In-Depth
Innovative Web 2.0 Firms Storming the Next IT Battleground
Web 2.0 technology is helping firms bring applications to market faster than ever.
by Carolyn April
If all the Web 2.0 hype has you bathed in skepticism, consider for a moment the success of a company such as Zimbra Inc.
Backed by $31 million in venture capital, Zimbra developed an open-source, AJAX-fueled messaging and collaboration suite called Zimbra Collaboration Suite 4.0. The company spent most of its first three years in stealth mode, rolling out the Web-based suite to customers in February 2006.
Sales have been brisk. In its first three quarters in the marketplace, Zimbra sold four million mailboxes at an average price of between $18 and $35 per mailbox per year. That's cheaper than the Microsoft Exchange/Outlook duo, but exactly what the company's predominantly SMB, services provider and education market customers had been craving. Not too shabby for having just come out of the gates.
"We believe that for Web-based offerings for business we are two years ahead of what's out there," contends Satish Dharmaraj, co-founder and CEO of Zimbra, which is based in San Mateo, Calif., and counts as its CTO former WebLogic and BEA bigwig Scott Dietzen. "It's a tremendous opportunity that's emboldened us and been a large confidence booster."
The Armies Amass
You won't find confidence in short supply in this next wave of software providers. Zimbra is just one of a crop of upstarts seemingly cut from the same Web-based cloth as Google and ready to put a little scare into the folks at Microsoft. Much like the dotcom class of the mid-'90s, the culture at these companies is nimble, innovative, smart and decidedly un-corporate, even by software industry standards. They're also bent on growth and not afraid to take on the 800-pound gorillas in the traditional software industry.
Even Google, clearly the one to follow today with its own cache of online applications from Gmail to Google Docs & Spreadsheets, is humbled by the rate of innovation taking place. Executives there say they expect the next few years to bring a cacophony of applications and technologies to market, and it's impossible to predict which vendors will lead the way.
"There's so much innovation still to come that anyone, really—not just Microsoft and Google—but someone could come from nowhere and just do this in a way that's a little bit different and catches users' attention," says Jonathan Rochelle, product manager of Google Docs & Spreadsheets. "And it's easier to create applications like this than it used to be. Almost anyone could do some interesting things here."
What's Web 2.0?
Though Web 2.0 is a squishy term that some analysts reject as meaningless, there are commonalities to many of the companies popping up like dandelions all over the country. To them, the Web, not the desktop, is the application delivery platform; the browser, not the operating system, is the interface and engine that runs applications; what OS you use (or do not) doesn't matter; and the resulting solutions often exploit such Web 2.0 collaborative and social networking hallmarks as wikis, blogs, and other media.
Then there's the matter of pricing. Forget about CALs and server access licenses here. The Web 2.0 brood favors subscriptions per user primarily and typically charges a lot less than Microsoft does for its packaged software. Upgrades are just a click away online.
"The question comes down to this: When, if ever, will people not spend $400 on a new license for Office because they can go here and it's free?" asks Mark Fauci, president and CEO of Web-based software developer Gen-9 Inc., in Mountain View, Calif. "As soon as people get past that, it's 'Game Over.'"
Fauci's point seems logical. While it's unlikely that Web-based applications will ever substitute for back-end, mission-critical enterprise software, the desktop is another matter. Especially as offline usage solutions improve and SMB customers continue banging down the door for easier to use, low-cost business apps that give them just the capabilities they need—and not a bucketful they don't. To that end, many of the Web 2.0 companies are focusing on core desktop business apps such as office productivity software and a raft of collaboration tools, including those with voice capabilities.
Consider 37signals LLC, a Chicago-based company whose Basecamp application has gained industry accolades for its simplicity of use and clean interface. Of its three Web-based applications, Basecamp has the most relevance to business users, providing for online project management and collaboration capabilities. Then there's Vivox, based in Framingham, Mass., which proffers a peer-to-peer voice technology service that integrates voice, video, messaging and the requisite social networking into a customer's existing data network.
The list goes on: Sharpcast Inc., in Palo Alto, Calif., has a patent-pending technology for synchronization. Its solution lets customers automatically synch any type of file, application or media data across multiple PCs, mobile phones or the Internet. The platform it's looking to patent helps smooth out the online and offline usage of data and applications, which has long been a knock against Web applications and in the past has hindered widespread acceptance at the corporate level.
Still other companies come to mind such as ThinkFree Corp., which offers a full office productivity suite over the Web that's Microsoft Office compatible and can be used offline as well. TimeBridge Inc. has a cool scheduling product that integrates with Microsoft Outlook. Users merely send an e-mail inviting people to a meeting or event, then the TimeBridge product automatically maps schedules and lets the user know who will be attending and whether there is a better date/time.
Many of these applications fall under the category of Enterprise Web 2.0, which analysts describe as Web-based applications that also tie into existing corporate environments via a services-oriented architecture that leverages Web services to create application "mash-ups."
"In the business world, Enterprise Web 2.0 is where you are leveraging existing capabilities in the form of services in the context of Web 2.0 applications," says Jason Bloomberg, senior analyst at ZapThink LLC in Baltimore. "You can see it as an outgrowth of traditional collaboration products, like Lotus Notes or Groove."
A Confident Vibe
The sheer number of Web 2.0 companies was on display last November at a Web 2.0 conference in the Bay Area. Fauci, who attended the show, says that the vibe from many of the companies there was confident—almost to the point of arrogance. But it essentially underscored a bedrock attitude that Web apps of this nature are the wave of the future.
"Fact is, there are alternatives out there now," Fauci explains. "What was remarkable about this conference [was] that the only limitation to developing and distributing products and providing services really is a person's imagination. I mean, the barriers to building a Web site are gone."
Whither Microsoft?
The obvious question is how and/or if any of these companies—or more importantly the shifting business model they embody—might impact Microsoft, particularly sales of its Office suite and wide-reaching collaboration platform and tools. While Microsoft cannot ignore the rising tide of Web 2.0 mania, some analysts dismiss the notion that the Redmond juggernaut is not behind the trend. And no one is taking them lightly.
"For me, Web 2.0 means nothing specific: It's a Google-like world with a lot of Web focus and social networking and I don't see that Microsoft is in any way out of the loop in that trend," says Dwight Davis, industry analyst at Ovum Summit, who points specifically to Microsoft's early player status with AJAX technology.
However, as Davis points out, Microsoft at its core is still a software company that, despite its foray into services with its Live offerings, isn't keen to become a big online services company. Ironically, that's the path they seem headed down with Live, at least to some extent, and that will pose a period of serious adjustment for the firm and its culture.
"Software is still a nice business if you can find a business model that works in this rapidly evolving industry," explains Davis. "That said, the shift to Live definitely makes Microsoft a services provider. And that's a big shift."
Microsoft's Live initiatives are largely a work in progress still. The tricky thing is that Microsoft is stuck trying to justify a foot in both worlds; defining for customers what software they ought to install on a device vs. what services optimally reside in the cloud of the Internet. It's like deciding which child you like best.
Jeff Hansen, general manager of Microsoft Live marketing, says the company is imposing the mantra "Software plus services" to explain its approach to both models.
"We have to understand the customer need," Hansen says. "With the vast majority of things, they do not want to rip and replace and get rid of software and go entirely to the cloud." Instead, he contends, customers will use services to complement and round out what they already have installed today.
The Windows Live offerings are mainly still in beta, but once delivered will address a number of business needs from search, e-mail, messaging and community spaces to contact management and presence, Hansen says. Windows Live also serves as a platform so that third parties can pull the services into their own solutions and customize. Thirdly, there is a monetization component in the AdCenter service.
Office Live now clocks in with 170,000 customers, Hansen says. The service mirrors in many respects the Google Apps for Your Domain service, providing SMB customers with a quick, easy way to construct their own Web site, domain names for corporate e-mail accounts and other basics of doing business online. It does not include, as the name would imply, online services versions of Word, Excel or any other of the core Office applications. The other element to the Live strategy, Microsoft CRM Live, is expected to be available this summer.
Most analysts agree that the proof is in the execution when it comes to Microsoft's Live portfolio, and that it is absolutely essential the company move more software to a services model.
"The challenge for any established company is to balance the cannibalization of your own products and existing portfolio vs. the need to get into new markets. Microsoft is at a critical stage for making these decisions," says Rob Enderle, industry analyst at the Enderle Group.
Build vs. Buy
With the market overflowing with innovative applications from the Web 2.0 army of small companies, Microsoft and Google—and any other large player for that matter—have an opportunity to shop. For some of these small companies, that's exactly the plan as drawn up at the moment they locked in their VC money. Still others, such as Zimbra, won't cop to such an exit strategy, instead insisting that they can build a viably competitive business by appealing to customers' desire for choice and simplicity.
The buying does go on, however. Who can forget Google's $1.65 billion splurge on video-sharing services YouTube last year. Google also laid claim to Web 2.0 companies with more of a corporate bent such as Writely and JotSpot. Writely, a word processor and document management service, now comprises the Documents half of Googles Docs & Spreadsheet; whereby JotSpot gives Google entry into the world of wikis with its Tracker application and development environment.
The lure of being acquired will always loom for the best and the brightest of the Web 2.0 population. But most will tell you they are focused less on acquisition and more on developing better applications for customers to access online.
"We don't have an exit strategy—we call it an exit reality," says Luis Derechin, CEO and co-founder of JackBe Corp. "Our main preoccupation is making sure the company creates the best possible technology and quality, and by doing that we'll be looking at many different exit realities."
JackBe is one of the Enterprise Web 2.0 companies. It recently upgraded its NQ AJAX Framework service from a presentation layer-only development environment to one that enables developers to pull forward services from a customer's SOA implementation. The new online service, called Presto REA Platform, is expected to launch in March.
Like JackBe, Zimbra too could be ripe for acquisition. CEO Dharmaraj is well aware, but says his goal—for now—is to grow the company. He believes Zimbra is positioned well enough to become a force in the SMB market and elsewhere, including places where Microsoft dominates. The reasons: Getting out in front of the concept of the browser as the delivery platform and understanding that the underlying OS does not much matter.
It will be interesting watching any of these Davids as they take aim at the industry's Goliaths over the course of the next few years.
"There are absolutely business model disruptions going on now which are pretty much completely at odds with the culture and way of doing things at Microsoft," Dharmaraj says.
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Carolyn April is the executive editor of features for our sister publication, Redmond magazine. You can contact Carolyn at [email protected]