On Convergence

What's next in the Internet revolution?

I currently do a lot of work in the field of web-based enterprise software, also called "Software as a Service" (SaaS). This sector that once was a tiny niche of the software industry is growing rapidly. Pioneers such as Salesforce.com have grown to become small giants, and the big players like Microsoft, SAP and Oracle are all entering the market. Even Google is very active with Google Apps. Web-based applications are increasingly becoming an important part of the Internet ecosystem.

While observing this market, I often asked myself if there are any historical parallels to this wave of innovation. Sure, history doesn't repeat itself, but often there are comparable development paths. In innovation research, it's a well-known fact that there are observable patterns: disruptive technologies, adoption curves, the emergence of dominant designs etc. Although these patterns don't help to precisely predict the development of a given market, they still provide some useful insights about possible future directions.

The big wave of innovation in IT before the Internet arrived was of course the rise of the personal computer, starting in 1974. Therefore, I have tried to draw a diagram of the most important phases and key events of this older wave. The "market penetration" axis is purely qualitative and only for illustration purposes.

After a purely experimental phase in the late seventies, the PC experienced a first breakthrough with the Apple II and the first killer application, the VisiCalc spreadsheet. In 1981, IBM brought its PC to the market, and that was the first product that appealed to mainstream corporate IT buyers.

After a crisis in the mid-eighties, Microsoft released Windows 3.x which turned out to be the generation of software that really opened personal computing to the mass market. In figures: In 1990, there were 100 million PCs in use worldwide, today it's over a billion. For 2015, some experts predict over 2 billion PCs.

It's interesting to see however what happened after that: Client/server technolgy established itself as the still dominant platform for enterprise computing: A "fat client" on the (typically Windows-based) PC accesses functionality that runs on a centralized server somewhere in the corporate network. And it was only this specific combination that led to the huge growth of the PC-related software industry, as the following chart shows:



The upper curve shows revenues of the largest PC-related companies (both hardware and software), while the lower curve shows only hardware firms. Quite obviously, the software industry was a neglectable quantity for many years until it started to grow very rapidly in the early nineties. And we're talking here about today's behemoths Microsoft, Oracle, SAP and Adobe. Only after the introduction of Windows 3.x and client/server these companies started to grow to the level of importance (and, one might add, enormous profits) that they enjoy today.

Will we see a comparable development in the Internet era? If we try to map some of the milestones of the Web revolution in a similar manner as above, there are some interesting similarities:

After the experiments of the early nineties, the first breakthrough came in 1995 with Netscape Navigator, the first software that made the web accessible to everybody. When Microsoft, the dominant software vendor, released its first usable browser in 1997, the web really became mainstream. After the dot com crisis, the increasing availability of broadband access and web 2.0 applications finally opened the mass market, as measured by usage time and user involvement. Before broadband, there that was mostly e-mail and some online shopping, after broadband there was MySpace, blogging, online music, Youtube and so on.

The question now is of course if Software as a Service and the closely related "Enterprise 2.0" wave will really turn out to be the dominant new platform for enterprise applications. There are many things in favor of this theory: web-based software is typically much more cost-efficient and flexible, in the same way as the PC was much more cost-efficient than the good old IBM mainframe. SaaS applications are currently used mainly by smaller companies and departments of large corporations, but not yet enterprise-wide at large companies. Client/server applications went through a similar adoption path.

Sure, not all things in the SaaS world are perfect. Web-based applications are still experiencing a lot of growing pains, and the technology can sometimes seem quite immature. But the same was true in the PC era. Most peoply can hardly remember how much work it was just to keep your Windows 3.1 system running every day. But this unruly technology still became dominant.

It's possible that we are currently experiencing a historical turn in the history of the software industry. More and more software will be available on the Internet for immediate access. The web is becoming more than a medium for information access, publication and participation, it is also turning into the dominant application platform. The fact that Microsoft is now openly trying to fight Salesforce.com is a clear sign for this change.

Who will be the winners of this new wave? That's very difficult to predict. But there's one thing we can learn from the history of technology: The winners of the previous revolution very rarely also dominate the next generation of technology.

Tech-entrepreneurialism in Europe and the US

I've been invited by my friend Bruno Giussani to guest-blog on his excellent blog Lunch over IP. Bruno is a writer for several major international publications, a conference organizer (TED Europe) and a book author. As Robert Scoble put it, he is "the guy you wish you knew in college."

I'm of course proud to write on Bruno's award-winning blog. Here's the link to my post: Better in America? Tech-entrepreneurialism in Europe vs the US

Transatlantic Misunderstandings: Google loses Belgian Case

A few weeks ago, there was some half-amused excitement in web circles about a conflict between Google and Belgian newspaper publishers. The publishers had accused Google of violating their copyrights by linking to their content from Google News.

Google now actually lost the resulting case in a Brussels court. The company was ordered to remove all Belgian newspaper content from Google News and from its search cache, and in addition to that, Google has to pay a fine of 25,000 Euros per day, totalling several million Euros.

The last part shouldn't be that hard on the rich search engine giant, but understandably Google is a worried afraid that this court decision could set a precedence for similar lawsuits in the rest of Europe. Still, most Americans can hardly believe that a small country like Belgium dares to attack the king of Internet search, and that newspaper publishers would be so stupid to have their sites removed from Google.

In my opinion, this discussion is afflicted by two pretty fundamental misunderstandings:

• First of all, online advertising doesn't have the same importance in continental Europe as in the US or the UK. Therefore, its importance is not the same for newspaper publishers, and the Internet traffic coming from the large search engines is by no means as relevant as it is for an English-language newspaper website. American and British newspapers would be stupid to sue a search engine, since their increasingly important online revenues are largely driven by Google and its competitors. But that's not true for many European countries.

• The economic power of newspaper publishing companies is very different depending on the country's market situation. Google so far experienced most of its legal trouble in francophone countries where newspapers play a comparatively minor role in the national advertising markets. Belgian newspapers get about 23% of the total ad spending in their country, French newspapers only about 17%. That's a far cry from other countries where newspapers are much stronger, such as Switzerland (52% of ad spending for newspapers), Germany (43%) or Sweden (55%). In those countries, newspaper publishers feel a lot more relaxed about search engines, since they know that their strong national newspaper brands can only benefit from Google's traffic. But in the weak newspaper markets, a desperate economic situation seems to lead to desperate legal measures.

Since newspaper publishers of course have major political and social influence in their respective country, Google shouldn't be too optimistic about the outcome of possible further lawsuits of the same kind. But again, not all of Europe is the same. And Google still has time to approach newspaper publishers proactively to strike a deal that works for both sides.

What's behind the Consumerization of IT?

The IT industry has a new favorite buzzword: Consumerization. According to this concept, more and more innovation in the IT sector is driven by the consumer market, not by enterprise customers.

It's not something that just a few entrepreneurs and VCs have made up. Even the analysts at Gartner -- the high priests of enterprise IT -- acknowledge the trend and encourage CIOs to experiment with consumer IT products. The shift to hardware and software originating in the consumer space, Gartner says, can't be stopped anyway. And many VCs now ignore the enterprise sector outright and invest only in consumer plays.

So who are these consumer, anyway?

Like most buzzwords, consumerization of IT is quite an oversimplification as a concept. It suggests that there is a completely separate world of non-professional IT users that have completely separate needs. As we all know, that's not the case. Most consumers are people who use IT every day at work. They have come to expect a high level of reliability and functionality from IT products, and that doesn't change as soon as they go home after work. But at the same time, they expect the stuff that they use at home to be more fun, easier to set up and simpler to use. Is it surprising that this in turn influences the expectations that they have about enterprise IT?

What's more, many trends in the so-called consumer space are actually driven by people who use IT for professional purposes, but outside of traditional enterprise structures: freelancers, writers, creative professionals, startup employees. For instance, many of the supposedly consumer-oriented Web 2.0 software products and hardware accessories are actually used by this type of user. They don't have access to cheap IT support and don't want to spend a lot of money, so simplicity is key.

So, maybe the consumer space really should be defined as "people using IT in the absence of an IT department".

The center of digital life

What was a home computer good for 15 years ago? Not much, maybe a bit of word-processing and some bookkeeping, a bit of education and some simple games. The most adventurous users would maybe connect a modem and dial in to some bulletin board systems.

How times have changed. The home PC now is a communications center (when was it that everybody started to use e-mail?), the gateway to the world and its information. It's rapidly becoming the main source for media content and news. It's the thing that we use to organize our pictures and our music, edit our home movies and express ourselves creatively in many other ways. And it's a fantastic game console.

Typical home computers used to be at the lowest end of the PC market, just barely powerful enough to handle some basic computing tasks. Now go to Dell's web site and look at the gaming machines. They are far more powerful than all but the most expensive corporate server machines. And all this power actually makes sense for games and digital media applications.

That's one main reason for customerization: The corporate desktop PC simply has run out of applications that need more power. How much more speed do you need to write some Word documents or run the ERP client software? Not so in the digital home: Every increase in CPU and graphics speed is very noticeable for today's home computer applications, so home computers drive innovation.

Make it simple, stupid

Corporate IT departments are not the best advocates of simplicity. And why should they be? After all, if IT people want to keep their jobs, it doesn't hurt that users need a lot of support and that there are glitches to repair. Management asks for progress and efficient processes, so IT rolls out more and more features on ever more expensive infrastructure. And IT vendors are of course happy to help. Who cares that users don't want and need all this complexity and will never use this expensive stuff?

But it doesn't work like that in the consumer market, where people spend their own money and their own time on technology.

I recently bought a Mac Mini, maybe the prototypical consumer computer in today's market. I was shocked. It just worked. It didn't waste my time with endless installation routines, virus checks and driver downloads. When I connected my printer, it did nothing. Or to be exact, it just installed it in the background, without bothering me. Again, it just worked. Not like my PC (that runs the operating system with a "Professional" in its name) where the same process would have cost me at least ten minutes.

The same experience is typical for many of the best Web 2.0 applications. They give you good functionality without the overhead of traditional desktop applications. They are instantly available and do not require any training. Of course, they are by no means perfect. But they're simple, easy to use, and cheap or free. They're an elegant solution to a well-defined problem and not more than that. But also not less.

What's in it for everybody?

Antoine de Saint-Exupéry once said: „Technology always develops from the primitive via the complicated to the simple."

Few people would disagree that traditional enterprise IT is complicated. And expensive. And unnecessarily complex. Sure, it tries to solve complex problems. But is that always the most effective thing to do? Maybe it would be more rational to first solve the simpler problems in a more cost-effective and user-friendly way. Of course, IT professionals are perfectionists. But they tend to optimize the wrong dimensions. Consumers behave differently, because they are willing to forgo functional perfection in exchange for simplicity and cost-effectiveness.

Could consumerization be the big step to a new era of simple, elegant IT? That's absolutely possible. It's not surprising that this trend is driven by consumers that are savvy (because they are at the same time experienced professional users of IT) but are also not willing to put up with high costs and complexity in their private lives.

Who will be the winners? Well, consumers, obviously, and the companies that build the best products for them. But achieving real simplicity is very hard, and there are some very complex things behind every simple user interface. Just look at Google's infrastructure or Apple's iPod business model. Those that can handle this complexity and hide it behind a pretty facade will be the biggest winners, both in the open market and in the world of enterprise IT.

You know you're in a bubble when...

Today, the Web 2.0 Summit conference in San Francisco started. Everybody is there, absolutely everybody. Well, I'm not, I'm just reading all the blogs, but apparently everybody that really matters is there.

So many things look strangely familiar, like it's 1999 all over again. I almost feel a little bit nostalgic.

One of the best signs for a bubble is the list of sponsors for this kind of conference. Just look at the list of Platinum/Gold/Silver/whatever sponsors for this event:

• 1/3 are companies that you would actually expect to sponsor such a conference, because they are really important players in this market. Like Yahoo, Microsoft, or Google. In non-bubble times, this type of company would be 100% of the sponsor list. But not now.
• 1/3 are conservative companies that would love to be part of the new revolution. Like IBM, Accenture, Nokia, and the New York Times (in the form of their About subsidiary). It's good to remind people that you're still there.
• And 1/3 are companies that you've never heard of. Obviously they're burning their venture capital here (At least that's a more reasonable way to do that than the huge launch parties back in the old days). Some of their logos look like they came out of some generic Web 2.0 logo generator with settings on "default".

Well, visibility is everything in a bubble. Especially when your company is really only a feature that Yahoo already has.

Book Review: "The Change Function"

Here's a short review of the just published book "The Change Function" by Pip Coburn. The author was the managing director of the technology group at UBS Investment Research and now owns his own research firm.

The book's basic message is that the technology industry is so fascinated by technological possibilities that it completely neglects (to its own disadvantage) what users actually want. The bust of the Internet and telecom bubbles and the still lasting crisis of the technology industry was caused by this ignorance, claims Coburn, and he uses a number of case studies to illustrate his ideas. The heroes of the techno-elite are Intel founders Gordon Moore and Andy Grove with their respective laws about the exponential development of technology. "Build it, and they will come" is the motto of most technology firm. But very often they don't come, because customers are less and less impressed by pure technology alone.

The really important question is, according to Coburn, what "crisis" (in the form of a problem or desire) customers have and how big the perceived pain of adoption is. The resulting change function, "f(user crisis vs. total perceived pain of adoption)", is not really a precise formula, but rather a way of expressing that customers compare these two factors when they decide whether to buy a new product or not.

The most successful products are of course those that solve a big customer problem, but are easy to adopt. And when measuring the cost of adoption, the product's actual price tag is not really that important. The pain of learning how to use the product and the necessary changes in behavior are much more relevant.

Coburn lists a lot of technological flops that ignored this simple rule: the picture phone, interactive TV, the Tablet PC, B2B markets. He even makes some predictions about the odds for success of some currently "hot" technologies: HDTV, mobile e-mail for everybody and satellite radio will turn out to be a success, while RFID will fail or at least take a very long time to get broad acceptance.

The book is not as scientific as you might think from reading its mathematically sounding title. On the contrary: its style is quite casual and at some points maybe overly rich in anecdotes, but fortunately, the author doesn't use the usual business book lingo. Most of the case study subjects are actually well known, but there are also some real gems, for instance the very detailed analysis of software-as-service vendor Salesforce.com.

The book's basic idea is really not new: Find out what your customers want, analyze what possible reasons they might have not to buy your product, and then create a product that addresses these concerns. A truly simple message, but Coburn is certainly right about the fact that the technology industry frequently ignores this rule. Most customers are not fascinated by technology, they simply want to solve a problem, preferrably without technology.

That's also something that many Web 2.0 startup companies should consider. Too many of them still believe that it's a great success to sign up the usual crowd of 50'000 geeks that participate in every beta program anyway. But the real end user doesn't really care about the elegance of social microformat tagging with an AJAX interface. They simply want to get the job done.

"The Change Function" is a very accessible, fact-rich book about the possible failures when companies try to innovate. There are also a few brief thoughts about the importance of organization and corporate culture, and finally the author gives extensive advice about how to select a successful management team for a technology company. The book is certainly by no means as extensive and rich as for instance Clayton Christensen's work about technological innovation, but it is a good primer about the subject.

By the way: Pip Coburn's short text on ChangeThis is a good summary of his ideas.

What Web 2.0 and Japanese Inventions Have in Common

When I was looking at a long list of new Web 2.0 startup companies yesterday, I couldn't help but think about a book that I got a few years ago: "101 (Un)useless Japanese Inventions". This wonderful little volume shows such great ideas as the full body umbrella, butter in the form of a roll-on stick, the subway snoozer's chin stand or eye drop funnel glasses.

All these nice products solve a real customer problem. But they do it in a way that is not really that useful: Most of the time, you have to carry a special device that is often large, difficult to use or simply quite ridiculous. The pain from actually using these inventions is so big that most people would prefer to live with the problem the invention is trying to solve.

Some Web 2.0 ideas remind me of these Japanese inventions: There are social network aggregators, OPML sharing services, specialized vertical search engines for every subject under the sun and mobile services for semi-anonymous dating.

Sure, all these services solve real problems that somebody, somewhere might have. But there are two big difficulties: First, the effort needed to learn how to use and configure these services is big, especially in relation to the often limited usefulness. Second, most of these services only work really well when a lot of people use them (the famous network effect at work...), and in most cases it will be really difficult to reach critical mass. Maybe some of these entrepreneurs should read Pip Coburn's book "The Change Function".

It's great that it has become so easy and cheap to found your own web-based company in this era of affordable Web 2.0 technology. But sometimes I ask myself if it hasn't become too easy. I think John Battelle is right when he says that startups simply don't fail fast enough anymore. Bad ideas happen, but it would probably be better for everybody involved if the companies that try to implement these ideas went out of business quickly. There are still enough good ideas that deserve the investment of talent and money now going to so many simply bad ideas.