Last week Mixergy’s Andrew Warner hosted an interview with Zoho co-founder, Sridhar Vembu. Zoho is an Indian-based company offering a suite of web-based office tools. During the interview it seemed to me that Andrew was surprised. These guys weren’t sticking to the “classic” silicon valley start-up model. While most silicon valley startups focus on one goal and bring it to perfection, this company was constantly diversifying and going for lesser quality, higher quantity. They also weren’t looking for VC-funded meteoric growth.
Zoho is not a typical startup company.
While it has one foot in the startup world, the other foot is deep within the corporate world, where the software giants of yore dwell.
In the software industry it is common practice to differentiate between B2B products and B2C products.
B2B stands for Business to Business, meaning the company sells its products to other companies who need the product for their own business. Famous examples for B2B are SalesForce (CRM), Cognos (BI, now owned by IBM) & Rackspace (cloud services).
B2C stands for Business to Consumer. These companies get their revenue directly from end-users. Famous examples are Google (search, mail), Amazon (shop), Dropbox (backup).
More often than not you could draw some concrete differences between B2B and B2C:
- B2B usually surrounds infrastructure (“horizontal”) while B2C usually surrounds service (“vertical”). For example, my computer backups are done via Jungle Disk, an end-to-end backup service. Their storage is based on Rackspace, which is a cloud-services company (and they now own Jungle Disk, as a matter of fact)
- B2B deals with significantly less customers, meaning more intimate marketing and customer support
- B2B must have a purchase involved, whereas B2C may sometimes allows an ad-based revenue mode.
First, lets look at some of the key differences between enterprises and regular companies:
- Enterprises are big. With thousands of employees, deployment and training is costly. Products are expected to smoothly integrate out of the box with the enterprise’s infrastructure
- A substantial amount of enterprise software is intended for intra-organization communication processes
- Enterprises don’t produce software as their main line of business. They typically have an in-house development section subordinated to non-technical management
- Enterprises are constantly trying to minimize the (very large) number of vendors they are engaged with
- In enterprises it is common that punishment for error prevails over reward for achievement. Enterprise executives are conservative in nature
With these constraints in mind, you won’t be surprised to discover a market substantially different than B2B:
- Conservative market + preference of few vendors leads to a “big player” market of experienced companies
- Integration is a dominant key feature
- Out-of-the-box solutions preferable to generic platforms
- Single-vendor suites preferable to best-of-breed (even at significant loss of quality)
- Long term pre-sale. Long term contracts
- User experience not very important (decisions made by a executives who will never use the software themselves)
This must be true, at least the last bullet, otherwise I cannot explain how the hell Lotus Notes is still around. I have recently had the dubious pleasure of working with this mutilated piece of software. It is like Outlook done by a Geocities teenager back in 1995.
The companies and technologies used in B2E are anachronistic and very much different than those common in B2B and B2C:
- Windows servers, .NET (and that god awful ASP.NET)
- ERP solutions (Oracle, SAP)
- Custom machines (HPUX, mainframes) and in-house storage (EMC, NetApp)
- Ultra legacy code (COBOL!)
Companies such as Zoho aren’t afraid to pull down their sleeves and take a shot at the enterprise market. Another such venture is semi-automatic conversion of COBOL to Java/.NET, done by several companies. An Israeli startup named XIV built a commercial storage rack that uses commodity hard drives instead of specialized parts. IBM bought them for $350m.
What I find common about these enterprise companies is that they are either American old-timers or outside of the US. Most successful Israeli companies I know of are B2E (Amdocs, Comverse, Mercury, Checkpoint), and some are B2B. Few are B2C (I know of Catch Media, Shopping.com, Mirabilis [ICQ]). I guess it’s not very sexy, toiling on endless integrations with enterprise software. Some claim that “Working on nasty little problems makes you stupid”.
Stupidly rich, at times.