EditGrid's distinctive Office 2.0 business model

I spoke to David Lee, chairman of Team and Concepts, the company behind online spreadsheet provider EditGrid, just before he left Hong Kong for this week's Office 2.0 conference in San Francisco. EditGrid's been on my radar for a while so it was good to finally get a chance to find out more about the company and its business model. It's one of those products that stands out above the crowd by delivering functionality that users rate, rather than attempting to create buzz by leaping on every passing bandwagon. (Although on that score, coming out with an iPhone version probably counts as a temporary lapse).

Lee is well aware of a fact that seems to have escaped many other Office 2.0 startups: users aren't going to switch away from Microsoft's flagship productivity applications simply because someone offers the same functionality online. "Excel is sunk cost," he explains. People have got it anyway. So they're not going to turn to an alternative unless it gives them something dramatically different and useful. An online spreadsheet has to solve new problems.

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. Not surprisingly, one of the commonest and most popular applications of EditGrid at the moment is analysis of stock prices. One example he showed me often has 1000 or more concurrent users — it's EditGrid's most popular spreadsheet (see screenshot, below). What it does is show real-time Hong Kong and New York stock prices side by side, converted using real-time currency exchange rates — people use it to help them trade dual-listed stocks round the clock.

The conversation with Lee jogged my memory of a demonstration someone at Lotus UK gave me back in the 1980s. The company was working on a multi-user spreadsheets for corporate networks. This was a product that never saw the light of day. I mentioned this and he confessed that what EditGrid does wouldn't really be possible without AJAX and current browser versions — IE 6.0 (and now 7.0), Firefox, new versions of Opera and Safari. One of the issues his developers have had to deal with is the size of a spreadsheet file — often 1 or 2MB, which isn't practical to download wholesale to the browser. So EditGrid's software fetches the spreadsheet rows and columns from the server as required.

All this technology makes EditGrid's niche much more defensible than other Office suite components. "The spreadsheet is the most difficult component in Office to do," Lee told me. "There are fewer competitors than for Word alternatives or Powerpoint alternatives."

At the same time, it's the one with the most potential, Lee believes. "There are millions of Excel users. If we do online spreadsheets right, it has the potential to become the second most important online application after email," he said.

It's also the one with the most value-add. Document creation is such a basic capability, I doubt you can put any price on it that users will pay. Presentations have revenue-generating opportunities around them such as Web conferencing (I suppose that's an example of the -plus-services bit of Microsoft's software-plus-services vision) but the more you surround it with value-generating add-ons ('razor blades' in marketing parlance) the less you want to charge for the core application. Spreadsheets, on the other hand, add value in themselves. They help people make money.

The (much-needed) revamp of EditGrid's website, which launched Monday, puts extra emphasis on selling corporate subscriptions to capitalize on that added value. EditGrid also licenses its software to organizations that want to host sensitive spreadsheets within their firewalls. But Lee told me that the bulk of EditGrid's revenues come from partnerships, in which vendors pay to include the EditGrid functionality in their own offerings — anything from a deal that adds EditGrid's shared spreadsheet functonality to collaboration platform Central Desktop to a Chicago company that provides historical financial data in spreadsheet format (doing so in EditGrid, using the company's data API and partner API, is much less costly than licensing Microsoft's integration software to push the data into Excel, Lee explained).

Most on-demand vendors focus on being the platform that aggregates functionality from multiple partners for their own direct customer base (Salesforce.com's Apex platform and AppExchange ecosystem being the prime example of this business model). EditGrid's hard-to-emulate technology opens up a reverse opportunity to become the primary provider of spreadsheet functionality to all of those wannabe platforms and many other standalone applications too. Instead of spending to acquire customers, EditGrid signs deals that allow its revenues to grow on the back of its partners' customer acquisition efforts. Nice work if you can get it — and all achieved at the cost of just $1.5m series A venture funding, along with astute recruitment of a Hong Kong-based development team and a low-spending expansion roadmap.