Enterprise 2.0 Software: Commoditization before Monetization

That’s a comment that one of the leading Enterprise 2.0 vendors made to me recently.

home_img1_commodities This morning, Socialcast, provider of a micro-messaging platform announced that it’s moving to a ‘free-mium’ model. Meaning, get all the user and administrative features for free, regardless of company size or usage needs. For those of you not familiar with Socialcast, it a micro messaging platform that enables collaboration and sharing by unlocking discussions from closed email into an open environment. What started off as Twitter for the enterprise now looks more like Friendfeed for the enterprise – a model that I think has significant promise for the enterprise. The product used to be about $1 per user per month and is now completely free to use and administer. Socialcast plans to make money by enterprise deployments and charging for premium services such as directory integration, analytics and consulting.

TechCrunch thinks that there won’t be a need for paid services. I can’t disagree more but that’s another post. ReadWriteWeb believes “there will certainly be large government and enterprise customers who require self-hosting and consulting services.”

So the real question for me is: Are we on the path to super sonic commoditazion in the Enterprise 2.0 market before even a single vendor has truly broken out & dominated the space?

Some History

In the early days of Enterprise 2.0, the market was crowded with Wiki providers, many of whom painfully realized that the commercial market was too crowded and that the likes of Media Wiki (the free software that is used to power Wikipedia) made it increasingly difficult to charge for Wiki based products. Moreover, making a scalable business case from using a pure play wiki product was an increasingly difficult way to get the kinds of market valuations that a venture capitalist expected.

Enterprise Wiki, tagging, RSS and bookmarking providers quickly re-cast their solutions from Wikipedia and Delicious for the enterprise to Facebook for the enterprise providing rich social networking features, user profiles, blogging capabilities and the like. That market saw changes in dynamics as well, thanks to a very crowded and increasingly indistinguishable offering set, coupled with constant pressure from open source/ free forum offerings. See what BestBuy achieved with Drupal for instance.

Today

The next wave of differentiation amongst Enterprise 2.0 providers was going to be based on content creation as well as smart aggregation, fueled by micro-messaging, integration, aggregation, activity streams and the concept of the real time enterprise. Whilst this phase of evolution shows great promise, its also an area that’s going to require serious data integration to ensure that you can truly fold in data and content or surface intelligence from anywhere. Not just from the base social computing applications in your suite (user profiles, workspaces and wikis, etc) but also from third party internal and external systems in the enterprise such as LinkedIn and Salesforce.

Where this notion of commoditization before monetization further crystallized in my mind was when I read the announcement of Google Wave – “a new tool for communication and collaboration on the web, coming later this year”.

With Wave, Google is offering a real time messaging and activity stream platform that developers can use to create applications or amp up existing offerings. Its still early and unproven and will probably only work for SaaS offerings. But if it delivers on its promise, its a ridiculously more sophisticated incarnation of what Enterprise 2.0 vendors have spent a huge portion of their development budget on, for the last 12 months. Thanks to Google, it’s now available as a platform technology, for anyone to leverage. Ouch.

Going Forward

So assuming that the software stack continues down this path to commoditization, what’s left to make money on? Directory Integration? Application Integration? Change Management Consulting?

That might work for Socialcast given that its backed by True Ventures, the experts in realizing ungodly valuations from open source / free services (True Ventures is the backer of Automattic, the makers of WordPress. ‘nuff said). But how is that going to play out for other venture backed firms that have no interest in valuations that a services business generally commands.

I see 3 areas:

  • Maybe we will see more business models similar to what Alfresco or Acquia have, where there’s a commercial alternative to a base open source platform.
  • Or we will in fact start to see competition based on which software vendor can help organizations move into an Enterprise 2.0 design by focusing on specific business processes. That’s something that goes far far beyond selecting and deploying a social computing tool set. I know personally that SocialText, Jive Software, Newsgator and Traction Software are taking this seriously. I’m sure there are others.
  • Analytics based monetization. There’s tremendous value in knowing what programs and efforts generate content and knowledge that helps the organization accelerate performance. Social computing breaks this information down in ways that were not possible before. There’s tangible value in business intelligence as a way to improve operational efficiency.

BTW, there is another lesson to be learned from all of this. Guess which class of Enterprise 2.0 vendors will read this post and simply shrug off my assertion? Those that are fixing known functional business problems such as customer service, sales acceleration, marketing intelligence and the like. They have a defined customer and a defined set of business problems that they fix (and as important, don’t fix), a known integration road map and a defined competitive landscape to navigate.

I can’t think of another time in the history of software or another area of enterprise software that has seen commoditization emerge so quickly in its evolution.

How do you think the Enterprise 2.0 market will shake out?

Subscribe to this Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.


Tags:
32 Comments
Post Details
19 comments
data recovery
data recovery

Yes, this concept would be really good for a successful venture.

air jordan 12
air jordan 12

Here elaborates the matter not only extensively but also detailly .I support the write's unique point.It is useful and benefit to your daily life.You can go those sits to know more relate things.They are strongly recommended by friends.Personally!http://you-rselfas.com/

air max shoes
air max shoes

Well , the view of the passage is totally correct ,your details is really reasonable and you guy give us valuable informative post, I totally agree the standpoint of upstairs. I often surfing on this forum when I m free and I find there are so much good information we can learn in this forum! the-boate

Karyn German
Karyn German

Well, Sameer, you can imagine that my reaction is one of skepticism when it comes to solving real business problems. You and I are very much on the same page in that regard and as I work closely with our customers on deploying solutions for the long haul, I am more convinced that consulting services will only become more critical to success. Not trying to be a self-promoter, but I defined a methodology for deployment and adoption that we use with our strategic accounts and the methodology is absolutely vendor agnostic. Now, let's be honest, I work for a social computing vendor. But, I can execute my methodology in the absence of a chosen vendor. I haven't yet, but I could! :'} You can download the whitepaper that summarizes our methodology here: http://www.newsgator.com/webinars/2009/roadmaps...

Carlos Diaz
Carlos Diaz

Hi, I'me the CEO of blueKiwi Software, an Enterprise Social Software. I'me totally agree with your analysis of the Enterprise 2.0 market. In bK we are taking the commoditization threat seriously for a long time now... In fact, only Big Vendors like IBM, MS or Oracle can consider the Enterprise Social Software market as a platform and provide their clients a comprehensive solution to meet the general needs. It costs me to say that but it's true... To think otherwise when you are a start-up is suicidal (unless if you have an open source model may be...). When we started in 2006, the market was very emergeant and it was already possible to make this bet. I remember Jive Software saying last year during the E2.0 conference in Boston that they will never partnership with Sharepoint because they consider they are an alternative to Sharepoint. We all spent a lot of time and money to evangelize E2.0 and a market has never before matured so rapidly! No one of us has truly broken out and nobody really dominate this space today...I guess there is a lot of business here but it's not the same business if you are a Big Vendor or a pure Social Software start-up. In our side, we consider that it's time to focus on specific businesses and become a specialist based on the successful experiences we had. To win the game having a specific positionning is not enough, you will also need a strong sales execution capacity.Next monday, bK will announce a strategic orientation and a partnership with a world wide Leader that reflects this new business-oriented positionning.

Kevin Mullins
Kevin Mullins

Great outline of where E2 companies have to go. Google may move in the lead but current E2 companies will soon follow, Congrats to Socialcast for realizing this and doing something about it.

paulsweeney
paulsweeney

Hi Guys. Great conversation and agree with nearly everything you are saying. There might be other "inflections" to the discussion such as How exactly does open source effect the SaaS model of the likes of Salesforce.com? and "where is the pain" (Integration from legacy?), and "where are the current and future friction points in adoption" (old fashioned barriers to entry and exit). If everything looks the same, and acts the same, its pretty hard to extract value.

Dimitri Volkmann
Dimitri Volkmann

I think that personal productivity (I mean outside of work) has significantly improved in the past years, because of two technologies that are centered around the individual: Mobility and Social Software.So, it is actually interesting to observe that people are now bringing those personal habits in the Enterprise. I can see of 2 obvious examples: a) people started to use IM to work, before IT deployed (and sometimes realized and blocked it) and b) people in Europe started years ago forwarding the office phobe to mobile. As a result, you are right, commoditazition is uniquely getting in the Enterprise, driven by people themself.Is there some business there ? Well, I think you touched on it in your "Today" section... to me, it is about putting business contecxt (data, processes, apps, etc) into the collaboration (and mobile actually) use case for Enterprise. Today, activities in a social software stream (or wave or whatever SocialText cals it) only carry a short text and some very basic media attachement. Being able to extend this to Enterprise content would be of enormous value...Thanks for the article!

Lawrence Liu
Lawrence Liu

Individual features are susceptible to being commoditized, especially as freemium SaaS-based offerings. There's much more strategic value (to both customers and vendors) in software platforms that have integrated features and capabilities and can interop or integrate with other IT and LOB systems to solve real business problems. And those are indeed the critical areas that Telligent will continue to focus on. :-)http://twitter.com/lliu

Aaron Roe Fulkerson
Aaron Roe Fulkerson

It does seem that Google Wave will be useful to the enterprise, but it is clear enterprise will still require an enterprise collaboration framework for providing additional context from enterprise systems and services. MindTouch, because of the web oriented architecture (WOA) we've employed in the development of our product, should be able to quickly and easily federate data and application behavior from Google Wave in a similar manner to how MindTouch already does with enterprise systems (ERP, CRM, databases, etc) and web-services. Federating Google Wave will likely add value to our enterprise users, but enterprises will still need to have integration for reporting, dashboards and collaboration from across the multiplicity of enterprise systems and data silos that exist within the enterprise. Google Wave is not a panacea. Hell, it's not even a product yet. It is clear though that the "social" E2.0 point applications/suites will be devalued. Indeed, we see this happening already. E2.0 vendors clearly need to retool their offerings to facilitate the federation of enterprise systems and services in order to get beyond their existing walled point applications' capabilities. With three to four years of experience behind us it is clear that dropping another silo that's (YAY!!) "social" into the enterprise doesn't solve many problems and it even contributes to the old problem of disconnected data and interop. On the other hand, the integrate and extend approach MindTouch has taken is how we are delivering the most significant portion of our value to our customers and users. Facebook for the enterprise and social enterprise applications that are solely about facilitating conversations just does not deliver significant value. Finally, you write above about process. Yes, this integrate and extend approach I mention does have a lot to do with process. The most valuable approach is the creation of a collaborative information fabric that consists of content federated from existing systems and processes thereby improving existing processes, workflows and enterprise systems. Again, WOA is key here. I write at length about this notion of federating systems as well as the approach the preponderance of E2.0 vendors have taken here: http://cli.gs/cn

Sameer
Sameer

Hey there KarynI'm with you on the notion that consulting services are vital. And I'm up to my eyeballs consulting on this stuff as well. Thanks for sharing the document. See you next week.

Sameer
Sameer

Carlos, thanks for your straight shooting assessment. Need lots more of this in the blogo-tweetsphere. I fully expect to have discussions on this subject at the Enterprise 2.0 conference in Boston next week.Good luck with the announcement on Monday.

Sameer
Sameer

Thanks Kevin. Glad you liked it -)

Sameer
Sameer

Good point to consider, for sure, Paul. Thanks for your comment.WRT "If everything looks the same, and acts the same, its pretty hard to extract value." To me the larger point is how many have planned to survive and thrive if "everything looks and acts the same" or even if thats just the market perception. I'm afraid that latter has already started.Commoditization of course doesn't mean the market size shrinks. Salt, Pork Belly and Steel are still huge businesses. It does require a completely different execution model.

Sameer
Sameer

I'll give you that Lawrence. It does make it more strategic. But how about striving to -become- the nucleus of the LOB process? You're the platform guru - so tell me -)

Sameer
Sameer

Hi Aaron, thanks for adding color to my post. You're right, I could have emphasized integration more. It can be the missing Tylenol that the customer needs when thinking about cross system integration.Also, looking at my notes, I missed one important differentiator and that's user experience. I happen to consult to large commoditized companies and its incredible how UX can win the day in a vendor bake off. P.S. If you're at E2.0, Id love to know more about MT. Not that I review software here but I know close to nothing about you guys. LMK if you're game.

Lawrence Liu
Lawrence Liu

"the nucleus of the LOB process" - this, of course, varies quite a bit between orgs and companies, especially those in different industries and markets. This is why the fundamental features and capabilities needed for teamwork, community, and networking both inside and outside of a company need to be integrated and easily customizable in order to adapt to whatever the LOB process may be. As with ERP, CRM, and SCM technologies, how Enterprise 2.0 technologies get implemented successfully will depend on whether 1) the business process can be re-engineered, which means a potential "greenfield" situation, or 2) the business process can be optimized or enhanced, which typically means integrating with existing apps/systems.

Aaron Roe Fulkerson
Aaron Roe Fulkerson

MindTouch has a major announcement next week. Your timing is perfect. :-) 619 931 2314.

Trackbacks

  1. […] Enterprise 2.0 Software: Commoditization before Monetization | Pretzel Logic – Enterprise 2.0 RT @bhc3: Great post! Enterprise 2.0 Software: Commoditization before Monetization http://bit.ly/FbTjY (expand) by @sameerpatel [from http://twitter.com/dhinchcliffe/statuses/2211587285%5D […]

  2. […] it has plenty of revenue opportunities there if the advertising model is not of interest. Well, maybe there are revenue opportunities in the small- to mid-sized business […]

  3. […] survive, especially in light of eventual attacks from large competitors such as IBM. Analyst Sameer Patel wonders whether many Enterprise 2.0 vendors will find themselves victims of self-imposed commodity […]

  4. […] Sameer Patel wonders whether many Enterprise 2.0 vendors will find themselves victims of self-imposed commodity […]

  5. […] This post was Twitted by webtechman […]

  6. […] Google packages up a Netbook  with ChromeOS, Google Apps, Umbrella Analytics, Google Gears and and Wave-enabled Enterprise 2.0 capabilities. The full enchilada along with a developer platform to enable customization for specific use cases in the enterprise. Now that’s a software distribution model that in theory can give SharePoint bundled with Exchange, a serious run for its money. And that also speeds up commoditization of Enterprise 2.0 solutions. […]

  7. […] Enterprise 2.0 Software: Commoditization before Monetization | Pretzel Logic – Enterprise 2.0 http://www.pretzellogic.org/2009/06/enterprise-20-software-commoditization-before-monetization – view page – cached What value will enterprise customers be willing to really pay for, from Enterprise 2.0 and social software. — From the page […]

  8. […] out of the box, the social software stack is far better than static intranets but its becoming a commoditized business. The rest better start focusing on line of business performance if they don’t want to get […]

  9. […] expect the likes of British Telecom, Singtel and Comcast etc jump in. If I’m very right and my commoditization assessment from last year holds true, we’ll see more players such as RackSpace and XO communications start […]

  10. […] felt about a year ago that stand alone Enterprise 2.0 faced serious commoditization and the lack of process and context was going to be a big problem. I still consider these to be […]

  11. […] have to give Google credit for trying and failing fast though. I had really high hopes. The good news is that Google promises to inject some of Waves core technology into its other […]

  12. […] from the task of process improvement to impact operational and financial metrics, b) a fast path to commoditization, and c) been a catapult to entering price […]

Leave a Reply

Your email address will not be published. Required fields are marked *

Follow

Get every new post on this blog delivered to your Inbox.

Join other followers: