I have been thinking lately about the meaning of strategic software in the enterprise. I have had a number of conversations about interesting, useful applications for business, which were usually shrugged of since they aren’t “strategic”. I think the holy-grail of “being strategic” in enterprise software is a mistake, and explains why enterprise software has fallen out favor with VCs. It is impossible (or at least very, very expensive) to become strategic, and it takes a long time. Strategic, at least in these conversations, means inventing some piece of software (infrastructure or solution) that is so central to the needs of the organization that not having it become a critical showstopper. Becoming strategic moves the buying decision to the senior executive level at the customer, rather than through projects or end-users. It requires a skilled sales force and longer sales cycle – but has much, much higher revenue per sale.

The Web (especially 2.0) is different. The adoption mechanism of a software solution is viral – users enticing other users to join in the fun. This seems to be diametrically opposed with the strategic software paradigm – this type of adoption has to be simple enough that end-users can use the software and get value without the need for a centralized decision, IT department or skilled sales force. Since users use applications (and not infrastructure) viral adoption happens at the application, not at the infrastructure, layer (while most strategic software is in the infrastructure, not application layer). Of course apps drive infrastructure, so this type of software adoption in the enterprise will have a profound effect on enterprise infrastructure and architectures (e.g lets see how SOAP vs REST plays out for services). This type of adoption scares the pants off CIOs who crave centralized control and walled gardens.

This is the crux of the Enterprise 2.0 dilemma for software startups – how to get viral rather than strategic adoption in the enterprise. The best way to do this is by creating network effect applications that have value to enterprise users stand-alone (of course initially delivered over the internet as a service). If you have such an application, I’d love to hear about it.

Stumble it!

This entry was posted on Friday, June 1st, 2007 at 3:08 am and is filed under VC, Venture Capital, enterprise 2.0, software, strategic, viral. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.