Report: Enterprise 2.0 Apps Will Dramatically Fall in Price

not such great news for the Enterprise 2.0 world...some of the comments are quite interesting as well.

http://www.readwriteweb.com/archives/enterprise_20_apps_fall_price.php


Report: Enterprise 2.0 Apps Will Dramatically Fall in Price
Written by Richard MacManus / October 12, 2008 7:41 PM / 12 Comments

A new report by Forrester Research states that the market for collaboration and productivity web apps in the enterprise (a.k.a. enterprise 2.0) is set for a shake-up, with prices to fall in some cases by over half. Price drops will be especially sharp in blog, wikis, social networking and widgets. The only exception is mashups, which will increase in price over the next 5 years.
Forrester says the price drops will be due to "cutthroat competition, commoditization, bundling, and subsumption", with many startups and established big companies competing for the enterprise dollar.

There is still expected to be strong adoption by enterprises of web 2.0 apps, which will result in increased license revenue. However that will be offset by the large price drops.

Which Apps Will Suffer The Most?
The outlook is particularly bleak for blogging software, which Forrester says will "fall to the lowest average cost per enterprise among Web 2.0 tools" - that's bad news for Six Apart and Automattic, both of whom have been aggressively targeting the enterprise in recent years.
Wikis are also expected to fall in price, however Forrester notes that wikis have had a strong impact on enterprises so far. So there will be more competition, but best-of-breed solutions will continue to do well. Forrester says that "well-designed, intuitive, and cheap wiki technology" will do best.

We've noted over the years that it's very tough to create an easy-to-use and intuitive wiki app, therefore we expect existing best of breed providers such as Atlassian and SocialText to continue to do well. [disclosure: SocialText is a RWW sponsor]

Widgets are expected to drop in price a bit over the next 5 years, mostly because they will become far more common place than they are now. Forrester notes that traditional enterprise applications providers like SAP and Oracle will begin to offer widget solutions for their existing customers.

Social networking is expected to see a big drop, largely due to SharePoint. Forrester states that "much like blogs and wikis, social networking is likely to be commoditized quickly over the next five years." They do hold out some hope thought for "specialized tools that focus on alumni networks, new employee orientation, and cross-department collaboration", which they think may continue to get price premiums.

The one thing we'd caution here is that SharePoint so far has proven to be a complex and difficult to use beast, so we're not so sure that easy-to-use alternatives will be commoditized by SharePoint. In theory it sounds sensible, but in practice how many people actually use SharePoint to network?

Forrester sees mashups as being very early in their market sycle, so it is optimistic pricing will increase. It states that "IT departments will prioritize mashup technology as part of portal, business intelligence, and business process management software investments as well as a major component of SOA implementations."

Update: Jeffrey McManus (no relation) asked in the comments: "Who pays anything for mash-ups or widgets?" The report notes that both aren't common - just 1.8% of North American enterprises had a widget deployment in 2008, while mashups so far have been "small isolated tests, typically limited to the IT department". There are no figures given for how much widgets and mashups will grow, although Forrester says that it "never expects widgets to find a home in more that one-third of enterprises". However there seems to be decent money in it for vendors, with an average of $26,500 per implementation for widgets in 2007 and $76,500 per deployment for mashups in the same period. Examples of current mashup platforms include JackBe, IBM, and Serena Software. Forrester expects the price for mashups to "nearly double to $143,400 per engagement by 2013."

Also in the report, podcasts are predicted to remain largely unchanged over the next five years and enterprise RSS will play "a critical role as the Web 2.0 middleware, staving off major price declines."

The graph below from Forrester summarizes all of the data:

Why Will Prices Drop?
One of the reasons is that old fear of web 2.0 companies: commoditization. As innovation gets copied and 'digested', so it becomes less of a differentiator for the innovators. As Forrester puts it in the report, "for the most part, a blog from one vendor is no better than a blog from another, eroding differentiation and price premiums."

Bundling is another threat to startups, creating "a homogenous set of competitors." Forrester seems to be suggesting that most enterprise 2.0 vendors are attempting to sell a Web Office suite: "Everyone, from blogging vendors like Six Apart to social bookmarking vendors like Connectbeam, is converging on one offering: the enterprise Web 2.0 suite." This, says Forrester, will result in an "industrywide brawl, with buyers the only guaranteed winner".

The third main factor is subsumption, which Forrester says "brings Web 2.0 technology to millions of users at little to no cost." Subsumption in this case has a similar meaning to integration. It's a tactic that the big vendors - like Microsoft, IBM, SAP and Oracle - have more easily at their disposal over startups. Forrester points out that these bigcos can easily roll Web 2.0 features into their existing software packages - in many cases at no extra cost to the user. Microsoft has been doing this with SharePoint, which has lightweight blogging and wiki tools bundled into the main product.

What's more, Microsoft has managed to partner with a number of high profile but small enterprise 2.0 vendors - such as Atlassian and Newsgator. In June we profiled 9 small companies that had launched Enterprise 2.0 offerings that integrate with SharePoint technology. So this could be viewed as another form of 'subsumption', whereby startups have to partner with big companies like Microsoft in order to compete in this highly competitive market.

Even an apparently independent startup like Zoho, which seems to be competing well with bigger companies, has to a degree partnered with bigcos - their use of Google Gears has them relying on a technology produced by Google (ok, Gears is open source, but still it is a form of reliance).

Conclusion
Overall, the trend according to Forrester is that prices for enterprise 2.0 apps will fall but that demand will continue to ramp up. We at ReadWriteWeb can't argue with the overall trend, however we think that startups still have a few tricks up their sleeves when competing against bulky and often hard to use products like SharePoint. However we've always said that partnerships - with bigcos and other startups alike - will be key to startups as they engage their bigger competitors in a crowded market.

What Startups Can Learn from Sequoia Capital’s Doomsday Plans.

some scary words from the Sequoia Capital folks...but important lessons to learn are in here as well:

http://gigaom.com/2008/10/09/what-startups-can-learn-from-sequoias-doomsday-warning/

What Startups Can Learn from Sequoia Capital’s Doomsday Plans.
Om Malik, Thursday, October 9, 2008 at 11:27 AM PT Comments (0)

Last evening I had reported about a special meeting held by Sequoia Capital for its portfolio companies, warning them about a fiscal hurricane that was going to hit them, and they better figure out ways to survive what could be a big downturn.
There were some gaps in the details about that meeting, but I have been able to piece together the minutes of that meeting and what they had essentially said. Since these are second sourced details, I cannot say they are a hundred percent accurate, and as a result please use a degree of skepticism. Nevertheless, I still feel confident enough to share these details.

These were the four speakers:
Mike Moritz, General Partner, Sequoia Capital who moderated the speakers. The speakers were Eric Upin, Partner, Sequoia Capital who till recently ran the ran the $26-Billion Stanford Endowment Fund; Michael Partner, Sequoia Capital, who Sequoia’s very first hedge fund and worked at Maverick Capital and Robertson Stephens. The last speaker was as I mentioned, Doug Leone, General Partner, Sequoia Capital.

Details of what they had to say are below the fold.

Moritz Musings
Mike Mortiz kicked off the proceedings by saying that there are drastic times and that means drastic measures must be taken to survive. His message to companies was don’t worry about getting ahead instead … “we’re talking survive. Get this point into your heads.” He warned that companies need to be cash flow positive, and if they are not, then they need to get there now, because raising capital without being cash flow positive is going to be tough. He was warning that there will be a price to pay for those who hesitate to act.

Upin Says
Upin, who know a thing or two about money and markets told the room thatWe are in the beginning of a long cycle, what we call a “Secular Bear Market.” This could be a 15 year problem.” This comment was accompanied by many slides that showed historical charts of previous recessions, averaging 17 year cycles. He pointed out that issue here is not equity markets but the credit market and that will take a long time to recover. He was ominous in warning the startups that this is a global issue, not a normal time and this is a significant risk not just to growth but to personal wealth.
He advised startups make drastic changes, cut expenses and cut deep but still keep marching. “Make changes, slash expenses, cut deep and keep marching. “You can’t be a general if you turn back,” he is supposed to have said. The point he hammered in was that since you can’t manage the economy, manage everything else including your business.

He had some interesting advise for starts.
* Cut spending. Cut fat. Preserve Capital.

* Throw out the models, spreadsheets, because all assumptions will be wrong.

* Focus on quality.

* Reduce risk.

Michael Beckwith
Michael Beckwith’s presentation had lots of charts and data and he pointed out that the V-shaped recovery is unlikely. He also said that the cuts in spending will accelerate in Q4 and Q1 2009, and pointed to eBay as an example.

Leone’s lessons
Doug Leone, told the group that this (downturn) was a different animal and would take “years to recover.” He was clear in pointing out that:
* unprofitable companies would have tough time raising cash, so get cash flow positive as soon as possible.

* Go on the offensive and pound on your competitors’ shortcomings.

* Be aggressive with your messaging and be out there. In a downturn, aggressive PR and Communications strategy is key.

* Decline in M&A will mean that only lean companies with sales models that work will get bought.

* On a scale between Capital Preservation and grabbing market share, he advised that everyone should be only preserving capital.

Leone other tips for companies, especially the Sequoia portfolio companies were something like this:
* Start with zero-based budgeting.

* Cutting deeper is the formule to surive, and this is an era of survival of the quickest.

* Make sure you have one year of cash.

* If you have a product, it should reduce expenses and boost sales. If the product is ready, cut the number of enginggers.

* Focus on building the absoliutely essential features in your product.

* Be brutal wahen it comes to marketing — anything that isn’t working, cut it.

* Kill cash burn for cash is king,

* Cut base salaries on sales people and leverage them with upside.

* Most importantly, be true to yourself.

Wind leading the pack of winning Clean Tech technologies

a very interesting article based on research from right here at Stanford.

http://www.cleantechblog.com/2008/10/wind-leading-pack-of-winning-clean-tech.html

Wind leading the pack of winning Clean Tech technologies
by Marguerite Manteau-Rao

Mark Jakobson, professor of Civil and Environmental Engineering, at Stanford University, performed a thorough evaluation of energy solutions to global warming, as applied to alternative vehicle technologies. His answers may surprise you.Pr. Jakobson looked at the following energy sources:

wind turbines
battery electric vehicles
solar photovoltaics
hydrogen fuel cell vehicles
geothermal power plants
tidal turbines
wave devices
concentrated solar power
hydroelectric power plants
nuclear power plants
coal with carbon capture and sequestration
corn ethanol
flex-fuel vehicles
cellulosic ethanol

and evaluated them according to the following criteria:

resource abundance
carbon-dioxide equivalent emissions
opportunity cost emissions from planning-to-operation delays
leakage from carbon sequestration
nuclear war/terrorism emission riks from nuclear-energy
air pollution mortality
water consumption
footprint on the ground
spacing required
effects on wildlife
thermal pollution
water chemical pollution/radioactive waste
energy supply disruption
normal operating reliability

Here's the outcome:

Wind comes out the clear winner. Concentrated solar power, geothermal, solar photovoltaics, tidal, wave, are good additions to the mix. Hydroelectric is added for its load balancing ability. Nuclear and coal are less beneficial. Corn and cellulosic ethanol should not be included in policy options. Hopefully, the next administration will be wise enough to follow Pr. Jakobson's recommendation . . . and align its subsidies with the right kind of technologies.

Marguerite Manteau-Rao is a green blogger and marketing consultant on sustainability and social media. Her green blog, La Marguerite, focuses on behavioral solutions to climate change and other global sustainability issues. Marguerite is a regular contributor to The Huffington Post. Since Sarah Palin's VP nomination, she has also been impersonating Ms. Palin at What's Sarah Thinking? blog

Labels: air pollution, alternative energy, energy security bill, global warming, Mark Jacobson, solutions, vehicle technologies

How start-ups can navigate through the falling dominoes of the economic crisis

some interesting thoughts on the current situation...

How start-ups can navigate through the falling dominoes of the economic crisis
Dean Takahashi September 30th, 2008

This week, we’ve seen one of the biggest dominoes topple in the annals of financial history. It was triggered by the failure of Congress to cut a bailout deal and the resulting collapse in the stock market. The Dow fell 7 percent in its worst day in a decade and the tech-heavy Nasdaq fell 9 percent.

Today, the stock markets recovered. But the blow to investor confidence has been registered. Comparisons to the Great Depression are plentiful. I think we can assume that even if a bailout bill gets passed, the economy is going to be hurting for some time. Given that, we can make some predictions about what’s in store for tech companies and VCs.

The economy is on life support. Banks have stopped lending. Big private equity deals that depended on bank financing are drying up. Consumers aren’t buying homes. The IPO market is more shut than ever. People are looking around for safe havens. Those havens were supposed to be in overseas markets, but banks are starting to fail around the world. The intertwined world economy could get dragged down by the U.S. The question arises, whether you are big or small: How long do you fight these trends? When do you retreat? What do you do next?

As the banks shut off lending, the effect is like damming a river. Downstream, the private equity firms won’t get commitments for big buyout deals, which were engineered only with the financial clout of banks. Venture funds won’t be able to get limited partners pouring money into their next funds. A shake-out will start to happen, gradually but at a quicker pace than before, among the VCs. Those with newly raised money will outlast the ones who can’t raise new funds because of weak returns. The supply of money to start-ups will be smaller. Fewer companies will get funding. Companies will stretch out their plans and will buy less tech gear. That, in turn, will hurt the big companies such as Microsoft, Intel, and Hewlett-Packard. They, in turn, will buy fewer start-ups. That’s bad because M&A accounts for more than 95 percent of VC exits.

Quarterly sales of IT equipment to financial companies will likely fall off a cliff. For some companies, the financial sector is a big buyer, so tech companies may pre-announce lousy quarters, forcing stocks even lower. Microsoft CEO Steve Ballmer said today that the downturn will likely affect his company’s sales. Consumer demand will dry up as workers lose their jobs or their homes. Big companies will pull back from their own investments in start-ups. They will stop taking out ads, further hurting the fledgling companies who are experimenting with ad-based revenue models. Risk taking will cease. You could say this might be a cleansing fire that makes the quality start-ups stand out. Jason Calacanis has suggested in his post dubbed “start-up depression” that 50 percent to 80 percent of current start-ups may fail. The strong ones who survive will be those that rely on old-fashioned revenues, he argues.

Maybe Calacanis’ prediction is unwarranted. Mark Heesen, president of the National Venture Capital Association, says there is a crisis for the industry in the lack of IPOs. But he doesn’t think that half of all start-ups are going to go under. Granted, he says it’s imperative that a bailout bill passes and he notes that it’s hard to predict the future. But he believes there are plenty of angels who will continue to finance big ideas among the seed-stage companies. And while a VC shake-out will pick up pace, pundits have been predicting it will happen since 2000. The reality is that the death of a VC happens over a fairly long period of time.

Fred Wilson, a partner at Union Square Ventures, also says the start-up attrition won’t be as bad as Calacanis predicts. He says that venture-backed companies will still receive funding from the VCs that backed them. That was the pattern he saw in 2000 to 2003, when VCs had to use their “dry powder” to keep start-ups going with extra rounds of funding. And he notes that many seed stage companies are just getting started. They will surface with products a few years from now, after the financial crisis has ended. This logic invokes the old saw about how seed-stage companies can “fly over the storm.” Wilson still recommends that companies cut unnecessary costs and bulk up on capital. But he believes the start-ups will keep going and that we are in a down cycle, not a depression.

The course for start-ups is complex. You have to batten down the hatches but still attempt to grow. A certain kind of sales pitch works better in this environment. If you can position your products or services as a necessity instead of a luxury in this environment, you can succeed, said Avi Basu, chief executive of New York-based Connectiva Systems. His company helps telecom carriers fight fraud and billing problems, helping to recover lost revenues. As such, telecom carriers might see the investment in Connectiva’s software as a way to boost the bottom line during a recession, despite the initial expense.

But at some point, Basu acknowledges (based on his survival of the last nuclear winter), even these kinds of strategies fail. You can cruise along at neutral during a down business cycle and expect to emerge stronger during the up cycle. You can spend more heavily if you want to gain market share during the bad times. But during a Depression or a “nuclear winter,” you have to change course and just try to survive.

At some point, if the downturn lasts long enough, everyone will be driving on fumes. VC firms that collapse won’t be saving dry powder for their start-ups. In the long term, it’s hard to see how the IPO market will get off the ground again. The boutique tech investment banks aren’t there to restore the IPOs anymore, said Mark Jensen, the partner in charge of venture capital services at Deloitte & Touche. That raises the question, who will save tech? Silicon Valley didn’t truly recover from the nuclear winter of 2001 to 2003 until Google went public in 2004. Who’s stepping up to the plate next? It probably won’t be Facebook, which is dependent on ad money that is rapidly drying up.

The valley needs another PayPal, which was one of the last pre-bust IPOs that created a lot of millionaires with money to invest in the next generation of start-ups. The Web 2.0 crowd revived Silicon Valley. And Web 2.0 was started by serial entrepreneurs, which included the founders of Friendster, MySpace, Tribe, and the PayPal mafia. The latter included characters such as Reid Hoffman, who started Linkedin; Peter Thiel, who funded Facebook; and Max Levchin, who started Slide. Then there were the Google IPO millionaires of 2004, who not only drove up housing prices in Silicon Valley but also took their riches and started new companies. It was these people, newly wealthy and full of ambitious plans, who started the valley on its recovery path. They all discovered the power of user-generated enthusiasm. They created the wave of usage that has made so many more start-ups possible. They got the optimism engine running again, creating jobs and letting people bide their time until the next great idea came along.

The severe part of the downturn may only be starting now. If Congress acts quickly, then perhaps it may feel like the downturn could be shorter. But it’s easy to get dragged down by the falling dominoes. There are fundamental weaknesses in the system, thanks to burdens such as high oil prices, the Iraq war, a crumbling healthcare system, and other bailouts in the offing.
It’s hard to see to the end of the chain reaction. It will come. We’ll hit a bottom, maybe a year or two from the point of the biggest domino’s fall — the point that Jensen calls the capitulation. Then we’ll begin the long, hard slog. I sure hope there is a marquee company that makes it all turn around faster. I don’t expect it to be one of the big companies. I’m almost certain it will be a start-up. Silicon Valley has always produced such companies. Innovation is the only thing that can sprout a new ecosystem after the fire.