Innovation from the Edge: Consumerization of ICT

…SMS, WiFi, Bluetooth, Google Desktop, IM, VoIP, Flash Drive, Wiki, Skype, YouTube, Facebook, Second Life, Saleforce.com , Blogging, Web 2.0, Mashups, Ribbit, Social Networks, Google Apps,WebEx, iPhone, Social Search…

In recent years, many innovations in technology and communications have come from the consumer side, that is, from The Edge. From the PC to the iPhone, from YouTube to social search, innovation has been embraced by the individual and force fed into the enterprise.

Back in 2005 Gartner Group advised us that the practice of introducing new technologies into consumer markets and having them bleed into industry and the enterprise would be one of the most significant trends affecting information technology (IT) during the next 10 years. At the same time, they warned us of the new threats, security risks and organizational chaos posed by this trend.

But these consumer-led innovations filled corporate voids and out of the “chaos” emerged new forms of enriched communication and information flow, enhanced productivity and empowered corporate citizens, and led to the discovery of new ideas, the creation of new business models and the opening of new markets.

Many forward-looking companies have or are creating enterprise-ready versions of their consumer-oriented technologies—for example Google Search, 3G iPhones, the Facebook Platform or FaceForce (Salesforce+FaceBook) and Ribbit for Salesforce while MarCom departments use YouTube and MySpace to create novel customer touchpoints. With enterprise social networking enabling collaboration and idea sharing among employees, branded and white label social networking vendors are offering social networking platforms via an SaaS model.

In the past, military, industrial, and business markets steered R&D efforts; today, the individual, the consumer is also in the driver’s seat.

Now the security issues are real –from botnet infestations to cybercrime --but they can and must be managed—technology enables business—we’ve known that for a long time.

On June 4th, I attended a half day session here in Palo Alto on "The Consumerization of Software" sponsored by the SDForum and Accel Partners so I could hear first hand what some in the Silicon Valley community were thinking about the topic, mostly from the venture perspective, and how it plays on in the software industry:

The cutting edge of “software” is undergoing a structural change as new business models, and new strategies for customer acquisition have supplanted the Y2K era of enterprise software models. Centralized buying decisions driven by the CIO have given way to “democratic” or consumer-like adoption behavior within the enterprise. Open-source software, software-as-a-service (SaaS) and other “bottom-up” rather than “top-down” models are exploiting this trend. Some companies in this space include Salesforce.com, Facebook, Netsuite, Genius.com, Ribbit, Citrix Online, Parature, Hyperic, Zimbra, Qliktech and Echosign, many of which are in the Accel portfolio.

By way of introduction, Richard Wong from Accel said, “We are seeing a new generation of software companies that are beginning to disrupt the traditional incumbents. The rise of open-source and the growth of software-as-a-service (SaaS) companies are creating a next generation of players that deliver value in a new go-to-market approach.”

Accel’s Kevin Efrusy welcomed the audience to talk about the shift in adopting new technologies and espoused his Consumerization Thesis:

A potential customer has to understand the value in less than 1 minute, and get the benefit in less than 1 hour – otherwise you have lost him/her.
New companies with products in the space need to ruthlessly limit scope, the number of account touch points required and configuration options – simplicity and focus are key. Understand viral marketing and keep in mind that a B2B viral cycle is longer than say a Facebook consumer cycle. Establish metrics that reflect customer success.
The panel discussion entitled A View on Software from Wall Street with Brendan Barnicle (Pacific Crest), Charles Carmel (Cisco) and Mike Maples (Maples Investments) posed the question:

How do you build a grassroots adoption of your technology, product, service?

• Solve the Day Zero problem –the end user grasps the initial value proposition in less than a minute and benefits from it less than an hour.
• Start with an easy to use tool addressing specific solution that doesn’t cost anything to adopt (the 1 minute, 1 hour thesis)
• Get enough users; add features they say they want. At some point they will start wanting to use it at work.
  
  Another panel discussed “Products for the end user instead of the manager” – for example, Siebel’s Salesforce management suite was focused on providing information at the executive management level; Saleforce.com came along and sales people found a productivity tool to manage information at their level and need. One takeaway is to build these new applications with the users in mind, not the managers.
  
  The representative from Cisco commented that WLAN technology was a bottoms-up effort as well; if one could be untethered at home or in a coffee shop, why not at the office?
  
  A third panel with Mike Ni (Netsuite), Duke Chung (Parature), Satish Dharmaraj (Zimbra) and Javier Soltero (Hyperic) spoke to “Beating the incumbents through bottom-up tactics” suggesting that a “try before you buy” and the ability to scale fast and cheaply were winning strategies.
  
  Consumerized software is paid for from op budgets, rather that capital outlays and “decisions” to use it most often bypasses the IT gatekeepers – removing the barrier between the customer and the product. This is a high velocity sales cycle – with a week to a month for implementation. Revenue models are mostly subscription-based or a similar hybrid mode—SaaS, subscription, pay-per-use, maybe per-person licensing. Price points are most often at low budget approval levels; requires no training, no change management, no consultants.
  
  Alliances for growth is important- put two good things together – examples Saleforce.com and Ribbit or Google Apps integration into Salesforce.com exposing their 1 million paid subscribers to Google Apps (and Salesforce CRM to users of Google Apps).