What Do You Care What Other People Think?

Innovation as Language Action

My colleague Don Dodge notes that innovation is breaking out all over again - and many agree with him.  Innovation itself is a hot topic these days - what is it?  How do we produce it?  What I find exciting is that people are creating new interpretations of innovation that can help us understand how to make it happen.

I had the opportunity to spend time with Dr. Peter Denning over the last two days at a leadership conference in Mill Valley.  He is the past president of the ACM and currently serves as Professor and Chairman at the Naval Postgraduate School in Monterey, and is co-creator of CSNET - the network which bridged between ARPANET and the Internet.

He discussed his current work on Innovation as Language Action - a framework for identifying the linguistic distinctions and specific skills involved in taking new technology inventions into the broader market.  He defines "invention" as the actual creation of a new technology, and "innovation" as the process of technology adoption - for example, the Wright Brothers invented flight at Kitty Hawk, but the innovation in flight was the DC9, 30 years later.  PC/M was an invention in operating systems, but MS-DOS was the innovation - it spread broadly and became the standard for future developments in the industry.   

He and his co-author, Robert Dunham, detail seven specific elements of an innovation framework:

• Seeing opportunities
• Envisioning new worlds
• Offering new games
• Executing plans and tools
• Producing adoption
• Sustaining infrastructure
• Leading with care, value, power, and focus

What I found exciting about their work was that even at this early draft, a real framework for assessing our own actions in leading and developing the future of technologies like SaaS or SOA can be found - one which allows us to identify where we've been successful and where we need to bring our focus to complete the innovation process.

I invite you to read the full draft chapters of his book, which can be found here, along with his course material on "Technology and Transformation".

Thanks for sharing your work and your time with us, Peter!

Long Tail Marketplace for SaaS

Ed Sim discusses "frictionless sales" and gets to the heart of the matter - which leads me back to thinking about Microsoft's responsibility to reduce friction for our partners as the SaaS segment expands.

Here's an idea I have now heard as a request from every SaaS company I've spoken with - those running on LAMP, running on Windows, or whatever infrastructure: Microsoft should create a SaaS Marketplace based on a Microsoft brand or property and use it to reduce their cost of sale.  It does engage all three of Chris Anderson's Long Tail forces...

In principle, the idea is simple and not new - but it's powerful for us because of our scale:

• the big opportunity in SaaS is to sell to the "dark matter" - millions of small businesses - but there's no easy way to scale across this collection of tiny markets
• across our properties we have assembled a pretty good idea of what different customers are interested in
• we can use this information to filter content & target offers for SaaS applications appropriate to the customers' location, industry, and size - using MSN, small business, or other web channels into the user (including smart clients like MS Money)
• instead of generating revenue from licenses, we can shift to the front end of the transaction - advertising and lead generation
• we can partner with major service providers in order to provide even better targeting, and potentially a payment infrastructure
• this helps reduce the cost for partners to address otherwise infeasible "markets of very few" and increases value for the customers who make up those same small markets

Of course, this doesn't solve the technological problem of having appropriate content, application behavior, and customization that fits these same small markets in a cost-effective way - Jotspot and others are cracking this nut (and there will be many correct solutions), but it does handle part of the distribution problem.

I like this idea because it is an attempt to mirror the software value shift represented by SaaS - charge for the software experience in units that more closely match the value that the customer is receiving.  By moving where we sit in the value chain - closer to the customer - we offer more value to our partners by sourcing deals for them and earn our place in the ecosystem as a business platform.

Additionally, I have heard the need to establish a real community in the market - a place for conversations between SaaS ISVs, VARs, and SIs to discuss & coordinate about the future shape of this value chain and how to do business.  I'm interested in reading your suggestions about such a community site and how it should be structured.

By the way, did you know that Microsoft owns softwareasaservice.com?

Early Signals from Ray Ozzie

CNET interviews Ray Ozzie on the future of Services from Microsoft... he specifically mentions a partner ecosystem as part of his vision but focuses on verticalization and niche plays.  I am convinced there will be horizontal opportunities for partners as well.

What I found interesting and hopeful was the breadth of his vision - using the iPod as the paragon of a composite product which blends hardware, software, and services.  As we all develop the marketplace together, I hope we'll be smart about the value of location, context, device-specific capabilities, and service delivery as components which need to work together to form a whole product, and not get entangled in wars over browsers vs. smart clients... with a little luck we are getting sufficiently mature as an industry to leave the religious wars behind us.

Conversations with the Marketplace

I hosted an extraordinary set of guests last week at a SaaS CEO Roundtable - CEOs from Intacct, Echopass, OpSource, Blue Roads, and Newsgator, the CTO of Ellie Mae, VP of Net Ops from BeVocal, and VP Marketing from Five9 (who previously ran marketing from inception to post-IPO at Salesforce.com).  I invited them to advise Microsoft on what we should be doing in the industry with regards to SaaS companies - and we had Microsoft executives from the Comm Sector Hosting group to ensure that our discussions would be actionable.

First of all, the discussions were honest, direct, and insightful - covering the span of marketing reach, cost of sale, and cost of operations - and after 5 hours, we walked away from the table prepared to make a real difference at the business level to these companies, and to include, rather than focus on, technology as what we offer to the marketplace.

Second, they broke down SaaS companies into the following 4 non-contiguous stages of existence:

1. Garage & dorm room: enthusiasts and college students building new experiments
2. Early stage SaaS: professionals with limited funding (credit cards or angel investment) building SaaS from scratch
3. Transitional SaaS: successful packaged software companies moving into a SaaS delivery model
4. Mature SaaS: successful "SaaS from scratch" companies now in late-stage (expansion capital or gone public)

This was a pretty useful segmentation from my point of view - different stages obviously have different business & technology needs.  It turns out that our Windows-based Hosting Solution is a good fit for Transitional SaaS companies, as underscored by the Ellie Mae CTO, but that we have some work to do in the other categories.

Finally, it was clear that in order to be a great platform company in the SaaS world, we need to figure out how to provide broad customer reach for SaaS partners - make a real shift here towards being a sales and marketing platform, providing ways for SaaS ISVs and VARs to connect.  If you have some constructive suggestions on this, drop me a line.

I'll make some notes about what the Indirect Channel for SaaS is looking like before too long - it's going to be very different from the current "sell the customer some hardware, packaged apps, and services and take points on all of those" that we see in the software industry today.

Many thanks to the companies and executives who took spent their valuable time with us - and thanks to Brad Feld for the prompting on getting this topic out on my blog...

GPL (Gates Public License)

Great article at Linux Magazine on recent shifts in Microsoft's stance and dealings with Open Source.  I mentioned similar sentiments last month.  Watch this space - this is only the beginning. 

I met with some very sharp guys last night who are going to launch an Open Source business based on the Microsoft platform - very interesting.  I would like to see a dozen new Open Source applications running on Windows - not just .NET versions of LAMP applications (although I applaud Shaun Walker and where he's taken DotNetNuke!) but the "next cool OSS application", whatever that may be (maybe management scripting for Windows & SQL Server environments?)...

Startups - We are Open for Business

The most common reaction I get when I tell people what I do ("work with VCs and startups to help them get business relationships going with Microsoft") is amazement.  Not surprise - that would be just raised eyebrows - I usually see something between slightly open mouths and the full slack jaw ;)

But no, really, it's true.  I've worked at 5 startups - my first was NetStudio, started by an ex-Microsoft Office Program Manager, and my last was Ofoto.  NetStudio was crushed by Microsoft (remember "PhotoDraw"?) and Ofoto was acquired by Kodak.  They were both significant experiences for me.  In moving to Microsoft, I saw an opportunity to help "do the right thing" for other startups - provide transparency into the plans of the world's largest software company in order to help the world's smallest software companies succeed.

And we are wearing it on our sleeve.  Dan'l Lewin, the head of the Emerging Business team and Microsoft's senior exec in Silicon Valley, was just featured in AlwaysOn.  Cliff Reeves (my manager) and Don Dodge (my teammate) are actively talking about what they really think and do, and how to get in touch with them.  We invest in startups with our hearts and minds, and work hard to make the ones we focus on to succeed; we invest with marketing programs, customer introductions, and product group relationships.  We stay away from investing through direct equity stakes because we've seen that this can be destructive to growing markets.  We are passionate about startups.

Rick Segal pokes some fun at the whole idea but I think in his heart he really likes us ;)

I'm in the process of defining a program to make it much easier to launch & run Software as a Service companies - more entries on this to come - but if you have structured thoughts on what would make a difference to the SaaS ecosystem I welcome your comments and emails.

Do Ants Have Souls?

Nick Carr writes a brilliant piece on people's quasi-religious fervor over Web 2.0.  He pokes fun at Kevin Kelly's We Are The Web (this is from the last page of the article), who writes:

"There is only one time in the history of each planet when its inhabitants first wire up its innumerable parts to make one large Machine. Later that Machine may run faster, but there is only one time when it is born.

You and I are alive at this moment.

We should marvel, but people alive at such times usually don't. Every few centuries, the steady march of change meets a discontinuity, and history hinges on that moment. We look back on those pivotal eras and wonder what it would have been like to be alive then. Confucius, Zoroaster, Buddha, and the latter Jewish patriarchs lived in the same historical era, an inflection point known as the axial age of religion. Few world religions were born after this time. Similarly, the great personalities converging upon the American Revolution and the geniuses who commingled during the invention of modern science in the 17th century mark additional axial phases in the short history of our civilization."

I see the web as distributed intelligence as well... but ants are also a collective intelligence and I haven't heard anyone waxing poetical about them.  We can gain great understanding of our own behavior by observing clustering and learn from others we might choose to emulate; we can make each other smarter through our own sharing of information; and as much as we observe the blogosphere it is patently ridiculous to call it a "mind".

We've heard from the geeks on the Web and spirituality, but where are the philosophers on this one?  What would Jerry Fodor, Noam Chomsky, and J. S. Mill would say about this?

There are deep flaws in Kelly's analogy - stolen from Kristina Lerman and Francis Heylighen - between hyperlinks and neural synapses - not limited to the complex interactions and regulations of neurotransmitters, their reuptake in the synaptic cleft, and second messenger systems.  People making these analogies are, not surprisingly, physicists and mathematicians attracted to biological metaphors - not biologists, who would refuse the trivialization of these systems into one-way hyperlinks.

So let's leave well enough alone - Web 2.0 is fine and it makes good sense to build new companies and technologies around the capability of each user to add depth, content, and behavior to the application ... but let's leave biology to biologists, religion to theologists and keep technology where it belongs: in the domain of tools and not spirits.

Now, back to technology...

Don Dodge writes very insightfully about Web 2.0 - if you haven't checked out his blog yet, you should see what a veteran of Napster and Groove has to say about where it came from and where it's going.

Rick Segal of JLA Ventures has a funny, on-point perspective on the hype for startups and VCs ("Web 2.0 != a check").

Cliff Reeves has his own commentary on Tim O'Reilly and Rick Segal's opinions...

Giving Startups Equal Billing

Bruce Burns talked with me about a month ago about a new market development program he was initiating - the SecureIT Alliance - and now that it's announced I can finally write about it.  More information is here, but careful before you click - it's a Word document.

I got excited about it right away - of the dozen or so security vendors I've worked with in the last few months, all of them had one "ask" in common - "how can we be published somewhere significant as a trusted Microsoft security partner?"  The big challenge in startups is not only differentiating from the crowd, but in turning large partners into channels - whether marketing/lead-gen channels or true indirect sales (even harder!).  In this process the friend-or-foe antigen response among the sales force is often the most dangerous phenomenon.  What we want most in big-company business development is for the default reaction to be "friend" ... much harder than it sounds.  It turns out to be much easier to deal with other big companies in this way than with startups.

I told Bruce I had to have a half-dozen slots reserved for great security startups - we could have an alliance of market leaders and the next-generation innovators, something that would be good for both.  He saw it the same way, so we (Emerging Business Team) jumped to get our partners in.

So I was happy, but not shocked, when Voltage Security, Vormetric, e-Security, Network Intelligence, and Forum Systems accepted our offer and entered the alliance.  These are great companies, and I am really looking forward to this ... and I think the alliance members will only benefit from having more next-gen innovators enter.  If you're a VC-backed security startup and want to join, contact me and we can figure out how to get you started.  There's a community developing here - and it is going to drive revenue and real customer context.

The Greenhouse and the Rainforest

My friend Dmitry Dimov came up with an amazingly powerful idea to describe the difference in how we have to think about the services world vs. the software world.  He calls it "The Greenhouse and the Rainforest".

The Greenhouse is the place where things are well controlled, nurtured, given sunlight and food when necessary, and grown in pots in neat rows.  Things work well because they are designed to work well, and the situation is consistent and manageable.

Step outside the greenhouse, however, and you will see the Rainforest - a vast jungle so vibrant and full of life that lightning storms and lack of perfect conditions cannot contain its progress.  Everything ends up interoperating because it has to; not in the most perfect or designed way but in a way that lets everything evolve independently according to its capabilities.

This is the difference between controlled infrastructure and open infrastructure, between object orientation and prototyping, between XML schema and raw XML documents.

The last thing he said is that if you're operating a greenhouse, you'd better look out because the laws of nature and economics are on the side of the rainforest.

Interesting.