software for more details.
  • Provide a clear conversion unit and value: In order to convert your fermium customers to a paying model, you need a clear unit of measure and an easy transition path. Additionally, it is important that there is a clear value proposition for customers to upgrade to a paying edition.
  • Answer all questions and mitigate risks up front: If you want enterprises to give you money for your software you need to provide a clear and easy way to answer the traditional concerns with enterprise software packages in areas such as security compliance and other traditional policies in the enterprise IT.
  • You are going to need a sales staff: The no sales guy organization is one of those fantasies in the new generation of enterprise software that has no foundation. If you want to acquire big customers and are serious about becoming a winner in the enterprise software world, at some point you are going to establish a sales organization that can help navigate the complexities of the enterprise software process.

Certainly the elements listed above are not exclusive but I believe you will find most of them as  part of any solid enterprise software pricing model.

 
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Posted by on June 11, 2012 in Uncategorized

 

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The Half Ass Consumerization of the Enterprise

This is the first of a series of posts that will attempt to provide a pragmatic view of the consumerization of the enterprise phenomena and demystify some of marketing cloud surrounding this term. As an industry, we are identifying the consumerization of the enterprise as a movement within traditional organizations to enable employees with tools and applications similar the ones they use in their personal life. This movement has been triggered by different technology factors such as the raise in the use of connected devices within enterprises or the emergence of new application delivery mechanisms such as cloud computing, application stores, etc.

While, undoubtedly, there is a tendency within organizations to embrace a new type of enterprise software technologies that look closer to traditional consumer applications, I believe the consumerization of the enterprise is far from becoming a relevant phenomenon in the enterprise software industry. From my standpoint, the consumerization of the enterprise is more of a psychological phenomenon accelerated by a marketing frenzy than a technological movement.  As a matter of fact, I firmly believe that, unless software providers and enterprises make some serious changes, the consumerization of the enterprise might never expand beyond being a sexy marketing term.

Let me try to explain;

When we think about the consumerization of the enterprise, we can easily related this movement to a number of emerging disciplines in the software industry that are starting to have an impact in the enterprise:

  • Enterprise mobility
  • Enterprise social networking and collaboration
  • Cloud computing
  • Gamification

While there are others, we can pretty much associate any “consumerized enterprise application” with some the 4 technology areas listed above. When we look deeper into the enterprise technologies   in each one of these areas, we quickly realize that the true enterprise-ready software technologies are far from being consumer friendly and the products that truly leverage consumer technology concepts are far from being enterprise ready. I know, it totally sucks :(.

To put this in the context of an example, let’s look at the enterprise mobility space which, arguably, is leading the charge in the consumerization of the enterprise movement. Currently, SAP and IBM (yes those two) are the dominant players in the space followed by companies such as Antenna Software and Kony. When you deep dive into the technologies offered by those vendors or talk to some of their customers, you realize that the experience is no better or simpler than traditional enterprise packages in the space such as the old Blackberry server stack. The sad thing is that the consumer market is full of mobile technologies that deliver a far superior experience than the enterprise products but, unfortunately, none of those technologies is well suited to be applied to enterprise applications.

In order to become a relevant movement in the software industry, the consumerization of the enterprise needs a deeper commitment and collaboration by the product vendors as well as the enterprise. Here are some of the things I believe are desperately needed:

  • Enterprise tailored software products that leverage consumer technology concepts
  • Deeper understanding of enterprise mechanics by the new generation of enterprise software vendors
  • Flexible pricing models based on economies of scale
  • Simpler software acquisition policies
  • More flexible compliance, procurement and other enterprise regulatory processes.

Each one of the aforementioned areas represent is a major challenge for the new generation of enterprise software technologies. I will cover each one of the areas listed above in more detail in future posts but, for now, I am happy if this post is making you reflect about the realities of the consumerization of the enterprise movement.

In my opinion, without addressing some of the challenges in the areas listed above, the consumerization of the enterprise might be destined to stay as an engaging marketing line with a minimum impact in the enterprise software industry.

 

 
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Posted by on June 8, 2012 in Uncategorized

 

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