Noodle IV: Web 2.0 Pureplays vs. Enterprise Vendors: A Real Battle?

Web 2.0 Pureplays vs. Enterprise Vendors: A Real Battle compares the value propositions of Web 2.0 pureplays and traditional vendors.

Dennis Howlett, writing in the Irregular Enterprise on 19 March, made the case that enterprise IT just didn’t get social networking and start-ups were going to make some serious hay by bypassing IT and selling right into the business. He had also included a YouTube video in which CIOs commented on the question, “Is Enterprise 2.0 hype or happening?” which provided some light-hearted snippets about a profound subject. There was some valuable information in the post, but I found that it was approaching the issue from within the old paradigm (“battle on two fronts”), and therefore largely left money of the table. I’ll peel the onion here, so get ready to well up.

Paper Tiger

I agree with the post, The End of Software, that start-up pureplays are much closer to understanding the potential of the Web 2.0 disruption in itself. However, the truth is that CIOs’ challenge is to adopt disruption appropriately, and the post implied that pureplays would be better adoption partners than enterprise IT vendors. That is short-sighted: CIOs may be intellectually interested in Web 2.0’s disruption, but their focus at the end of the day is introducing disruption so that their companies get its nutritional value without indigestion. The question isn’t as much whether pureplays have better technology and approaches than enterprise vendors; it’s how can CIOs take the best of both parties to manage adoption.

Unlike pureplays, enterprise software vendors have legacy products, processes and people to manage, hence similar sensibilities to their enterprise clients and their position behind the curve in terms of functionality. As I wrote in Neither David nor Goliath during the depths of Web 1.0, the outcome of “the battle” Howlett mentions will be an optimization of pureplay and enterprise vendor offerings. CIOs would be as remiss in blindly taking an enterprise vendor solution and pretending they’re doing enterprise 2.0 (i.e. SharePoint) as they would in going pure pureplay. It’s a false battle that doesn’t address the real issue, which the waning of the importance of enterprise IT, which I’ll address briefly below.

“Enterprise” Vendors’ Evolution

It doesn’t sound like Howlett and Wainewright were current on IBM’s offerings. Howlett quoted Phil Wainewright in Enter the Socialprise: “… enterprise computing is still designed for the stovepipe model in which every transaction took place within the same firm… no connection with the social automation that’s happening between individuals.” Although this is largely true as a generalization, it does not appreciate IBM’s progress in adopting a more open architecture, which enables its offerings to expose and consume business services, whether in or outside the enterprise. This means that the old vision of “enterprise” software vendors doesn’t quite fit IBM as it used to. Let me qualify these remarks by saying that I have not used IBM’s offerings in the enterprise context, but I have researched and demoed them.

A couple weeks ago, I covered IBM’s just-launched Enterprise Adaptability Practice (see Enterprise-class Social Networking Is Closer than You Think—Resetting the Adoption Clocks). In my opinion, IBM clearly gets the open model, and they are invoking Web 2.0 services pervasively. That said, the main weakness in enterprise vendors’ offerings is that they are merely enterprise. Lotus Connections can’t fold external organizations or people into its features, which is clearly the direction enterprises need to go. The CIO’s question is, “How far do I have to go, and how fast?”

Enterprises desperately need to open themselves up and become more cross-boundary, so out of the gate an enterprise-only social network has one arm tied behind its back. As I wrote in Quick Take: Enterprise Social Networking Crystal Ball, such networks will produce incremental value, and the larger the enterprise, the more potential value. But breakthrough value will only come by pervasively engaging external experts and customers in innovation. That said, CIOs can realize significant wins with well-done enterprise social networks, but they also need to push the envelope with pureplays. I was very impressed by IBM’s vision and solution.

Pureplays, with some notable exceptions (Socialtext, for one), just don’t understand enterprise sensibilities enough to significantly displace enterprise vendors, but any CIO who doesn’t bring them in to fully understand boundaryless access and collaboration is taking a huge risk. They have an important role in driving innovation, and both players add something unique to the enterprise. Smart CIOs will use a portfolio approach and play with both parties.

Web 2.0 and the Waning of Enterprise IT

The whole enterprise IT discussion sounds very Web 1.0 to me. The real issue is that the economics of the enterprise are breaking down; the enterprise is like a submarine that’s finding itself operating at or below its design depth: since Web 1.0, transaction costs have been steadily falling outside the enterprise, diminishing the validity of its economics (loosely, an enterprise can force standards on its processes and increase efficiency through economies of scale). Now, Web 2.0 is enabling innovation to take place outside the enterprise. Innovation is accelerating outside and barely operating inside, quickly increasing the pressure on the sub’s hull.

By no means am I saying that the enterprise will disappear, but it will shift to being a platform of resources that can be used by customers and delivery networks outside, as I wrote in The Transformation Imperative. John Hagel and John Seely Brown also have a prescient vision on this (also see The Only Sustainable Edge). IT is shifting from being the primary enabler or driver of innovation to having a relatively diminished enabling role. Relationships and innovation (i.e. people) are in the foreground because standardization and virtualization of software, hardware and services will make IT like electricity: vital, yes, but clearly support infrastructure for the real value contest: relationships, collaboration and constant innovation.

Pervasive SOA (I know, we’re far from there yet, but trends are obvious), virtualization and services are the swan song of the IT-as-focus era. This won’t happen overnight, but the direction is clear. CIOs should partner up with CMOs because the latter will largely determine the enterprise’s appetite for cosying up to customers using social networks. The CMO will be a good thermometer for taking the enterprise’s temperature for Web 2.0 adoption. S/He can help the CIO decide how to optimize the vendor mix (how far how fast to pursue pureplays).

In any event, CIOs should prepare for a rapid shift in their CMOs’ attitudes. I predict that CMOs will rapidly change their attitudes toward Web 2.0 once the value prop becomes more obvious this year and next, depending on industry. CIOs can contribute significantly by pushing the envelope like JP Rangaswami did at Dresdner Kleinwort. At a minimum, they should do high visibility pilots with pureplays to understand the potential of Web 2.0 and build their enterprise’s native skills with it.