EarlyStageVC

BBC & Mashups - What Would Karl Do?

About two weeks before my last post on Teqlo, I got an email from a producer at the BBC.  They wanted to talk about Teqlo.  (Actually they wanted to talk about Radar Networks, but stealth companies don't make for compelling telly, as they say across "the pond.") Josh Dilworth at Porter Novelli PR (Radar's firm) was kind enough to suggest they talk to me about Teqlo. The Porter Novelli team did an amazing job of getting feature stories on Radar in Business 2.0 and BusinessWeek.

Quandry... Can't talk about the new Teqlo positioning, gotta stay with the "mashups are cool and we do 'em" positioning. What to do? No time to consult the leading ethicist of our time - Karl Rove. Had to make the call on my own.

As a mentor of mine once said. "the Plan doesn't change until the Plan changes."  Notwithstanding the last post, we have not officially announced a new direction; so we are still officially going the same old direction until we go in a new direction.

The result?  BBC Video Link Love.

Here's a pointer to the web page for the show Click that was about Twitter, Teqlo, and other cool stuff.  Here's a pointer to the full 22 minutes of video (Teqlo is at about 10:00 minutes in).

And here's five minutes of me talking about the emotional range of fear, greed, love and loathing that make early stage investing so much fun.

Web 2.0 - Over and Out

Many of us in the VC community have been quietly wondering about the state of Web 2.0 innovation. We aren’t seeing much. Startup activity remains strong, but the consumer web landscape seems to be populated with the same bodies with different skins.  Another video deal here; another social networking deal there, and social [feature] everywhere.

The apogee of this Web 2.0 hit me on Friday when I was having lunch with my daughter in San Francisco.  There was a conversation at the table next to us between a 30-something and a 50-something, The younger was explaining to the elder that they had web site with the following attributes

• Users can share any kind of information from files to photos
• Storage isn’t expensive, so we don’t police it today, yet
• Users can invite their friends; that’s how we get new users
• We launched a few months ago and are doubling every month
• We haven’t quite figured out our revenue model, but we think it is freemium (“Let me explain what that means…”)

Of course, this is the generic Web 2.0 company template. Overhearing the dialog felt like the 2007 version of Joe Kennedy getting stock tips from his shoe shine boy. Web 2.0 is in the water, drink up.

We now know the fourth quarter of 2006 witnessed the mainstreaming of Web 2.0.  It began with the YouTube acquisition, followed by a rather incumbent-centered Web 2.0 conference, culminating with the coronation of user-generated media as Time’s Person of the Year.

The notion of Web 2.0 as a wave is now rather long in the tooth, as cycles go. I believe Tim O'Reilly and John Battalle first coined the term in early 2004.

I thought one way to check the energy dissipation around “Web 2.0” would be to look at Web 2.0-centric media.  Three properties that one can reasonably say are pure plays in the Web 2.0 mainstream are Techcrunch, Gigaom, and Technorati.

[Note: the following Alexa data is NOT consistent with other sources.  Please see my subsequent post for additional data from Quantcast.com and Compete.com]

[3/28/07 Update: See this post by Frank at DeeplyGreen showing that Alexa data actually is corroborated by authoritative site data after all. Nice job Frank.]

Say what you will about Alexa ratings’ accuracy, all three of these properties show a similar falloff in Reach from their Q4 peaks, all notably right around the Web 2.0 Conference.

I am not suggesting that Web 2.0 services are losing steam.  On the contrary, the concepts are quite main stream.  Take the poster child for user-generated participatory content - Wikipedia (below).  It's a monster.      

Much of the "easy" innovation seems to have been wrung out of the Web 2.0 wave.  Web 2.0 was cheap - thanks to open source, simple - thanks to RSS/REST, and distinctive - thanks to AJAX and Flash.  It helped more than a little the Google has continued to entice us all with the abundant profits in Internet advertising.

Now the hard work begins, again.  The next wave of innovation isn't going to be as easy.   The hard problems in the WWW are no longer usability or ease of everyday content  creation.  These problems are solved. Digital cameras, SixApart, WordPress, and digital video cameras showed us how ease it could be.  Now the hard part is moving from Web-as-Digital-Printing-Press to true Web-as-Platform.  To make the Web a platform there has to a level of of content and services interoperability that really doesn't exist today.   

The Web today still resembles MS-DOS more than MS-Windows.   Every website is an island, an island that knows nothing about any other website.  This is no different than the world before the Windows Clipboard.  All 640KB of memory was available to whatever application was running.  The point of integration was the User.  As it is today.  Ask anyone who uses a SaaS application.

I am not alone in observing where the world is going.   The hard problems in the vision of a true web-as-platform  involve  all the usual hard computer science issues.  How can we normalize information from disparate sources to make it interoperable?  How do we get to a lingua franca without waiting for moribund standards (think CORBA and SOA)? How can we then manage the transition of legacy information and services into this world of interoperability?

VCs have always made money at finding the ideal point of friction between the Present and the Future.  Profits accumulate in the gap between What Is and What Is Possible.  Web  2.0 is now firmly in the category of What Is. 

The only thing I can say in defense of "Web 2.0" is that it's not "Venture Capital" (from Google Trends).

Who is Google's Next Victim?

A few months ago I posted the following

Google has built a stunning platform for the rapid development and deployment of applications on a worldwide scale.  They have repeatedly taken revenue-generating software categories and made them free, media-supported businesses.  This leverages their economies of scale in delivery and their ability to aggregate, segment, and monetize audiences.   Free is a very effective appeal for a CFO or small business owner looking to reduce IT expense. It may not work for Exxon and GM.  But it doesn’t have to.  If it works for millions of small businesses around the world, it works.

Google is rumored to be working on a slew of new applications for delivery later this year and early next.  I have no idea what they may be or if they really are.  But I would speculate that some are targeted at business use cases that revolve around people, time, content, and communication.   After all, they have Google Home Page, Calendar, Writely, and Gtalk/Mail today.  It is not hard to begin to package them as business process applications and collaboration portals.  Google already has a significant developer community using Google’s APIs for creating mashups with other web services. Motivating them to redirect toward business use cases is a natural extension of  the present. Once you own the process, you own the Control. If the View is the Web, Control is free web-based application, Model will follow.

It is completely conceivable that the future of Web 2.0 in the Enterprise looks a lot like Google 2.0.

Yesterday Google announced it has acquired Jotspot and is making their applications free.  Hmm... So Google is squarely going after horizontal business applications with the Googleplex.  Where do they go next?

Google isn't really trying to capture Microsoft's market value.  I think they are focusing on everyone else first. It is now well understood that Ebay's market cap is squarely in their gunsites with Gpay, Gbase, and Adsense.  Who is Google's next prey?

If I were Eric Schmidt, I'd be salivating over an Google-delivered Intuit killer.

And why not?  It is both consumer and small business focused.  It has high value user data that is suitable for targeting.  It is the ultimately sticky application.  It further leverages Gpay.  It further leveages the small business productivity applications.  The core user base of Adwords and Adsense probably already use Intuit (Quicken or Quickbooks) for accounting. Google could close the loop between marketing, fulfillment, and payment with GBooks.

So while Google is busy re-inventing the media business with targeting and delivery technologies, they can, should, and probably are looking to find applications to inform that targeting system.  What better source of targeting data than where individuals and business are spending their money?

A Reflection on the Web 2.0 Inflection

Yahoo's warning (and likely associated earnings miss next month) may be a signal of Google sucking the oxygen out of the room.  Or it may signal a real weakening in ad spend.  Here's a disturbing logic chain. Combine this latter possibility with the decline in the real estate sector. One might conclude that the three year old media-spend-driven recovery of the consumer Internet is about to wind down. 

• The weakening real estate sector is a further drag on consumer spending and the economy as a whole. 
• Media spend tends to lag consumer spend.
• Therefore, expect to see disappointing earnings forecasts for Q4/Q1 from consumer and media companies.
• Venture capital investment tends to lag public valuations.
• So expect to see capital to become scarce for Web 2.0 media-supported companies by mid-next year, especially the least monetizable ones (i.e. social [anything]).

Maybe I'm wrong.  Maybe YHOO's pain is Google-induced and not market softening.  Maybe real estate isn't the driver most people think it is.  Maybe the war in Iraq will become less of a drag on the economy. Uh huh.

But suppose this does come to pass, whither the erstwhile venture capitalist just trying to eek out a living? Where does the market turn when momentum and speculation end?  It turns to value and fundamentals.  Expect VCs to turn back to the future and re-discover the enterprise market, where customers means buyers and CPA doesn't mean Cost Per Action.

Today there is an emerging sector variously called Office 2.0 or Enterprise 2.0.  There are a lot of interesting companies in the sector already. (You can see a bunch at the Office 2.0 Conference next month.) For the most part, these are companies that solve simple, non-mission critical problems using AJAX, tagging, and many other Webby 2.0 concepts.  It is still a Petri dish of ideas looking for real, high value business problems to solve.  But some of these companies are beginning to find repeatable  sales processes, particularly in the mid-market where the IT departments are leaner and regulatory controls are less severe to combine to encourage more end-user empowerment.  Once this becomes apparent, and once the media roof begins to leak, if not cave in, I suspect we'll see a rebirth of VC interest.

We now know that "2.0" can magically make old feel new.  Seeing this market inflection, some pundit somewhere will not resist the temptation to proclaim the Renaissance to be Enterprise Software 2.0. This proclamation will be followed with road maps for  ERP 2.0, Security 2.0, Document Management 2.0, Supply Chain 2.0, etc.  These products and services will be delivered by Channels 2.0.

I am not kidding. Just wait.

Meme-check - Enterprise & Web 2.0

Gartner has now officially anointed Web 2.0 a bona fide IT trend.  BFD. Of course, they straddled the meme, by putting it at the peak of their 'hype cycle' graph.  That is the consultant's version of plausible deniability.  If it turns out to be real, they called it.  If it is not, they still called it.  This idea has picked up a lot of steam since I first noticed it  ten months ago.  Dion Hinchcliffe and Andrew McAfee are the real thought leaders, emphasizing the technologies and social/managerial impacts respectively.  Dion Hinchcliffe does his usual masterful job of deconstructing some of the elements of this Gartner-validated wave.

Before we all jump on this bandwagon, let's exercise some intellectual restraint and rigor, and in the process perhaps abandon the use of 2.0 as a synonym for "new". The original moniker of Web 2.0 has been used to imply/describe/justify/motivate a collection of concepts that range from standards (like RSS) to technical methodologies (like AJAX) to social phenomena (like personal publishing, rating, and sharing).  Web 2.0 has been as much about sociology as technology. But Enterprises are not just big "collections of consumers" and so let's not graft the same concepts and expect a thousand enterprise flowers to bloom.

First, dispense with the sociology. Enterprises have two core attributes that do not exist as widely in the public web -- purpose and accountability.   So 'empowerment' and 'collective intelligence'  are not end points.  Nor are 'discovery,' 'networking,' nor 'sharing.'   These are embedded in processes and are methods for creating context to purposeful transactions.  A sales forecast is 'collective intelligence.'  Mining customer comments is a form of 'discovery.'  A internal blog post is more likely to be linked to a product release status than photos of my vacation. Viewed in this context, a lot of what passes for (aspiring) businesses in Web 2.0 are simply features of larger processes in the Enterprise. 

So Enterprise 2.0 as a platform shift is mostly about the enabling technologies.  Web 2.0 rode the back of Open Source and Moore's Law to crack the economic barrier in building web based services. What followed were technologies for making applications richer (AJAX), easier to build (Ruby on Rails), and easier to integrate (REST and RSS). 

But only a tiny community of developers have built Web 2.0 apps using AJAX, ROR, or LAMP.  It is really just a few thousand people -- and very few work in large enterprises or ever will, again.   So how will the Enterprise 2.0 apps get built?  I doubt it is from a startup like Jotspot who has no business process expertise nor business data management expertise.  I doubt it is Oracle or SAP who pride themselves on selling Sherman Tanks as radiation-hardened compact cars. The users will build Enterprise 2.0 apps, not the vendors. 

The question is who will "get it" first?

• Will the enterprise application guys (the IT dinosaurs) "get it" about embedding communication and social context in long-running transactions, or
• Will the web 2.0 guys (the IT plankton) "get it" about business processes being the purpose of enterprise community and communication?

Tough call.

Maybe there's a third choice.  Maybe the users will be able to imbue business processes with social computing features. 

The growing consensus is that web-oriented architectures in the form of "mashups" will be the first wave of Web 2.0 in the enterprise.  Maybe, but I think these are going to be niche tools, not mainstream.  Why? Because today's mashups are data mashups and once you have the data, you rarely need it again.  As a test, think about how often you got back to a cool mashup you've seen to re-use it over again. 

This is the promise of process mashups - user-driven, maybe even user-authored, collaborative applications that support core business processes.  Data mashups are the New EII.  Process mashups are the new EAI.  (To be meme-compliant you may want to call them EII 2.0 and EAI 2.0. I don't.)

We are ripe for an breakthrough as big as Visicalc.  The spreadsheet exposed the power of the microprocessor to millions of PC users.  It was and remains the only significant programming tool used by millions of people who know nothing of linting, compiling, scripting, or even looping.   It provides a simple method of assembling data sources to create a custom "application".  The application is really part of a business process, most often a financial process.  A spreadsheet for business processes would be a powerful way to unlock collaboration and process knowledge in Enterprise 2.0.

Investing at the Intersection of Opportunity and Serendipity

We just made a new Series A investment in a company called Abgenial Systems.  Dan Primack and Matt Marshall will pick this up soon enough.  So I thought I should get out in front and discuss this a bit. Pardon me for being a bit oblique in what I am about to describe, but it is hard to strike a balance between transparency and pre-announcement when dealing with early stage investments.  I don’t want to pre-announce or hype what they will do, but I do want to describe how we came to make the investment. It wasn't the usual "show us your Powerpoint and wait for the white smoke" dialog that characterizes most entrepreneur/VC interactions. 

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About a year ago I became interested in the phenomenon called mashups.  VCs try to find Big Ideas that transform existing markets or create new ones. This seemed like a Big Idea, but packaged in a Small Box.  I started thinking about something I eventually came to think of as The Recombinant Web --  a half step between Web 2.0 collaboration and the Holy Grail of a Semantic Web.   After all, the motivation of mashup creators was to recombine otherwise useful silos into new, ever more useful experiences.  Today’s web services are kind of like old, single-tasking PC applications.  They exist largely isolated from each other on a common presentation screen.  Then it was the CRT.  Today it is the browser window. 

The “integration” of Google’s web services or Yahoo’s web services is reminiscent the “integration” that existed in Lotus Symphony, the short-lived successor to 1-2-3.   I especially like this description from 1985  because some things never change. A hit application spawned visions of a platform...

Lotus designed Symphony for access by other programmers. Hooks inside the software help developers write applications for the Symphony environment. Add-in applications directly from Lotus also are expected. Obviously, Lotus wants Symphony to be your only program. Whether this idea is valid depends on several factors, not the least of which is how well the package works with the expanded RAM of such computers as the IBM PC AT. With up to three megabytes possible, Symphony memory problems could become a thing of the past. (Creative Computing, February 1985, p.88)

Sounds vaguely familiar.  "Hooks inside the platform" - the 1985 version of API, and "up to three megabytes possible. Memory problems could be a thing of the past." - the 1985 version of the infinite resource of the Googleplex.

Mashups emerged from the current developer community as a way to exploit the Web as that platform and break  down the stack of proprietary, but "integrated" web applications from GYM.  But “mashups” have lots of limitations as a methodology. Over time I distilled the issues to three fundamental objections. 

• First, the author/user distinction doesn’t scale.  You can’t possibly know what web services I might want to combine nor how.  Only I do.  I want to program the web.  I don’t want you to do it for me any more than I want to go to a site that lists all known queries to search the web.  A corollary to this point is that will be few (no) mashups that are viable standalone businesses, at least not at a scale that has an interesting economic consequences for an investor.


• Second, there is only so much "bookkeeping" that can be done efficiently in the browser. Integrating in the browser is like cooking on a camping stove. It's possible, but it wasn't designed for an elegant and synchronized multi-course dining experience.  Complex and interesting re-combinations are not what browsers and AJAX were designed to support.   

• Third, the idea of users combining arbitrary web services seemed too unbounded and too early. It seemed wrought with lots of nasty issues like service availability/fail-over, financial models,  data formats, and a small issue of programming, programming, and programming.

I started blogging about mashups with the intention of learning-by-publishing.  The more I wrote, the more I learned. The more I learned, the more convinced I became that these issues required a fundamental re-think of how to approach integration. For the concept of re-mixing to become mainstream, It had to be capable of handling sequencing of web services and flows of data, but with a user interaction model as simple as point and click or cut and paste.  A tall order.  The more I stared at concept of "mashups," the more convinced I became that the concept was too parochial.

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Three or four years ago my friend Pete Kolstad introduced me to Rafael Bracho.  Rafael was a co-founder of Active Software and a pioneer in the 1990’s evolution of enterprise application integration (EAI) software.   Active Software went public with Rafael as CTO and eventually merged with WebMethods.  Somewhere along the way, the original EAI vision of simplified application integration became bloated by layers upon layers of standards, registries, modeling languages, protocols, etc. and promise of nimble enterprise services-oriented architectures (SOA) was DOA.

We were looking at an EAI appliance company about 18 months ago and I asked Rafael to help us with the diligence. Luckily we lost that deal to another VC firm  (it since has not gone well).  Afterward, by pure serendipity for both of us, Rafael started telling me about a technology he and a partner had been working on for several years under the name Abgenial Systems.  It was a radical re-think of how to integrate applications.  It was so radical, in fact, that we didn’t understand where to use it, nor did the other VPs of Software Development that we asked to look at it.  By starting with a new conceptual model for what integration and interoperability would mean, Rafael and his partner Jacoby were able to simplify the enterprise integration problem to the point of near triviality.   

I was stumped as to how to make this an interesting business.  WebMethods, Vitria, Tibco were yesterday’s news.  Who cares if you could steal share from these guys? They were locked in a fight to the death on near-free software, bundled with low margin consulting services, and rewarded with market caps running at 1X revenues. 

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My most important observation from immersing myself in the concept of mashups was the recognition that mashups were just another form of application integration, done client side rather than server side.  That launched me in to seeing a potential unification of innovative consumer applications with stultified enterprise applications.

All of a sudden the idea of Abgenial pivoted.  Last Fall, Web 2.0 was white hot on “collaboration and mashing” and Enterprise Software was moribund with “legacy vendor consolidation and broken distribution models.”   Software as a Service was the VC industry’s  Great White Hope, combining Web distribution with Enterprise functionality. (Read this as low cost of distribution and tangible value.) Google, Microsoft, and Yahoo were increasingly veering towards web applications (calendars, maps, photo sharing, etc.) – free form of SaaS.

The Abgenial Pivot was to see the dots were connected.  Consumer web….enterprise web…..Saas….legacy apps…. Mashups….SOA were all variations on a theme and that theme was <hype>Programming the Web</hype>.  It was then that I went to my partners and asked to provide a $250K bridge loan to blow away the haze and find the business in this combination of market intuition and technology.

We did. 

And then we screwed it up.

Thinking that the real innovation here was software, we designed a software business.  Sell a product and make money.  A time-honored tradition.  We approached a bunch of VCs whom I know with (1) a team with a record of success (2) real, protectable technological innovation and (3) a short productization plan.  No bites for a co-investor in Series A. The market said, Wrong! Software Still Sucks.

We went back to the Business Model Drawing Board to re-consider how we could accomplish this grand(iose) vision of programming the web, but with a more palatable adoption model.  In retrospect, I think the first pass of delivering the technology as software was a default option.  It was easiest because this is what the team had done before, not because it was what the market wants today.  So, of course, we moved to hosting -  but hosting what exactly?

We went through several theories of what to deliver, looking at various other companies as role models.  We flirted with being a "better this" or a "better that" but constantly came back to the belief we could be so much more than a Web 2.1 company, precisely because the technology was so radically better and different than anything we had seen. Along the way I managed to get confirmation of this point from folks I knew at Salesforce, Microsoft, Google, and Yahoo, as well as the single most-informed thinker on Web 2.0 software architectures I have met - Dion Hinchcliffe.

I was stretched with my partners.  We were thrashing.  We knew we had something Big, but somehow it was the Business We Dare Not Name. Technology, Platform, Application, Solution -- these are all gobblegook businesspeak that don't define anything concrete. 

Then we had a breakthrough.  Oddly enough it came at meeting at one of the largest software companies back in May.  Rafael and I were both there schmoozing and being schmoozed.  A few conversations into the day, a light went on for both of us.  All of a sudden the fog lifted and it was clear to both of us how to go to market and the natural business model. It was a kind of a Steve-Jobs-in-Xerox-PARC moment.

That stunning moment of clarity was enough to get my greed glands going. I no longer wanted a co-investor.  VCs alternate between fear and greed.  Now that the opportunity, differentiation, value proposition, and path to monetization are clear the next steps are about establishing proof and building a team. I outlined the concept to my partners and we agreed fund this post haste.  We closed Series A two weeks later. The team is hard at work building out the business.  Soon we will begin looking for some senior management, including a world class CEO (hint to reader).

Abgenial isn't really in stealth mode. It is not a state secret, but it is clearly in gestation and explaining it is just a distraction right now.  One thing I have learned after 25 years in software is that innovative software defies description. It has to be seen to be understood. Imagine Bricklin and Frankston describing Visicalc before you saw it.  Imagine Ray Ozzie describing Lotus Notes before you saw it. So please be patient.  Abgenial will emerge from the shadows soon enough, and then you'll see why this Aha! was so hard to find, and so obvious once we did.

Chance favors the prepared mind.  Blogging as a form of thinking out loud definitely helped me prepare mine for this one. 

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.

Riya - Phase 2

About 8 weeks ago Riya launched its open beta.  By any usage metric this has been a success.  We enjoyed the Techcrunch Effect with 1M image uploads in the first 24 hours.  Thanks, Mike. Once past the pent up demand, we have continued to grow nicely, passing 7M images last week.  Yesterday we had a board meeting to officially chronicle the progress and approve Riya Phase 2.

When we first conceived of Riya (by the way, we officially changed the company name from Ojos to Riya today) we were torn between the twin objectives of sharing photos and finding photos.   Since then, it has become clear that there are literally 100’s of ways to share, but precious few methods of searching for them.  Text search engines like G***** and Y****!  (I  don’t want to give them more brand awareness, lest you have not heard of them  ;-),  really aren’t very effective for finding photos. 

As a board member, I get an automated report every morning from Riya that shows the number of daily users, images, faces recognized, etc.  Each morning has been a re-affirmation that we are on to something very big.  We now have a very powerful team. Over 30% of the Company is in Research, as distinct from Engineering. (I have never had a software company with this level of investment in basic research from the beginning.)  We already may have the largest Machine Vision team in the world. We have over a dozen PhDs in Computer Science.  As a consequence, the Company is now entering into Phase 2 – Rapid Innovation.  Phase 1 was about building the platform and the user base.  With 7m+ images and 5M+ faces detected, and a full infrastructure for rapid development, deployment, and iteration, Riya is now about doing what consumer Internet companies have to do to succeed  – experiment – testing  new innovations with real user behavioral feedback.  One consequence is our IP attorneys are getting a big payday as we patent the innovations in image search that this team is inventing.

Phase 1 exceeded my initial expectations, but has raised my expectations for Phase 2 and beyond.  Munjal and the team are clearly veering into Photo Search to complement and partner with the 100s of photo sharing sites out there.  The PhotoWeb is very real and there is no effective way to navigate through it.  If we are successful, all the sites with photos (stock, personal, amateur photography, etc.) should benefit by being easier to search.   If navigation is easier, monetization will naturally follow for them and for us.  A photo is worth a 1000 words.  So a photo site is worth …

Web 2.0 – Now What?

There have been several posts chronicling the abundance of Web 2.0 clutter companies.  Rich Ziade had a great post showing the 15 minutes of fame that new Web 2.0 companies have as they circulate in the blogosphere for a week or two.

Baris had great survey of Web 2.0 companies detailing the clutter by category. Ismael has compiled a similar database of Office 2.0 companies.  Last week Brian Benzinger pointed to 50 companies online that basically serve the same function – taking notes.

Evidence of the Entrepreneur Bubble continues to accumulate.  And entrepreneurs are not the only ones chasing the future by looking in the rear view mirror.  The VC community seems to have re-discovered the social network yet again.  MySpace and Facebook have spawned a hundred clones.  I get 1-2 inquiries a week from entrepreneurs in the US, India, or China with social network proposals.  Video sharing is another meme-of-the-moment attracting attention and capital.  Imitation is breaking out everywhere. Last week that frustration caused me to reflect on what it means to have a barrier to entry.

But there is a bigger question at hand and I think it is on the collective minds of everyone who has been immersed in the torrent of Web 2.0 creativity.  Simply put, it is

Now What?

Web 2.0 is on the verge of going from Wired to Tired or so it seems.

VCs and some enterprise folks are starting to talk about Web 2.0 in the enterprise as Web 3.0 – Wikis, RSS, collaboration and knowledge management.  Others call it Enterprise 2.0.

I had breakfast with someone yesterday who is joining a very visible Web 2.0 company to become their General Manager of Enterprise solutions. Hmm…

I subscribe to the thesis of enterprises as a natural user of all this technology and have for a while.  Companies are communities. Supply chains are social networks. A customer base is a community, albeit often not interconnected, except by indirect methods like lawyers and analysts.  Shareholders are a community, often interconnected the same ways. 

Companies have known this for a while.  Recruiting has been an exercise in social networking for a long time, both on the employer side ($500 referrals) and the job seeker side (the origin of the concept of “networking”).

But the difference between collaboration in the consumer and business worlds is one of purpose.   Expression is the primary purpose is many Web 2.0 consumer sites.  It may be expression for entertainment, expression for reputation enhancement, expression for contribution to collective knowledge, or something else. 

Collaboration in a business context has a goal other than the act of collaborating itself.  We used to call these goals business processes.  Collaboration is one important component of a business process, but it is not the whole process.  Another interesting dimension of a business process is a transaction.  A transaction is the organization’s transformation of a set of initial inputs  (customer inquiry, need to hire, etc.) into an accomplished goal.  Collaboration is either loosely or tightly bound to the process.  But so are data and systems.  And that’s the other half of Web 2.0 to me – the lightweight integration methods of Web 2.0.    Together these two parts of Web 2.0 can re-engineer enterprise IT. Interesting. And the Enterprise itself.  Much more interesting.

OK Where?
Mash-ups represent a potentially powerful way to create new ad hoc Web applications out of existing enterprise data and web services.   Business intelligence applications are likely to be the first places we will see these appear for simple reporting and visualization purposes. Ultimately, they will emerge as complete business processes that mash (integrate) enterprise applications with applications in the cloud.  And SOA and Web 2.0 will fully converge.

But the Web 2.0 applications in the enterprise are not going to be the same as the consumer apps in the cloud. And this is more than just “behind the firewall” or not.  Applications are going to be more contextual to have value.  A Web 2.0 method of collaboration for product design and management of the bill of materials isn’t a tag cloud.  Nevertheless, tagging and structuring the ideas are an important part of ensuring the original design intent gets expressed in the delivered product.   A Web 2.0 method of managing a customer base as a strategic asset will encourage customers and vendors to share information and product applications, requirements, limitations, and flaws.  It will also change the conversation in unpredictable ways.  Mining and reporting will be just as important as capturing and ease of use.

Creating the enterprise context will be where most “ported” Web 2.0 applications fail in transferring to enterprise uses.  Because the processes do have a purpose in the enterprise, the applications of collaborative computing will need to reflect that context to be high value.  A wiki could be used in a product development team and a wiki used by a major account sales team.  But the real value will be in structuring the usage, content, reporting, etc., to really impact the goals of the teams. The wiki will be a feature of a larger solution.

This is one interesting Now What? impact of Web 2.0 for me.  Enterprises are the ultimate Walled Gardens.  The distinctions of customer/supplier, employer/employee, management/staff, marketing/sales/engineering, Chicago Office/London Office, IT/line of business all become less meaningful in world where information is more easily, more inexpensively, and more rapidly shared, transformed, and consumed. This will put pressure on organizations (and regulators) in a long wave of upheaval.  Enterprises that harness this fountain of real-time and granular information will have a huge competitive edge - an edge equivalent to the first uses of data warehouses and data mining.  They will find and react to opportunities the way that program traders find and react to market inefficiencies. This  may well be the new Strategic IT.  The strategic IT asset is not the software that automates the process.  The asset is the embedded knowledge of all these enterprise communities and its integration into business processes.

Most VCs today think enterprise software is dead, especially for early stage companies.  I don’t.  I think the days of the $1M sale / 18 months to deploy are long gone.  But new, capital efficient Web 2.0 methods of consumer services morphing into lightweight solutions to empower enterprise users are about to emerge.  Lessons learned in Web 2.0 are going to get monetized in new enterprise IT.  Perhaps that's What's Next.

Addendum: Tech Crunch reports today that Facebook now has corporate clients.

A Vast Improvement for Classifieds, Mashups, and the Web

A few months ago I noted the release of Google Base as a pivotal moment in the maturation of the Web.  I said the move from unstructured to structured data was an important improvement in making the Web usable and re-usable. 

I have also discussed mashups as an important, lightweight development paradigm for making this reusability possible.  Thus far the mashups I have seen have been features, mostly visualizations of someone else’s data on Google or Yahoo maps.  The owners of the primary data have Web 1.0 business models, including Google Base.  The Web 1.0 model is “all your data are belong to us.  So come to [oursite].com if you want to see it."   Consequently, mashup innovation stops at the edge of what’s  really interesting, because mashup developers can’t rely on re-mixing those data and building really great destination sites.  This conflicts with the walled garden business model of the data aggregator.  Hence, restrictive licensing models.

Well, now there is about to be a Vast improvement. 

Vast has been in development for about a year, creating what I think of as the first inverted portal.  Now the preview release is up, showing the first three "applications" of the technology. Vast crawls the web for data and extracts that data in vertical categories.  The URL Vast.com is a demonstration site, not really a destination site.  The real destination site is everyplace else on the web – blogs, discussion boards, microsites, social networking sites, etc.  Anyplace where content creates context.

Vast.com looks like a classic classifieds site, but it is not.  It is not a data aggregator.  It is a data disseminator.  It is a hub targeted to the developer community to enable the mashup of structured data in a reusable form.   And it’s not just about classifieds.  It’s about adding structure to content. But the first application of structuring the Web is to take free-form descriptions on the Web and make them structured, searchable listings, i.e. classifieds.

What’s different from the aggregators besides the business model?  It is the data itself.  The data do not come from feeds.  They come from crawls of primary data sources – cars listed on dealer sites, jobs posted on companies’ web sites,  personal profiles listed on blogs, personal web sites, and dating sites.  As a result, the data are Vast – millions of cars, millions of jobs, and millions of profiles, with more categories of objects to come.

This is the true long tail of listings. The user benefit is obvious -- find the exceptional value.   Like the old joke -- why is it always that you find something in the last place you look? -- the exceptional value is always in the long tail. 

You don’t see a lot of end user features on Vast.com – no AJAX widgets, no mapping, no integration with reviews and ratings.  What you will see a Vast amount of data.  If you have a web site about Miami – create Miami-only view of the data.  If you have a Mercedes-Benz discussion site, create an M-B specialty classifieds component.  If you think you can do the next HotorNot.com, build it.   You can even build the next Vast.com on the API.  All the features you see are available in the API for free.

I don’t think of Vast (or Riya) as just Web 2.0.  Web 2.0 is largely about tagging, social annotation, and sharing.  I think of Vast and Riya as bricks in the road toward a Structured Web, beyond Web 2.0. Vast does for free form text what Riya does for images – extracts structure for reusability.  There is some additional discussion of Vast here, here, and here. 

Vast is not a walled garden.  It is  “All your data are belong to you.”  Have at it.