Emerging Ecosystems & Platforms

Posted on July 12, 2007 by Simeon Simeonov

I’m at David Kirkpatrick’s iMeme conference in SF. It’s likely going to be a treat. The speakers and the attendees are of great caliber.

As an ex-platform guy who’s recently spent a lot of time thinking about social infrastructure, I’m was particularly interested in the opening panel on emerging online platforms, moderated by David who kept the conversation moving swiftly. The panelists were:

  • Marc Benioff, CEO, Salesforce.com
  • Marissa Mayer, VP Search & User Experience, Google
  • Mark Zuckerberg, CEO, Facebook
  • Philip Rosedale, CEO, Linden Labs (maker of Second Life)

The discussion centered on what it means to be a platform company on the Net and to get people to use your platform.

Philip and Mark acknowledged that they are in the very early phases of truly understanding what it means to be a platform yet there are some underlying principles for success.

Philip stressed that it is foolish not to allow your users to do what they want. Sometimes, that requires making some seemingly uncomfortable decisions. Traditionally, platform companies have tried to protect and leverage the core platform IP. However, if a platform enables network effects (which make it harder for users to leave), the platform owner can benefit by opening up and applying only a few key controls. Mark pointed out that there is a huge issue of trust between users, the platform provider and third party developers. That’s one key area of controls that the platform vendor should maintain control over for the benefit of all.

There are at least two other areas that IMO the platform provider should establish clear rules, if not controls, over.

The first one is around the question of who owns the data. Esther Dyson asked the panel a question along these lines and nobody provided a satisfactory answer. Mark’s response was “users have all the controls” but that doesn’t answer the ownership question. I’ve written about this before as one of the key issues underlining the emergence of social infrastructure.

There has been much debate recently on the topic of user data ownership. The information in question is the user-generated data and the attention data generated while using a site. There are three issues to consider. The first one is legal. Users implicitly assume that the profiles and the information they create on community and social networking sites is theirs. Most terms of service and privacy agreements are either mute on the topic or outright state that the operator can repurpose the data for their own use. Attention data is often not called out and its treatment therefore is unclear. The second issue is privacy. Facebook recently faced a huge backlash from their users when they made information about user activities on the site public. The specific outcry was less about the features Facebook had implemented and more about the fact that the information in question was gathered while the users thought it would be kept private. The company had to backpedal and put new privacy features in place.

The second one has to do with the notion of who is the law. Who provides the framework of what’s good vs. bad, what’s legal vs. not. Is there a notion of enforcement? By whom? If there are spillover effects into the real world (financial fraud, privacy violations, etc.) how is the real/virtual linkage managed. Release 2.0 had a good piece on this topic in its last issue.

Marc’s take is that the Net has become the OS and the killer apps (Second Life, Facebook, Salesforce.com, etc.) are becoming platforms. As an aside, none of these have any dependence on the “old” platform–the Microsoft OS. He further claimed that killer app companies that do not make the transition to platforms become irrelevant. His examples were Seibel vs. Salesforce.com, Oracle vs. Cullinet, etc.

One interesting question that comes out of this is whether one can build a successful platform company without ever building a killer app. Would Windows have been as successful without Office/Outlook? Unlikely. Could Facebook have launched as just a set of Web services? I bet not. I can’t think of many examples where a platform company has been successful over a long period of time without some ability to create user lock in + lead by the example of its killer apps. My personal experience at Allaire, which was a pure platform company, agrees with these observations.

In addition, everyone agreed that platforms only become successful if they give rise to successful ecosystems. One of the metrics Philip is watching is how many businesses in Second Life are cashflow positive. Facebook now has thousands of apps on its platform and some of them have millions of users. Marissa’s work at Google has enabled a huge monetization of content and traffic on the Net by many thousands of businesses. Beyond that, Google has been very successful with Maps, iGoogle and gadgets (10,000+ developers). I’ve written before about the Ecosystem Test that a platform must pass in order to be successful.

The ecosystem test asks whether a platform can enable a large group of average, poorly funded players with little to no domain experience deliver compelling solutions. It’s based on the observation that no platform has become hugely successful without a corresponding ecosystem of vendors building significant businesses on top of the platform. Typically, the combined revenues of the ecosystem are a multiple of the revenues of the platform.

The panel was followed by a short speech & interview with Catherine Cook, co-founder of myYearbook. She sees myYearbook, Facebook and others establishing the infrastructure for a new wave of media companies that will give old media a big challenge. One example she gave was myMag, a 100% UGC teen magazine they’ve launched. Teens contribute the content but professional editors package it.

Posted in Digital Media, Google, Microsoft, SaaS, startups, virtual worlds, Web 2.0 | Tagged , , , , , , , , , , , , | 5 Comments

Do VCs Get Nanotech?

Posted on July 11, 2007 by Simeon Simeonov

Startup media site Xconomy (led by my friend Bob Buderi) has an interesting post based on an interview with nanotech pioneer Tim Swager from MIT. Tim’s observations are that, initially, VCs invested in a nano bubble without having a clue about what they were getting into which led to a backlash and now VCs are shying away from potentially very interesting nanotech platform companies.

The frustration I have with the VC community is that new materials can find many applications and are really a platform technology. There are many ways to get inventions to market. Biotech has bigger potential payoffs but often—not always—has much more narrow focus.

Tim’s observations are, in general, correct but I don’t fully agree with some of the conclusions he draws from them.

There was a nano mini-bubble. Some VCs invested in great platform companies backed by world-class scientists and great IP (for example, Polaris did Nanosys). Other VCs invested in “momentum” deals, hoping to get quick liquidity. Nothing new under the sun.

The nano bubble made it easier to fund platform companies because the cost of capital was lower. After exits didn’t pan out, VCs became more conservative. Cost of capital went up which makes it more difficult to fund platform companies, which often take a lot more money to mature. The “many ways to get inventions to market” are a both blessing and a curse. There is opportunity in the larger addressable market. There is also a ton of execution risk in targeting many markets at the same time and timing risk in going after them sequentially.

I particularly disagree with the comments regarding biotech. I know very little about biotech but Polaris Venture Partners is full of biotech experts and we frequently reflect on the similarities and differences between tech & life-sciences investing. I did a post on this a while back after a great conversation with Polaris venture partner Alan Crane. One of our observations was that, if a company’s offerings “work”, it is often much easier to go to market in the LS space due to the size and stability of LS markets.

The target markets for LS companies, generally speaking, are the flora and fauna. They change very slowly. If you are developing a cure for cancer you can be confident that if you succeed in creating one, there will be a big market, even many years into the future, even if one of your competitors has beaten you to market by some years. In the high-tech world, markets are rarely stable over time. By the time you are ready to deliver your solution, it could be obsolete. Some examples: great client-server products that were made irrelevant by the Web, supercomputers whose target markets were overtaken by Linux clusters, etc.

Materials-related markets may be less fickle than IT markets but, at least for a number of the nano platform companies I’ve seen, the target markets have tended to be (a) more in number, (b) quite diverse in terms of domains and (c) smaller individually than the biotech markets. This makes go-to-market focus difficult. It also makes building an executive team with the right go-to-market skills difficult.

In other words, the problem with nano platform companies right now is two fold:

  • Cost of capital is somewhat higher
  • The platform enables too many “applications”, none of which is a “killer app”

Does this mean that nanotech inventors with big platform ideas should think smaller? Absolutely not. It does, however, mean that they need to think about the business and go-to-market models (and hence the funding requirements) of their companies much sooner. This often means getting business-focused talent involved earlier in the process.

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Enterprises, Everybody Wants Your Data

Posted on July 10, 2007 by Simeon Simeonov

As storage gets cheaper, enterprises small and large accumulate more and more information. Finding the right information at the right time is becoming harder and harder. Information comes from many sources: email, IM, the Web and intranets, employee’s desktops, enterprise systems. Security and compliance are not easy to achieve in this environment. So, what’s the industry doing about this?

Let’s look at some data.

Some trends emerge:

  • Outsourcing of content archiving, which often means
  • Outsourcing of e-discovery, which is why we see
  • Search players buying hosted content archiving companies

To move content off-site, hosted backup/archiving providers need to tap into all key enterprise information flows (network, email, storage, desktop, etc.). This allows them to offer value-added services such as content security (DRM, IP theft protection, etc.) as well as implement a number of compliance-related policies. In addition, once content leaves the enterprise, there are many possibilities for additional services around e-discovery, collaboration, data mining, etc. That’s why everybody wants the enterprises’ data.

The biggest challenge to implementing this well is tapping corporate desktops–where most of compliance-related information (emails, docs & spreadsheets, IMs) ultimately originates. (Integrating with servers is easy + there are far fewer of them.) For a solution to truly work and be deployable to employees without requiring costly training and change in work habits it will have to be seamless–practically invisible and non-disruptive to the unstructured workflows of knowledge workers. There are two easy ways to do this. You can build these capabilities inside the office productivity software. Microsoft and the folks at Open Office have the lead there. You can host the productivity apps, which is Google’s long-term strategy for the enterprise. It is a very powerful idea, indeed. Right now, I know of only one solution on the market that can tap into MS Office & Sharepoint environments without disrupting employees. It comes from Meridio, a Belfast-based company I’m on the board of.

Some interesting questions:

  • Does IBM have this covered through it’s outsourcing offerings and a myriad of ECM technologies?
  • When will Microsoft get into the hosted content services business in a big way? Nearly 1/2 of KVS’s business was on the MS platform…
  • How will EMC respond? They have pushed to increase their service offerings (bought Internosis in 2006) and have been integrating search deeper into their storage and ECM product lines. Perhaps they’ll buy Autonomy?
  • Will FAST stay focused on search alone?
Posted in Google, Microsoft, startups | Tagged , , , , , , , , | 1 Comment

Google Targets Enterprises With Postini Acquisition

Posted on July 9, 2007 by Simeon Simeonov

Another strategic move by Google–buying Postini for $625M. Postini has been a leader in the hosted email/IM security, archiving and compliance space. In addition to having well-thought out service offerings, the company has been able to operate on a big scale without embarrassing outages. (Fun fact: one of the reasons why Postini has been able to perform so well is that it uses digital archiving technology from Archivas, now part of Hitachi Data Systems. Archivas was my first investment at Polaris.)

The pitch of the acquisition announcement is that, by adding the Postini services to their portfolio of offerings, Google’s enterprise group will be able to address many of the concerns of larger enterprises not willing to move to Google’s hosted office productivity applications. I don’t buy this as the short-term reason for the acquisition. In the short run, larger enterprises won’t switch to the enterprise edition of Google Apps. I’ve been using Gmail, Google Calendar and Docs & Spreadsheets for a long time now. They don’t have the usability, offline capability and interop features to battle MS Office or Open Office now. I’m sure Google Apps will get there eventually with the help of time and Google Gears but not in the next 12-18mos.

The longer timeframe of extracting value from the Postini acquisition is one reason why I consider the acquisition strategic. The other is that through the acquisition Google is getting their hand on the content of 35,000 businesses and 10M users. That’s great for search and an important tool to help make Google Enterprise Search the winning product in this market. They have a long way to go, but the Postini move is a step in the right direction.

Posted in Google, Microsoft | Tagged , , , | 1 Comment

iPhone Also Suitable For Babies

Posted on July 4, 2007 by Simeon Simeonov

I bought an iPhone yesterday. No waiting in lines. In fact, it was a 5min shopping experience, not accounting for having to call every single store in the Boston area ahead of time to find the only one with 8Gb models.

The most interesting part of the shopping experience was finding out that the Apple sales staff use WiFi-enabled Windows CE PDAs to process transactions. That’s a little ironic.

The Gen1 iPhone will never replace my Blackberry for three simple reasons:

  • AT&T’s network has poor coverage around my home.
  • iPhones have no user-replaceable battery. It is not uncommon for me to go through 2-3 batteries in a single day, especially when traveling.
  • I don’t expect amazing interoperability between Exchange/Outlook and the iPhone. In fact, on my machine I cannot sync contacts, calendar or email from Outlook to the iPhone.

That said, the iPhone has set the bar in terms of creating a great mobile user experience and leveraging the Web on a mobile device, both of which are topics I very much care about. I am particularly intrigued by how Apple has opened the iPhone to third parties through Safari widgets as I am a proponent of open value chains and broad-based developer ecosystems. So, for me, the iPhone is a backup phone and Web access device and a way to start experimenting with next-gen mobile Web experiences. I’ve already heard of startup teams building specialized apps for iPhones. If you are one of them, send me a link.

My plan was to spend a lot of time over the holiday weekend investigating the AJAX support in the iPhone Safari browser. I didn’t get the chance to do much today since my baby got a hold of it and was thoroughly enthralled for quite a while. It goes to show that Apple’s design appeals to all ages.

Posted in Apple, iPhone, Mobile, Web 2.0 | Tagged , , , | 4 Comments

Rebooting Business Models

Posted on June 14, 2007 by Simeon Simeonov

An interesting company to watch is EveryZing (what used to be Podzinger). My friend Tom Wilde recently took the reigns as CEO. His task is similar to that of many CEOs of Series B companies–take good tech that has gone to market the wrong way and turn it into great tech that is going to market using a better business model. Tom is a sharp & strategic leader and the process he puts the company through could offer lessons for others. Here is a video of Tom explaining the transformation the company will go through.

Posted in Advertising, Digital Media, startups, Web 2.0 | Tagged , , , | 1 Comment

The Art of Viral Distribution is Becoming a Science

Posted on June 13, 2007 by Simeon Simeonov

Viral marketing and viral distribution are sometimes confused. Viral marketing is about the messaging/positioning first and foremost; the call to action is in second place. Viral distribution is about the packaging of discovering, learning about / evaluating and, hopefully, using a product/service through viral channels. Viral marketing is a very broad topic. It remains more of an art than a science. Viral distribution is fairly narrow in scope and is rapidly becoming a science, as demonstrated by a VentureBeat interview with the RockYou founders (thanks to VCMike for blogging about this).

The viral loop of people inviting each other to most social networks revolves around a user posting a widget to their page and having friends see their page.

The viral loops for Facebook (there are multiple) revolve around the news feed, the mini-feed and the invite request. Not around people coming to your page and interacting with it.

The interview is worth reading less so because of the specific insight about viral distribution on Facebook and more so because of the process RockYou used to figure out how to do viral distribution on Facebook. Some of the tools included:

  • Deeply understanding the demographic
  • Interviews to determine specific viral flows in a given platform
  • Not just porting products from one social network to another but (re-)inventing products based on the specific viral flows
  • Collecting lots of data and adding feedback loops, e.g., note their comments on the strength + intensity of viral channels across sites and over time.

RockYou may have its monetization challenges but they sure have mastered the process of figuring out how to do great viral distribution. With that type of engine inside the company, good things will come out in the end.

With the rise of social infrastructure (something I’ve written about before), people who have the right combination of creative and analytical skills to take advantage of many viral distribution channels to push a new offering would become as sought after as the great analytical Web marketers of today. Facebook is just one example of a social networking platform. My friend Jeremy Liew has a good aggregate post on the topic.

The same applies to great product people who understand what it means to build on top of social infrastructure. There are already calls out to them from folks like Jeff Nolan.

Last but not least, this all ties into e-commerce 2.0 (which is slowly but surely taking off) because of its key trends is going to be the prevalence of social commerce.

Posted in Social Commerce, startups, Web 2.0 | Tagged , , , , , | 3 Comments

Google Gears Powers Web-to-Desktop Convergence

Posted on May 31, 2007 by Simeon Simeonov

Google Gears will bring offline processing to AJAX applications, which promises to be a step towards closing the last big delta between traditional desktop and Web 2.0 applications.

Web-to-desktop convergence is a very interesting topic and one that is bound to change the way we think about software packaging and delivery, which has big implications for software-as-a-service. The driver for convergence is that consumers want the best of both desktop and web applications. I wrote about this last year.

The default distinction between “Web” and “desktop” apps is based on old assumptions. The former typically means something that runs in a browser and needs a server all the time. The latter typically means something that runs on the desktop and doesn’t use the Internet. These distinctions are now outdated. Most meaningful apps these days use the Internet. Yes, even MS Word does. So, the distinction really is about (a) implementation and (b) connectivity.

I built my first “Web 2.0 desktop convergent” web app in 1998. It used WDDX for passing data back and forth and storing it locally. The app only ran in IE because it relied on file system access COM objects for offline access.

The best approach for building rich, convergent Web applications that I know of is Adobe Apollo. There are many examples of convergent applications that leverage Apollo. I recently wrote about Web widgets coming to the desktop. It’s great that Google and Adobe are thinking about how Gears and Apollo can work together.

I’d be interested to learn more about Gears.

Posted in Adobe, Google, SaaS, Web 2.0 | Tagged , , , , | 2 Comments

Advertising on UGC Sites

Posted on May 22, 2007 by Simeon Simeonov

comScore has published the results of a study on consumer response to ads in different formats/properties. Not surprisingly, Gen Y and those close to them are showing different propensity to engage with and trust an ad than the older population.

Based on the results, it is clear that major media advertising dollars will increasingly move to UGC properties. It’s not a matter of if, it’s a matter of when. The transition can be aided by technology that protects brands from exposure to undesirable content. An example of this type of technology is AdSafe, launched recently by our own THCN (The Health Central Network).

Posted in Advertising, Digital Media, Web 2.0 | Tagged , , | 2 Comments

For The Wanna-Be Entrepreneurs Amongst Us

Posted on May 19, 2007 by Simeon Simeonov

My friend Ajit Jaokar writes a very personal post about a Pink Floyd music video–Learning to Fly from Momentary Lapse of Reason–that had a profound influence on his life.

The video of Learning to fly is deeply symbolic and metaphysical. It speaks of a young man leaving his secure existence and then ‘learning to fly’ at the risk of falling off a cliff.

I first heard that song when I was in a boring job in India and considered a job overseas – something which was a huge leap for me since I had never left India at that point.

Perhaps there is something in this symbolism for everyone ready to make a big leap in life.

Incidentally, I’m a Pink Floyd fan. The first recording I ever owned (decades ago back in Bulgaria) was a bootleg of the The Wall…

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