Why the Enterprise Won’t Solve the Web 2.0 Revenue Problem

I’ve seen a growing number of posts touting the enterprise as the next frontier for web 2.0. Heck, when I was at the Web 2.0 Expo in SF a few weeks back, the vast majority of the companies I saw listed as major sponsors for the event were those whose principal business was enterprise software.

I’m having a hard time buying this argument that most social media tools are primed to take the enterprise by storm. There are three observations that lead me to believe this is the case today:

-Many of the web 2.0 technologies that would be appropriate for the enterprise (wikis, social bookmarking, tagging, web-based productivity suites, microblogging, etc) have relatively small followings in the general internet community. They are still largely the domain of early adopters.
-Most large enterprises are not populated by early adopters.
-Most people who work are interested in finding ways to get their work done faster so they can be done with work sooner and do other things. Learning to do new things is costly in the short term but can payoff in the long term (think about the decision to learn to type, for example).

If these observations are broadly true, I don’t see how the enterprise is going to prove to be a more fertile place for these technologies to take root. If they are to follow the more classic IT route, you’d expect to see productivity-seeking or otherwise curious employees bringing them into the enterprise without support from IT.

Historically there are a lot of technologies that have made their way into the internet via what I’ll call “workgroup initiative” – a small group of employees manage to get the technology into the enterprise by keeping the purchase below some key threshold that attracts attention. Over time, the success of the workgroup implementation spreads and next thing you know someone has an enterprise-wide deployment.

Worse than the fact that these technologies aren’t yet mainstream is the fact that the traditional “workgroup initiative” is not likely to succeed in this market. The reason is simple – most of the good collaborative web 2.0 tools are offered for free and the very small groups and companies who would normally form the bedrock of a larger enterprise sale are opting for the free versions of these products. And you know what? The free versions are pretty good. They’re so good in fact that I don’t think there are a lot of “freemium” or upgrade opportunities available at the moment. For the people who really want these products, they’re finding a way to make them work as is. They’re not waiting for IT to get involved. In some cases, the organizations are so small as to not need the two things that have typically been core drivers for the decision to move to the “enterprise version” of the offering.

Support and integration to legacy systems. Ironically, there are a number of “web native” companies who are adopting these new tools and technologies and they don’t have a legacy backend with which to integrate. In other cases, these new technologies do not actually need to touch older systems – they’re designed specifically to avoid these kinds of interfaces.
Security and authentication. Whether it’s due to more open authentication systems or a diminished perception for the need of security, this doesn’t seem to be a big sticking point hampering usage and adoption. Aside from people getting more comfortable with web-based authentication in general, I think the lack of ties into legacy situations also makes security concerns feel secondary.

So what’s in it for a company or workgroup to buy a more full-featured version of the offering, assuming it’s available? We’ve seen some early answers in web-based productivity suites, but that seems like an isolated case.

I’m stumped as to how most of these social media tools have a meaningful impact on the enterprise (from a revenue standpoint) in the short term.

  • hiten

    You should checkout socialcast: http://socialcast.com

  • Steve

    Some publications DO say that security is an issue…not sure. Or at least, CIO's are worried.

    But as you say, the real issue is lack of a revenue model. Many raised this point in years past, but it never stopped investors. Invariably, the idea was that you didn't have to generate revenue. You just had to build community, since a large collective audience was worth a lot of money because of the potential advertising. If that's broken…who knows?

    What's more, even in the best of circumstances, these social sites are very touchy and easily broken. Young participants are fickle. One bad incident and you're public enemy number one. I'm sure you can recall several well-known incidents in the past year.

  • I think there are only a few monetization solutions for web 2.0 companies. (1) Be highly specialized in your audience. (2) Provide something that people need and are willing to pay for. (3) Get to know your audience better than anyone.

    I do not think many of the enterprise wikis and collaboration suites meet these requirements. I think products that learn to mine the social space to provide intelligent resources to companies like FaceForce are more likely to come out on top.

    http://blog.programmableweb.com/2007/10/15/face