Better build those barricades real high
Josh's thesis starts with the assumption that history repeats itself in a predictable manner. It doesn't necessarily happen that way. A reading of The Black Swan, The Impact of the Highly Improbable would suggest that however improbable, things can be different. That is what many of today's startups are anticipating.
Josh talks about the bottom up nature of today's stealth ventures and yes, there has been limited success. One of the reasons I did not attend O2.0 was because it was painfully obvious that vendors were not going to put out many customers and I for one think it's time for those customers to speak for themselves. Josh also talks about legitimizing:
What was significant was that none of these pioneering efforts – including Apple’s, though Steve Jobs would probably burst a vessel reading this – would really take off until an old-line company lurched into the market and legitimized it, and then grabbed the lion’s share. That company was, of course, IBM, and the IBM PC became, for better or worse, the standard bearer in a market that Big Blue seized through the droits de seigneur that companies like IBM are known to exercise. In the process, IBM bestowed a similar set of droits on Bill Gates, and the rest, as they say, was Microsoft.
While I see the value of bestowed legitimacy, there are four major problems with this analysis.
First, IBM missed its chance and the then tiny Microsoft seized its opportunity.
Second, as I have found in undertaking market analysis, there are huge swathes of business, nearly all in the VSB (Very Small Business) market that are entirely unserved by technology. These are the people who can first benefit from the low cost tools that Office 2.0 hopefuls are talking about.
To give an indication of scale, in my chosen field in the UK alone, we estimate the addressable market is 1.7 million businesses capable of producing revenue in the $800 million to $1 billion range on a single service. Even if those estimates are 50% adrift then it is still a respectable number for a single market.
Second, as Zoli Erdos has said in relation to Zoho - there is no immutable law that says 'winner takes all.' Winner takes all may be true in enterprise markets (and even then I'd question that assumption), but it is not true in fragmented markets. There is no reason in my view why for example Zoho should not carve out a respectable and profitable share. The same goes for EditGrid about which Phil Wainewright provides a solid market analysis where he talks about the new problems EditGrid solve:.
Even though EditGrid claims to offer as much as 80% of the feature set of Excel, far more important is what EditGrid offers that Excel doesn’t have. “We’re going beyond Excel,” said Lee, “— and we really focus on this. Merely replicating what Excel has got is not enough.”
Support for real-time updates by multiple concurrent users is a key differentiation. Another differentiation is auto-refreshing real-time updates from external data sources.
While I believe the VSB market is where we'll see most of the short term action, the top end is not without precedent. Atlassian has shown that you can self fund and create a respectable category. How long that lasts is another matter but right now, The three vendors I mention are doing OK.
Third, those vendors that self fund are almost always driven by a different set of priorities than those who are accountable to their VC masters. I don't care how sweet the VC sounds in his blog or at a funding meeting, the fact is they're in it for one thing - a hopeful x10 reward. Founders are not. They're mostly in it for entirely different reasons. Usually it has something to do with changing the world or some such higher purpose. Making money along the way is desirable but it doesn't have to translate into gazillionaire status.
Finally, the kinds of software we're seeing developed are fundamentally different from that which went before. Josh mentions 'free' when he means cost. When I say 'free' I mean free of constraints. It's an absolute requirement for true collaboration. That's anathema to the enterprise software vendor who wants customers locked in forever. To date, it has done a fine job and, arguably, that's the right thing for back office. If on the other hand you are thinking about value creation in a connected world, then digital freedom takes on an entirely new meaning. In this context, I'd refer you to the panel Stowe Boyd moderated at Office 2.0 and which Dan Farber references.
It is the digital freedom aspect where the true disruption is occurring in what we are seeing right now. Winning that battle is the doorway to a multitude of vendors and applications offering goodness in micro verticals that are currently under served. It will start at the VSB level but gradually work its way up the food chain.
I hope that on reflection, Josh will feel able to join me on the revolutionary side of the fence.