Innovative Web 2.0 firms are storming the next IT battleground.
- By Carolyn April
If all the Web 2.0 hype has you bathed in skepticism, consider for a moment
the success of a company like 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 uncorporate, 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."
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.
Oh -- and then there's 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. And 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 like office productivity software and a raft of collaboration
tools, including those with voice capabilities.
There's 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
Still other companies come to mind like 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."
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."
So 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
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
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.
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. But
still others, like Zimbra, for example, 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,"