Financial results from on-demand collaboration vendor WebEx got a warm welcome yesterday on Wall St, which bid up the stock price 21% over the course of the day. The reaction was probably down to simple financial metrics: WebEx maintained its growth momentum, increased its operating margins and said it expected more of the same next year. But financial analysts on the company's earnings call the previous evening were more interested in prising out fresh information about the company's recently announced WebEx Connect platform, even though CFO Mike Everett confirmed that its contribution to revenues is "not material yet" and is expected to be "very, very modest" in 2007.
The transcript of the earnings call reveals that analysts were probing to see how much of a rival Connect will be to Salesforce.com's AppExchange ecosystem. Their questions drew out some useful nuggets of information and a number of similarities to AppExchange, although of course the most glaring disparity at present is that Connect is not yet on public release and currently has just seven partners whereas AppExchange is already almost a year old and has more than 250 partners. [Disclosure: WebEx is a client of my consulting business — more here].
Based on the answers given in the call transcript, here are eleven things to know about WebEx Connect — and below, my take on the most important thing the analysts didn't ask about.
Connect aims to tap third-party R&D
VP of products Gary Griffiths explained: "The whole idea of Connect is for us to take that whole world of innovation from third parties and easily connect it to our world of web collaboration ... WebEx Connect actually simplifies life for us here, and frankly allows us, from an R&D point of view, to spend other people's money."
It builds on an existing API
CEO Subrah Iyar: "The investment ... is actually I would say version 2 or version 3 of our API program we've always had. We've always had this concept of connecting the WebEx core collaboration services to other partners. So ... over time the expense will not be in the fact of adding more partners, but in of course, making the platform more robust, richer."
There will be a toolkit
Griffiths: "The real work in Connect given that it's a development platform is in the APIs and the software development kits that our team is working on now and expects to have the first release out to the public later this quarter. That's really where the bulk of the R&D effort comes down, making it simple for third parties to get on the platform."
The end game is handing control to business users
Iyar: "The whole idea of the WebEx Connect platform is to make the addition of new partners seamless, easy, really fast, and, in fact be able to be done even by — over time — by ordinary business users. That's the focus."
Signing up partners comes second to getting it right
Iyar: "If ... you go to AppExchange and you look at — again, these are early attempts — it's easier to sign up partners than make sure that the partners are successful and actually making money. So I would say the 2007 focus is obviously to add a critical mass of partners to keep this going but even more so ensuring that it's a successful ecosystem where people are driving business. And then over time be able to scale it in 2008 and 2009."
There's no limit to the ambition
Iyar: "Yes, it is conceivably possible that it will go in thousands, but volume [it]self is not the bigger challenge. Ensuring that the successful ecosystem is the bigger challenge."
WebEx is ready to invest in Connect partners
Iyar: "We are actively looking at ways we could accelerate the business and have made some minor investments in small companies as well to help them build complementary solutions to WebEx Connect ... obviously we want to be careful. We have to pick the areas we want to go deep, right, and build partnerships, because, we want to be best of breed in web collaboration, and spawn best of breed in various complementary areas."
WebEx may acquire/compete with partners
Iyar: "... from a perspective of a distribution channel you have to be careful of what you — what your role is and what your partner's role is. But again, as traditional distribution channel you have a house brand as well as other brands, right? So I think there will be opportunity at the right time to see and some of those house brands may be OEMs. I don't see this as that different from what happens in the traditional world in distribution."
Connect will have billing and revenue sharing
Griffiths: "... this was a great chance for us to test all the processes to see everything from the development process right through bringing it to the market, selling it, the billing, the revenue sharing, and you will see as we go through the successive quarters continued progress in the sophistication of that interface and the operations behind it."
WebEx will work with SIs — but not yet
Iyar: "... there would be an opportunity for us to build those kinds of [systems integrator] relationships as we roll out Connect and some of the more heavy-duty business process work flow kinds of solutions and traditionally Salesforce has been more in that area. So we should see that."
Partners will join rival ecosystems too
Iyar: "Well, the question of exclusive comes out but that's not our philosophy ... many of our partners are already on AppExchange for example, but they see it as complementary. It's another way to get to market ... people look for multiple avenues, and we are very fine with that. We think it actually helps the market."
There are some differences but quite a few similarities in the above compared to AppExchange. Of course WebEx still has to bring all this to market and show it working in practice, but clearly the company is preparing to be a significant ecosystem player in the Web 2.0 era.
One reason Wall St analysts give credence to WebEx's ambitions is the massive reach of its registered user base — now standing at 2.2 million (and that's not counting casual attendees on web meetings and web casts — around 5 million a month). But in their eagerness to question the company's chances against Salesforce.com, the analysts missed asking about a potentially even bigger opportunity: to challenge Google, Microsoft and other players in the Web office market. WebEx's WebOffice division this week fixed an important hole in its "asynchronous collaboration" suite with the addition of a Web-based mail product. The WebOffice division was formed after the acquisition in 2005 of Intranets.com, which provided an online company intranet service for small businesses. WebEx Mail is now an optional extra to the core suite of document management, group calendar, database, task manager and web meeting capabilities.
Director of product marketing Macario Narine and product manager Dave Mahoney were keen to talk up the business credentials of the newly enhanced service when I met with them earlier this week. It has public folders which allow certain types of mail to be shared by groups of users, and tiered administration so a business can make global settings for contact lists, spam filters, whitelists and blacklists. It's also fully integrated with other applications in the suite such as the calendar. Such features they felt differentiates the service compared to its competitors, especially Microsoft, which as I reported last week has not helped its chances by starting off on the wrong foot with beta users of its Office Live service. There are some nice Web 2.0 features in the AJAX interface too, such as a 'live search' function which brings up search results as you type in a search term. Here too the business angle was emphasized as the function searches attachments as well.
The WebOffice user base has continued to grow since the acquisition, and brought in revenues of $16 million revenues in 2006. At least WebEx can console itself that its WebOffice suite has made more money in the past year than either Google Apps for Your Domain or Microsoft Live Office. But what WebEx needs to do to stay in the game — and has not yet achieved in any material sense — is to promote the suite to more of those 5 million-plus monthly WebEx users. No doubt the introduction of WebEx Mail is an important milestone in the gameplan. It will be interesting to see if the company can now move forward with capturing a larger slice of the fast-expanding web office market opportunity.