Recession Upside for Enterprise 2.0 Upstarts: Microsoft and IBM a Tough Sell Now

At the Web 2.0 summit last week, the tightening economy left the future of Web 2.0 start-up companies uncertain, not only in the consumer space as ad dollars fluctuate, but in the enterprise too. Enterprise 2.0, the market of vendors that sell technologies such as blogs, wikis and social networking applications to companies, is likely to become more competitive as IT budgets get trimmed.

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One Enterprise 2.0 vendor, Socialtext, emerged during the last recession. Along with his co-founders, Ross Mayfield, the company’s president, realized that social technologies such as blogs and wikis, which were being used heavily by unemployed workers in Silicon Valley to communicate with one another, could be utilized within corporations for collaboration purposes.

In an interview with CIO during the final hours of the Web 2.0 Summit, Mayfield said that while times are tough, it could be an opportunity for Enterprise 2.0 vendors to seize market share from IBM (with its Lotus Connections software) and Microsoft with SharePoint, both of whom, he adds, will cost enterprises more money.

CIO: How does the period we’re in affect the Enterprise 2.0 market and vendors like yourself?

Mayfield: With everything that’s happening with the election and the economy, the one constant is change right now. For our customers, they need to learn how to sense change and what’s happening in the market, as well as the opportunities and the risks that they need to respond to. They need to make sense of the change by collaborating internally around what they learn. And that’s where we come in. Before the recession hit, enterprises were looking at collaboration as a strategic imperative. It was at the top of their lists for initiatives. I don’t think that’s going to change. You don’t get people to be productive by grabbing someone, shaking them and saying “work harder.” You get better productivity by aligning your groups, by having people work together better. So the current environment brings focus, both to vendors like us but to customers as well and where they’re going to spend their energies.

CIO: A company like yours doesn’t have the deep pockets of a Microsoft or an IBM. How do you weather the storm with them in the market? How will you and your Enterprise 2.0 start-up contemporaries fair against them?

Mayfield: IBM and Microsoft are too expensive, but that said, I think there will be a shake out in the Enterprise 2.0 space. I think the larger companies, like Microsoft and IBM, are going to have the cost of their implementations questioned with greater scrutiny than ever before. [Socialtext] is a tenth of the cost [on average] than an incumbent vendor. If you’re not just looking at license, the total cost of ownership for these solutions matters more than ever. You’re going to have less people to operate and own. You’ve seen the studies about trimming IT budgets. In these turbulent times, you need a Software as Service (SaaS) driven model. In that model, you can deploy a tool that will give you strategic advantage without a lot of upfront cost relative to traditional licensed software. You you can rightsize the application for the amount of users you’re ready to experiment with until it delivers the right kind of value. It’s subscription based, so you’re in a shorter commitment than traditional licensed software.

CIO: What did you learn from the last recession? And how will this one be different?

Mayfield: I don’t think the pace of innovation in Silicon Valley will necessarily slow down. That’s partially because of prior investments. During the last recession, enterprises just stopped buying. It was the fear economy. They only invested in security and compliance. I don’t think we’re in a period at this moment, where security, compliance and maintenance are the most important things. There are some necessary evils, but I do think technology is about gaining competitive advantage, and right now smart companies will make smart bets in technology. When it comes to intranet and extranet producitvity, and platforms that help people innovate their way out of a recession, I think that’s a real opportunity for enterprise 2.0.