Redeye VC: 53,651

Every so often you read a post that completely nails something from whatever angle you want to look at it, this is one of those posts.

By coincidence I had a meeting yesterday for an advisory board I participate on with some VCs and other “Valley people”. The meeting was to discuss an upcoming conference for enterprise software and I found myself pretty (uncharacteristically) quiet throughout the meeting because having been back on the operations side of SAP for the better part of 6 months I am forced to admit that the Valley is so radically removed from mainstream enterprise software that it really does leave me speechless.

This is not an easy admission for me to make because I pride myself as being a technology optimist, always able to see the reason why something will succeed as oppose to fail. But I can’t escape the fact that if I walk into the XYZ Enterprise Inc. anywhere in the country (world) and start talking about behind the firewall, well the discussion is going to go something like this: 30 minutes on what is tagging, 30 minutes on what is, 5 minutes on spelling out the url (repeatedly), 10 more minutes on what is tagging and 30 minutes on why anyone would want to do it.

Enterprise software is boring, but there is money in boring. Last time I checked there was a $400 million a year business in selling software and services for the AS/400, a platform that first debuted 17 years ago. My point is not that the AS/400 is something startups should be focusing on, but rather that enterprises live with and continue to support the things that they have invested in, not just the things we believe they should invest in. Maintenance is the primary function of enterprise IT, not innovation and this is antithetical to Valley people like you and me, and especially investors.

Having said all that, the future is not about companies that have been around for years but rather the things that haven’t yet been invented but are built on the things that have been done. Web 2.0 in the enterprise, compliance, open source, collaboration, lightweight process orchestration, security, sensor networks, and many more themes are very meaningful but they won’t be successful just because we collectively will them to be.

My favorite example of this is SugarCRM (a company I very much admire so put your flamethrowers back in the holster). Invariably whenever someone starts talking about open source business applications they bring up Sugar and use it as an validation of open source as an enterprise application disruptor… the only problem with that being that Sugar is a startup that is not profitable and hasn’t been catapulted into the mainstream CRM business arena. Out of the 35,000 customers that SAP has, I am aware of just one SAP customer who has approached us about Sugar integrating with our ERP suite. in other words, whatdayasay we wait for the investors to cash out before we declare victory for SugarCRM.

I don’t mind living in the echo chamber, and I certainly wouldn’t suggest that we get off the hype train or suddenly strive to become boring like so many other industries, but I would caution to not drink the proverbial kool-aid to the degree that we have in the bubblet that we seem to be in for the last year. Per Josh’s suggestion, the 25k users may not tell us anything, and in the enterprise arena it’s not about who’s using your stuff but rather who’s paying to use your stuff.

Over the last several weeks, I’ve been on several phone pitches from west-coast companies that are looking to be the “flickr of XXXX” or “like but YYYY” or “the Digg killer”. It got me thinking – how many people outside of the valley have ever heard of these companies? I asked a bunch of local (Philly-area) acquaintances and the answer came back loud and clear: none – nada – zip. People here have barely heard of Myspace and Craigslist – let alone any of the “hot” Web 2.0 companies.

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7 thoughts on Redeye VC: 53,651

  1. Pingback New Improved Plan Resonate » Repetitive Stress
  2. Jeff, welcome to my world as a public equity investor. 🙂 In our world, you’re almost forced to buy hype before it’s tangible if you want to significantly outperform, but yet the longer you’re in the business and the more you really understand about the industry (i.e., once you personally know or have worked amongs software company employees and executives), the more you realize that innovation = risk, and you better be damn sure you’re getting enough of a risk premium if you’re going to put capital to work.

    That’s also one of the more problematic components of the business from a cost standpoint. As others (Charlez Z for one) have eloquently detailed, there’s a dilemna of innovation when it comes to established software vendors. You have an ever-increasing burden on R&D and SG&A because you are constantly supporting, maintaining and upgrading existing code while at the same time working feverishly on code for new markets; all the while finding ways to differentiate yourselves in the sales/marketing arena.

  3. Is it possible that the net has made innovation too easy? Are there too many tech geeks focusing on ‘web’ projects instead of tech projects? One of the 90’s big talking points was how the web was going to make information more available to people. On of the 00’s realities is that we are in information overload. and Digg and many others are just using web tech to repackage information into ‘easier’? to digest bundles. (So is DailyBlogNews for that matter.) Where is the web tech to DO something better?


  4. Pingback GigaOM : » The Myth, Reality & Future of Web 2.0
  5. Wow – great post. There is money in boring. I’m just keeping my head down and keep on being boring 🙂

    Like you I love new technologies. It’s just a vice for me while I keep on being boring 🙂

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