Stritar's chronolog

The final destination, part 1: technologies and concepts enterprise IT will have to adopt

Mon, 02 Jul 2012 18:38:09 GMT

In the past years, we've witnessed a very important transformation: the consumerization of information technologies. Billions of connected users living their life online, overwhelmed by millions of information systems that have been tailored to suit their every need and desire. Google, Facebook, Apple and Amazon came a long way with their products and infrastructure, but the enterprise isn't losing any time. Learning from the new paradigms and adopting new funky technologies, that have traditionally been developed in corporate laboratories. Can the Fab 4 also predict where enterprise IT is headed? And what will it become?

A few weeks ago I participated in a panel for PI-PL on Ljubljana's Faculty of Economics, where I was asked this exact question: where do I see corporate IT in 10 years. A very hard question indeed, but the more I thought about the it, the clearer it became. Enterprise data, software and technology will sooner or later integrate everything. Simple as that. But to fully understand how this will happen, we must first try to identify the most important trends that have shaped information technologies as we know them today. Yes, most of them don't have that much to do with the enterprise. But things are changing.

Cloud technologies

While cloud computing may have been present in the enterprise for quite some time, it's still pretty much dominated by web players like Google (mail, docs, etc.) and Amazon (hardware), who are also flirting with the enterprise. Who wouldn't? There are massive benefits for businesses to move their stuff to the cloud, from scalable physical Infrastructure to higher level Platform or Software as a service information systems.

Perhaps the most important thing the Cloud achieved was to render technology infrastructure irrelevant. It doesn't matter any more, what kind of environment you use. What type of security, infrastructure, servers and network you have installed. You can outsource these things to others, and it will be much easier and cheaper, while all your migrating-to-a-bigger-thing problems will be solved with a swipe of a credit card. I was fascinated that Microsoft now offers Linux based servers on their Azure cloud services, which can be changed to Windows with a click of a button. Architecture doesn't matter anymore, and this fact helps IT departments to focus on more important things than system administration.

APIs, mashups, platforms and ecosystems

Heavily connected with the whole Cloud concept, data and information never had it easier to travel from one place to another. System migrations (moving data from one information system to another) and system integrations (connecting multiple information systems into one) have always been one of the biggest challenges of IT. But the web didn't have as much resources as the enterprise, so it had to simplify things. By offering APIs (Application Programming Interface), web applications allowed others applications to work with their data in an easy way. Mashups, hybrid information systems built on top of others, were born.

Pretty much every noteworthy web service has its own API. This helped a lot of them to become a platform. You know, like Facebook and Twitter, who have created an ecosystem, where thousands of other applications live around them? Soon, similar concepts will dominate the enterprise too. There are already players like Salesforce, who not only offer business-oriented Software as a service solutions, but the also a Platform for other developers to build services on top of their services. And since everything is so open, all this data can easily be integrated with other information systems or transferred to a different environment. Modern information systems don't have problems with understanding each other, but IT departments have problems with understanding information systems, since different, more business oriented skills are needed to support these integrations.

Mobile devices and new distribution channels

More than ten years ago, when I was an Information Sciences student, there was still a debate going on about the benefits of web based enterprise information systems over traditional Client - Server architecture. In the end, the Web won, mostly because distribution was so easy, you make the update on the server, and every user gets it instantly. Employees need nothing but a browser. They are acquainted with the environment ever since they started using Hotmail, and took it for their own ever since they started using Facebook.

But today, it seems the Web is losing its ground as the leading infrastructure, since a new technology came into town. Capable mobile devices, like smartphones and tablets, now enable access to information systems from anywhere, anytime in real-time. Besides, they arrived with their own app markets, which enabled a whole potential for software distribution, and perhaps more importantly, for software billing. You give a fair share to the store owner, who also promotes your solution, and you can freely focus on developing and marketing the product. It's true that mobile apps may not be as flexible as web applications, since the users need to install the updates (even though this can also be achieved by combining native mobile and hosted HTML 5), but the trend is clear. Apple already has its Mac store, Microsoft Windows will follow soon. Distribution of mobile and Software as a service information systems is becoming trivial.

Big data and The internet of things

Traditionally, banks, retailers and financial institutions have been the organizations that operated with the most data in the world. Well, things are changing, and we can only wonder who owns the most bytes today: is it Google, Facebook or someone else? Since there are less transactions than there are interactions, we can estimate consumer oriented information systems with billions of users are the biggest in existence. While this data is accessible to the enterprise to some extent, there are also hundreds of other systems the enterprise or its employees use, and they all create massive amounts of data and information, which needs to be integrated into a wider picture.

Not only that. Today, there are already are more connected devices that we have initially anticipated. These devices (cameras, sensors, tools, etc.) create even more data, which the enterprise needs to process. This trend of wired gadgets is called The internet of things, and together with the large amount of interconnectable information systems businesses use, points to one important trend: the typical enterprise was never faced with so much data and information, which somehow needs to be integrated and understood in an interdisciplinary way.

New ways of doing things, on a higher level

In the mean time, these consumer oriented (B2C) web corporation not only became a few of the biggest technology companies in existence, they've also invented new ways of how to get things done. From Google's 20%, to flat organizations without management, more and more companies (not only startups) set out to revolutionize how business is done. In the service oriented society, creativity is important, but so is productivity and the ability to ship fast. Done is better than perfect.

With new types of management concepts, such as lean and agile, modern organizations are becoming more and more flexible. Not only in doing things, but also in switching from one technology to another. These companies have developed their own way of thinking about which software to use. And it probably has a lot to do its price, how fast can you start using it, how scalable and connectable it is, and how fast can you dump if for another. IT requirements are moving to a higher level, and information systems have become just pieces of a puzzle that needs to be completed.

Design and user experience

Design and user experience probably still don't have that much to do with enterprise IT, but they are very much worth mentioning nevertheless. Face it, users are becoming more and more demanding, and software developers need to make better and better software. Even though the above mentioned facts are probably the dominating factor for the choice of which information systems the enterprise will use, design and user experience matter more and more.

Businesses have always had problems with implementing new software, educating the users, going through the whole status quo change. But beautiful and useful software penetrates faster. People perceive beautiful things to be more useful, and it's the whole intuitiveness and usability of software that helps them adopt something without too much resistance and problems. Some software vendors already found out user experience is the new competitive advantage, and in the end it may be the thing that tips the scale. But the whole point behind it is that I can see better, more clever and detailed, information systems force out older ones on an even faster pace. The whole world of information systems need reinvention, and user experience design will be the science behind these upgrades. Benefits are becoming more important than features.

Social, crowdsourcing and gamification

More than 3 years ago, I was very excited to present a concept we have been developing in Neolab on Days of Slovenian IT. I called it IT 2.0, since it meant integrating social services into enterprise software (at that time, Enterprise 2.0 was more widely used for stand-alone social software such as wikis or corporate blogs). The truth is, I didn't get the chance to sell it well, and in the mean time, disruptive social services managed to fully find their way into the enterprise. But business won't stop here; there are many other fascinating things the internet has invented that can fully be applied to corporate environments.

Gamification, the art of using gaming mechanics in non gaming environments, is getting more and more claim beyond the web. Both for motivating employees, as for motivating clients. We all like to play, so why should work be any different? And we all like to participate in something bigger, that is why crowdsourcing, where people coproduce something, can bring such exciting results. Can you see where I'm headed?

We are all human, and in the end, behaving on a very basic level. Sometimes we perform better, sometimes worse, and we all hold hidden potential even ourselves aren't aware of. That is what software in the workplace can sometimes help us discover, and it's something more and more businesses are aware of. Social, gamification and crowdsourcing are only a few approaches that can make us feel better and more motivated, and they are all concepts that enterprise IT will adopt sooner or later. Behind every company, there are only people.

The final destination of enterprise IT

These are the concepts and technologies that will shape enterprise IT of tomorrow. And with it, new challenges will emerge, together with new profiles of people, who will understand and use all of the above. These profiles, such as data scientists and business analysts, will help enterprise IT do what it was destined to do: Integrate life, the universe and everything.

But that's another story. Coming up soon.

Check out the complete The final destination series.

Why I don't believe in these crazy technology company valuations

Mon, 21 May 2012 08:14:15 GMT

The debate about the potential second technology bubble is all over the media. One of the first milestones that will determine the outcome of this story happened on friday, when Facebook went public. As opposed to other (smaller) web IPOs of the past years (LinkedIn, Groupon, Zynga, Yandex), the price on the first day stayed on the same level. This was to be expected, since Facebook received the valuation of 100 billion dollars. To put that in perspective, that's around half of Google's value, and about the same value as Amazon has. But Facebook makes 10 times less revenue than Google does, and its revenue growth is slowing down. Was Facebook valued too high? It seems so, and some analysts are already saying that most of the stocks were bought by institutional investors to keep the share price above 38$.

Facebook is not the real problem

But Facebook is not the biggest problem. It is the leading global social service, and an established company with almost 1 billion registered users, besides making quite a hefty amount of revenue ($3.7 billion in 2011). I'm more worried because of others, who make little or no revenue at all. Today, Rovio is valued around the same as Nokia, with yearly revenues of around $100 million. Instagram, with practically no revenue model, was bought for $1 billion, which is 12.000 times what Kodak is worth. A bit silly.

In technology, specially the web, companies come and go. The lifespan of services is short, and people don't hesitate to switch to a new, better alternative, and they switch fast. Remember Excite? Yahoo? MySpace? They were on top of the world not more than a decade ago. Draw Something, which was bought by Zynga for $200 million, already lost millions of users. How long does will it take for people to get bored with Angry Birds? Foursquare, Twitter, Pinterest, Instagram, even Facebook?

Still looking for a revenue model? Consider this.

Most of these companies have millions of users, and that is probably what fuels their valuations the most. Even though, quite a few of them are still looking for their revenue model. But what if the market simply isn't big enough for everybody? What if that is the real problem behind not being able to find a revenue model? I did some research, and here's what I found out:

the projected global spending on online advertising will be around 97$ billion in 2013 and $113 billion dollars in 2014 (source, source)
around half of that will be spent on search, around half on display (source)
projected revenues of social media ad spending in the US are around $10 billion in 2016 (source)
global mobile ad spending in 2016 will be around 15% of total online spending, or $22 billion (source)
apps and in-app purchases will generate around $46 billion in 2016 (source)
estimated size of the virtual goods market in 2015 is around $5 billion (source)
Google makes around $40 billion a year (source)

Perhaps I'm missing something, but these facts tell me that all of these companies have a market of around $150-$200 billion in 2015. ALL of them, including all the local players. Not really that much when you think about it. Sure, it's a different industry without production, but for comparison, Apple's yearly revenues are about $100 billion.

Trying to understand the math behind valuations

I went even further, and analyzed the performance of these companies; how much they earn, how much they are worth, and how many users they have. Then I tried to compare the price / sales, sales / users and price / users ratios. Since a few of high-valued companies basically have no revenue (Instagram, Foursquare), it seems that they are worth mostly between $20 and $100 dollars per user.

	Sales ($b)	Price ($b)	Users (m)	Price / Sales	Sales / Users	Price / User	Source
Amazon	50	100	/	2.00	/	/
Apple	110	520	/	4.73	/	/
Draw something	0.05	0.2	10	4.00	5.00	20.00	revenue, value, users
Facebook	4	100	900	25.00	4.44	111.11	revenue, value, users
Foursquare	/	0.7	20	/	/	35.00	revenue, value, users
Google	40	200	1000	5.00	40.00	200.00	users
Groupon	2	8	115	4.00	17.39	69.57	users
Instagram	/	1	50	/	/	20.00	revenue, value, users
Kodak	6	0.07	/	0.01	/	/
Linkedin	0.5	14	130	28.00	3.85	107.69	users
Microsoft	70	260	/	3.71	/	/
Nokia	38	11	/	0.29	/	/
Pinterest	0.05*	1	12	20.00	4.17	83.33	revenue, value, users
Rovio	0.1	9	1000**	90.00	0.10	9.00	revenue, value, users
Tumblr	/	1	30	/	/	33.33	revenue, value, users
Twitter	0.14	10	100	71.43	1.40	100.00	revenue, value, users
Yahoo	5	19	170	3.80	29.41	111.76	users
Zynga	1	7	150	7.00	6.67	46.67	users

Data for publicly traded companies are available on MarketWatch.
* - estimate
** - downloads

Google manages to make the most from its users, around $40 per user per year. How much can the others make in the long-run, put together with the estimated $150b market size? How many can even earn anything before their users leave? The equation somehow doesn't add up.

These companies are great, but still…

I'm a big fan of the internet, I truly admire these companies, and use most if their services. But I still think this is madness. Didn't we learn enough from the first dot-com bubble? Today, we're a part of the social / mobile excitement, what can we expect tomorrow, the semantic excitement? The internet is maturer than this, and nobody will take it seriously, if it will behave so manically depressive. Ups and downs every few years surely don't work that well, and another bubble is definitely something the we don't need in these unstable economic times. So, please guys, take it a bit easier. don't be too greedy and enjoy what we have.

Perhaps the best thing that could happen at this point is for Facebook to lose about 30%-50% of its value. That could put some sense into the frenzy, before it goes to far. The situation surely needs more consideration.

You know what's cooler than $100 billion dollars? $50 billion dollars.

The future (of software) is in platforms

Sun, 08 Apr 2012 16:26:11 GMT

I don't know if you've had the chance to read What Would Google Do? by Jeff Jarvis. You should, it's a very powerful book, even though it's been written a few years ago. Things have changed a bit since then, when Google was on top of it's game, but that doesn't mean the ideas presented in the book aren't more actual than ever. One of the chapters that made the biggest impact on me was the one about platforms and distributed systems. Google managed to conquer the world of Web 1.0 by being decentralized, allowing others to embed YouTube videos, Google Maps and Ads anywhere on the Web. This orientation provided the fuel for Google's further development and growth. Today, this way of thinking is not a competitive advantage anymore, it's becoming a necessity. As you will see, current online market leaders of various industries are not those who provide the service, they're the ones who provide the platform.

Platforms rule because mashups rule

Platforms, as opposed to products and services, allow others to build on top of them. Not thinking about control and centralization, they provide the basic building blocks other can use to develop even more products and services. In the world of Web 1.0, this meant using an embedded YouTube video instead of having your own video player, but Web 2.0 has been heavily defined by ecosystems of services built around other services. With APIs these platforms provide, developing high-level mashups has never been easier from the technical point of view, and this type of architecture benefits everybody. The platform vendor gets additional developers that extend and market it's service, while the satellite mashup gets the distribution channels, users and data they need to get somewhere faster. A modern synergy packed symbiosis.

Oren Michels, CEO of Mashery, which provides API as a service, talking for Silicon Gardens in Kiberpipa

The technology platforms

Today, pretty much all of the technology market leaders are platforms. Google allows various levels of use of it's services, from embedding things to using different APIs. Facebook's games and other apps ecosystem is huge, with providers such as Zynga already gone public. Twitter and it's massive amounts of tweets generated in real-time produced the Twitterverse - an array of fascinating high-level services. Foursquare, a geo-location network allowed other interesting concepts, such as augmented reality and games, on top of its service. Amazon offers you to build your own store, and Apple's and Android's mobile app stores are hosting hundreds of thousands of apps developers can build, deploy and distribute in short amounts of time. Salesforce offers a platform for enterprise IT, WordPress for writing and blogging tools. I could go on, but you get the picture. Platforms are the future, because they evolve collaboratively, with thousands, if not millions of people co-creating them.

A massive Salesforce conference in San Francisco, which I've visited on my Silicon Valley trip (thanks Davorin!)

The real-life platforms

Not only in software and technology, platforms in real-life are also becoming more widespread. The whole Apple iPad/iPhone gadgets ecosystem is one of the most obvious cases, where various providers offer sound systems, dongles, add-ons and other accessories that upgrade and make the original item even more appealing. Nespresso and Dolce Gusto are another interesting products. Nestlé provides the platform - the small coffee pads, which they are pushing to the market, while different manufacturers make coffee machines and other complementary products. The platform becomes more useful because of its satellites, which make the platform even more successful, turning this relationship into a virtuous circle.

Coffee machines by various vendors for Nestlé Dolce Gusto

So what should I do?

Firstly, you should embrace this way of thinking and understand what's happening. Platforms have been around since the beginning of software, even though you maybe haven't thought about them in such a way. Computer architectures, Operating systems, Programming languages and Development environments are all platforms, on a more basic level - but they provide the foundation which others can build on top of. Other platforms are build atop of these and others atop of those. Platforms are everywhere, and with every new level, they are less technically, and more conceptually oriented. Think about where you fit in.

Next, find a platform that suits what you are trying to do. Personally, against many odds, I believe more in Twitter than I do in Facebook, since Facebook is trying to keep as much as possible inside its service, while Twitter acts distributed. One of our projects is Twenity, a game we've developed around Twitter influence measuring.

If you're feeling lucky, you might want to become a platform on your own. While this may be almost impossible to do, it's something I wish I will have the chance to do someday. Neolab already has its own development framework, and if we do manage to make enough surplus or find an investor that will take us down this road, I'll be the first one in line. That is, if we don't decide to join an established platform and rather build on top of that.

Things have changed. The future (of software) is in platforms. Are you already a part of the show?

The great technology wars and the transition of software from B2B to B2C

Mon, 14 Nov 2011 11:25:14 GMT

The epic article by Fast Company about the technology wars of 2012 provides great insight into what's happening in Silicon Valley and software in general these days. Four players, or the Fabulous Four, are mentioned to be the real market and innovation leaders: Amazon, Apple, Facebook, Google. Each of these companies found its place where it dominates and invents new business models, and each one is a role model for new generations of technology startups and leaders. And if you didn't notice, all of them sell software to consumers, not other companies (in case of Google and Facebook, you are the real customer, but advertisers pay for it). Software is becoming more and more consumer-oriented, and the clash of these titans will determine the outcome, the software of the future.

The Fab Four

Who are these fantastic companies? Amazon is the leader in e-commerce. Apple reinvented mobile devices and content distribution. Facebook is the largest social network in the world, a big brother in the making. Google is the biggest web and search company.

I almost won't argue with the choice of the Fab Four. To me, these are truly the technology companies that are moving things forward. To be honest, the list is bit of an understatement for Microsoft, even though that doesn't change the fact I'm trying to put out here. These four corporations (their software at least) are more B2C (Business To Consumer) than B2B (Business To Business) oriented. Even Microsoft, with its XBox, Bing, Windows (Phone and Tablet) programs is shifting focus to consumer markets.

The stock market comparison

The B2B software market is still huge, but electronic commerce, online advertising and the economy of scale of billions of users spending a few dollars is slowly outperforming more expensive business solutions sold fewer times, even if they are deployed millions of times as operating systems, products or services. If you check out the following charts, you can see information about market capitalization, revenue and historical price change of these companies (Facebook is not public yet, but it's IPO could be around $100 billion) compared to traditional technology companies such as Oracle, Microsoft and IBM. The numbers are pretty interesting (source: ycharts).

Market capitalization of Amazon, Apple, Google, IBM, Microsoft and Oracle in the last 10 years (as available)

Change in market capitalization of Amazon, Apple, Google, IBM, Microsoft and Oracle in the last 7 years (as available)

Revenue of Amazon, Apple, Google, IBM, Microsoft and Oracle in the last 10 years (as available)

Change in revenue of Amazon, Apple, Google, IBM, Microsoft and Oracle in the last 8 years (as available)

Change in stock price of Amazon, Apple, Google, IBM, Microsoft and Oracle in the last 7 years (as available)

Why does it matter

As a software architect, I see major shifts in user-centered software compared to business-oriented software. Even if you check Gartner's strategic technologies of 2012, it becomes more and more obvious what's happening:

software is made for and "sold" to users, not management anymore
product cycles and new releases are reaching Warp Speed
the focus is shifting from features to benefits
user experience is becoming more and more important
technology used is getting less and less important
system and data integration is becoming trivial with web services and APIs
there's a new generation of devices that run software (smartphones and tablets, the internet of things)
scaling and performance is not measured in Whateverbytes, but in number of users
new distribution channels (marketplaces) are going beyond the Web
platforms and mashups have emerged, where ecosystems of software are being build around the core service
online software is more disruptive and innovative, business software follows (from Web 2.0 to Enterprise 2.0, adoption of gamification in the enterprise, etc.)

Adaptation

Some business software companies, such as Salesforce.com have managed to adapt to this situation, offering a platform others can upgrade and develop on. We're adapting too, on a smaller scale. Neolab is still mostly focused on B2B software, since that's where we've built our market. Sure, we did a few web portals and are working on deploying our own user-targeted service Twitfluence, but it's business-oriented software that we generally work on. But that doesn't change the fact we are fully aware that the concept of software is changing, and we are on top of it, trying to embrace these trends and include new paradigms in corporate infromation systems. Social, user-oriented, user-friendly. Knowing that people are behind every company.

Software is maturing; consumers are getting more and more demanding, brands behind the software are getting more and more important. And as the Web expands even further, this fact will become yet more obvious. It's you and me who are the ones who are "buying" software. Which is great, since in the end the ordinary people, not corporations, will be those who will decide how software and technology of the future will look like. Interactive, useful and fun. Here we are now, entertain us.

Apple's strategy of becoming a content provider might simply be ingenious

Sun, 19 Sep 2010 15:38:22 GMT

Apple is an interesting corporation. Some love it, some hate it, but the fact is, Apple has become the biggest technology company in the world. An interesting turn of events, from a company that nearly went bankrupt a few decades ago, to a player that we know today. Looks like Steve Jobs really is one of the greatest visionaries of our time, as his comeback in 1996 together with the introduction of the iMac and the iPod managed to turn things around for Apple. Looking at these facts in 2010, the iPod may turn out to be even more important than it seems, creating a digital music revolution and providing the foundation for Apple's strategy of becoming the world's dominant commercial content provider.

Apple was always known as the great innovator, and all of its products and services(!) strive towards perfection. This vision of making things people want and need (or don't need but still want anyways) has moved beyond hardware and software, towards a new direction – providing both free and payable content in any form. And because of the loyalty and fanaticism of their customers, they are one of the few that are actually able to make this work on a global scale. And be aware content is more than just actual news, it's multimedia (music, videos), it's software, it's books, it's just about everything, and Apple was the first to notice this potential and put it into action.

It all started with the iPod (2001) and its biggest sister, the iTunes. Today, iTunes is the largest music retailer in the US, with over 10 billion songs purchased. With the introduction of the iPhone (2007), its biggest sister, the App Store became one of the largest software marketplaces in the world, selling more that 6 billion applications in two years. The next gadget, the iPad (2010), was launched with a bigger sister too, the iBooks, which is currently messing up Amazon's Kindle operation, even though the success of this story is still hard to estimate. A few weeks ago, Apple also introduced the new cloud powered Apple TV (2010), which will enable selling (actually renting) fresh HD movies and TV shows using the iTunes platform. And to complete the circle, there are rumors Apple will also provide a subscription service for newspapers, supposedly the iNewsstand, which could actually become the biggest of them all.

So, how did a "personal computer" company come to this position? If you ask me, the answer is simple – Steve Jobs. This visionary was able to predict where the future will go and if you look at the situation today, when this business model is proven to work, it's really trivial. When personal computers were on the rise, it was obvious business and sales will be in hardware and software. But in the present information era, where billions have access to the web, overloaded with information, it's almost obvious that business and sales will be in providing content: data and information in all forms.

Besides Apple TV, Ping, a social network on top of iTunes, was also introduced on Apple's last "mass". I won't speculate on how cool it is, because I haven't tried it and am not sure if I will. But the fact is that iTunes has 160 million users and generates a lot of revenue. Ping actually represents a first integrated wide scale social market place, which probably is the future of social electronic commerce, so it will be interesting to see what will happen. No matter how cool, adding a Facebook Like button on Amazon simply isn't real social commerce.

That's Apple, once a computer manufacturer, today a diversified technology and media corporation with great know-how in electronic commerce and providing content, while pioneering (again) in social commerce. Besides owning a complete set of platforms for providing and selling different types of content, many of them market leaders, they also offer beautiful hardware and software infrastructure for their implementation. Something we will be seeing in most living rooms of the future?