The Coming Wave of Enterprise Web 2.0

The convergence of consumer apps and enterprise apps as a form of Enterprise Web 2.0 seems to be gaining some traction, at least with the business press. 

• Rob Hof authored an extensive introduction of Web 2.0 for CEOs in BusinessweekOnline today.
• Last week at Dow Jones Enterprise Ventures I was fortunate to moderate a session on the mashup of consumer and enteprise software markets with Cliff Reeves from Microsoft, Jeff Nolan of SAP, Ross Mayfield of Socialtext, and Gordon Ritter of Emergence Capital.

One of the best thinkers on the topic, Dion Hinchcliffe, tells me that he's seeing very strong interest in his enterprise clients about how to leverage Web 2.0 concepts as well.  It's beginning to feel like the re-kindling of the enterprise software market.

As a VC, I am more interested in understanding the Big Driver than I am timing the investment cycle. As the Internet went from a standing start to a mainstream resource, the ‘killer app’ was email.  The Internet (and I use that term to include the pre-Web era), was a cheap and effective way to communicate.  The very earliest innovations were around the Big Driver of “communication.”  I would argue that even the early Yahoo directory was a White Pages of Web sites. 

In the 80’s and early 90’s relatively few had email (save for academics, and later for Compuserve/ AOL/ Prodigy users).  Remember the sense of mutual enlightenment you had in finding another email user?  By 1998 email addresses were de rigueur on business cards.  Finding someone without an email address was rather exceptional.  Internet communication has gone mainstream.  All the pet food stores on-line built (or attempted to build) businesses on this new, low cost, and universal communication insight.  But the problem with most of these “dot com-ers” was that they all shared the same innovation.  When you have a 20% cost advantage over competitors, you have a huge advantage.  When all competitors take the same 20% component out, they are back to perfect competition.  The big, thematic innovations in the Internet/early Web were about Communication, either 1-to-1 (mail) or 1-to-Many (Commerce & Publishing), and the directory services around them (Search).

The earliest e-commerce and publishing sites were clearly centered on “communication” as the underlying Big Driver.  The original premise of Amazon was to use the Web as a low cost channel to communicate with customers, but using traditional fulfillment channels.  It then moved into a period of chasing the holy grail of Scale, opened logistics centers, and became a black hole for capital. The breakthrough in the business came when Amazon realized they could make a higher ROE selling other’s new and used goods, managing the entire communication process with the user as their value added. 

Collaboration – The New Big Driver
This Web 2.0 era isn’t really about tagging or sharing photos or bookmarks any more than Web 1.0 was about buying pet food online or reading news online.  It is about the emergent property of Collaboration that happens when a critical mass of people (or things) is interconnected and the technologies that facilitate collaboration.

Collaboration can be an End or a Means. When it is an End, it is usually transient.  The rapid ascent and decline of Friendster and the more recent chatter about the waning coolness of MySpace are examples of collaboration-qua-ephemera. Collaboration is much more enduring when it is the means, whether the end is trading collectibles on Ebay or rating others on HotorNot.

Ebay was the first big application of collaboration on the Web. PageRank was arguably the second, taking advantage of the ‘collaboration’ of Web sites to create a derived measure of authoritativeness.  This is no different from today’s Digg, except that the collaboration was implicit rather than explicit.  It is no different from sites that combine explicit tagging and track user behavior to derive how untagged photos/posts should be tagged. 

Collaboration comes in many forms. 

• The Social Computing form is what most of us see every day in Web 2.0. community tagging, etc., are all the most computationally trivial applications of collaboration.   
• Collaborative Filtering methods use popularity (ratings or clickstream) to find structure in chaos.  Amazon, Digg, and even “most emailed articles” on the NYT are forms of collaborative filtering. It may not feel altogether Web 2.0-ish, but it is collaboration nevertheless.
• Markets are a form of collaboration.  The “market price” is a collective judgment of value even when individuals act privately and without regard for each other.

All of these forms of collaboration can be thought of as “discovery” applications.  In fact, economists refer to “price discovery” as the function of a market.  Discovery is the emergent effect when the collaborators are democratically organized, i.e. every input is equivalent and sequencing is irrelevant. 

But a large part of everyday collaboration is not democratic.  Not all inputs are created equal.  Ordering does matter.  Consider the simplistic case of arranging a to meet with someone else.  You can solve a small part of the problem with 1-to-Many Communication, a.k.a. Evite.com from yesteryear. But what if you want to constrain the collaboration a la Real Life, e.g., iterate to find an alternative date to satisfy the objective? Ordering of preferences then matters, and if you are gathering a group, not all attendees are created equal.  This is the kind of thing that drives administrative assistants crazy – a simple example of structured Collaboration.  Generalize this to something more economically meaningful like major customer visits to headquarters, collaboration on developing budgets for next year, or arranging a trade show, and you have yourself a real mess.

This is why I think Enterprise Web 2.0 is different from Consumer Web 2.0. Enterprise’s have goals and structure.  People around the Enterprise collaborate, but the collaboration is (supposed to be) undemocratic, i.e., ordered and non-chaotic.  Ironically, this is not a new category.  We used to call it Workflow and it was on the Known Quicksand Sector list at every VC firm, along with Middleware, Knowledge Management, and Enterprise Search.  It was a Known Quicksand because no two implementations looked the same.  Users couldn’t change the workflow to suit their needs. Users couldn’t automate the dozens of little tasks of collaboration that they do every week.

Despite being Known Quicksand, nearly every VC firm has placed a bet on workflow at one time or another. Why? Because the big Enterprise Apps automate you and me and we’re done.  Automating the white space between us is the last untapped source of Big Win in the Enterprise.

This is more than just Workflow.  It is Information Flow.  And it’s not just an inside-the-firewall problem.  In fact, it’s bigger outside than inside.  All the wondrous improvements in personal mobility, communications, and 7x24 information access have exacerbated the problem. Customers, field service, sales people, consultants, outsourcers, telecommuters, suppliers, etc., all suffer the rising expectations of responsiveness that comes with personal automation and the sinking realization associated with the quagmire of complexity when trying involve others. 

Mobile, Web 2.0, SaaS are going to converge into a set of new, lightweight Enterprise Web 2.0 applications. Collaboration is the Big Driver within Web 2.0 and nowhere is collaboration more valuable than when time is money – the time to assimilate information from the enterprise edge and the time to organize and respond.  Prepare to see a wave of Enterprise Web 2.0 collaboration applications in the next 24 months.   And, like every wave, it will be 5% innovation and 95% imitation.

Comments

[rajAT]

Manual trackback -

http://rajatgupta.wordpress.com/2006/06/06/enterprise-20/

[Dharmesh Shah]

One of the best articles on the topic of Enterprise Web 2.0 that I've read in a while.

I would extend this concept and suggest that even beyond workflow flow (moving tasks around) and information flow, there is also the opportunity to create "decision flow".

It seems that in many enterprises, especially knowledge-based ones, a key outcome of collaboration is some type of decision. I think Enterprise Web 2.0 can facilitate the task/information/decision process through structured and unstructured collaboration.

[Hooman Radfar]

Nicely said, Peter. When do you think that the purchasing wave will begin to follow the marketing hype for Enteprise 2.0?

[Erik Brown]

Viva la ontology!

[Puneet Gupta]

Unlike the earlier plays in the "Known Quicksand Sector" where it was truly a leap of faith, at least here in Web 2.0 - I would say there is certainly more "visibility" and less leap of faith, since some of these trends and attributes have already played themselves out in the consumer space.

Of course how Web 2.0 in the enterprise, eventually ends up manifesting itself is still unknown, but I think a lot of us are starting to see the beginings of some great manifestations.

Another striking aspect that often does not draw much attention is the fact that - most of the consumers are after all also enterprise users!
This also serves to validate the hypothesis (we believe it to be a fact by now) that Web 2.0 for the enterprise is natural progression.