Comments for B2B Opportunities for Web 2.0 Startups

B2B Opportunities for Web 2.0 Startups

2007-09-04T03:48:32Z

The first era of the Web moved from B2C to B2B. However the bubble burst just as the B2B phase was getting into full gear. As we enter the "digestion phase" of Web 2.0, many startups may want to re-focus their efforts on B2B markets. If Chasm models are still relevant (I think they are, but so accelerated that it looks quite different), then B2B niche markets enable the classic strategy of knocking down “bowling pins”.

Note that I am not talking about Enterprise 2.0. That is behind the firewall stuff that is mostly catered to by classic enterprise players such as BEA, IBM, Oracle, HP, SAP; as well as open source.

What is much more interesting is how porous enterprises have become. The corporate gatekeepers in purchasing and IT have lost power, as millions of cubicle dwellers vote with their mouse. This leaves a lot of room for startups to break in without investing in sales guys to knock on CIO doors. Increasingly IT will bless and reinforce services that already have traction within their firms, as opposed to bringing them in themselves. That is a dramatic shift.

]]> This can also be seen as the “consumerization of business”. People act online in similar ways, whether they are working or playing. Services such as Amazon, Google, eBay and others that we all use every day at home, make us question the clunky, behind the firewall systems that we use at work. This plays to the strengths of Web 2.0 startups.

B2B Ripe for Startups

B2B strategies do not have to rely entirely on advertising revenue. Still, advertising to people at work is big business. Traditional B2B Media firms make over $4 billion a year from their online sites and that does not count the pure play online-only B2B sites. But you can also sell subscriptions or make money on transaction fees. In a world where everybody is trying to make money from advertising, a constrain play on other revenue sources could be a good idea.

More importantly, there are more significant pain points to solve in B2B. Let‚Äôs face it, home shopping works pretty well, Google works just fine for most simple home-based searches; and the mix of email, IM and cheaper online telephony makes communication a breeze, even without social networking sites. Sure there is always room for great new entertainment - e.g. You Tube home videos have added a new dimension.

But this is very, very different from the issues that people face at work. Ask anybody at work for 10 major IT related things that really bug them and you will get a good list. So the possibility for significant impact on peoples daily lives is simply greater in B2B.

This intuitive observation is corroborated by a recent survey showing that 31% of B2B marketers allocate 20% or more of their total media budgets to new media platforms, compared with only 5% of B2C marketers. To put it another way, the Visionaries (Chasm speak for early adopters who spend real money to make a substantive difference to their business) are more often found in B2B than in B2C.

B2B marketing is inherently more complex than B2C. Many people may be involved in a decision and the products and services have more variables. This all makes for opportunities for startups that can create simple, usable services to tame the complexity.

Web 2.0 / B2B Partnerships

Traditional B2B Media firms also make natural partners for Web 2.0 startups. B2B Media in the USA alone is a $31.1 billion revenue business and the breakdown of that revenue may surprise those still muttering about "dead trees":

Trade Shows $11.3 billion (36%)
Print Magazines $10.9 billion (35%)
Online ‚ÄúeMedia‚Ä? $4.3 billion (14%)
Other (mostly databases) $4.6 billion (15%).

The growth (28%) and the margins (25%) are in online. If you ask a random sample of B2B Media CEOs about their priorities, it is very clearly ‚Äúonline, online and online‚Ä?. Many now describe their businesses as online with print extensions. In some cases this is delusional, in some cases aspirational, and in a very small number of cases it is already fact. Private Equity money is pouring into the industry and smart, aggressive new management teams are ensuring that the transition to online is real.

This leads to a lot of partnership opportunities. Web 2.0 startups want access to this market and B2B Media want more online traction. However this is not the environment for bleeding edge technology. In Chasm terminology, you will find a few Visionaries and a lot of Early Majority, but not a lot of Early Adopters.

This relative conservatism suits the B2B Media audience demographic, which tends towards the Baby Boomer ‚Äúdigital immigrant‚Ä? that still likes print but also uses new technologies that cross into the mainstream. RSS is an example. RSS is not a subject to quicken the pulse of a Read/WriteWeb reader, but the opportunities created for startups when something as fundamental as RSS becomes mainstream are significant. The future clearly belongs to the digital native generation that grew up with MySpace/Facebook, but in the B2B world the checks are still signed and deals decided by the Baby Boomers with bifocals scanning a print magazine.

Conclusion: B2B could be the answer for Web 2.0 startups

B2B Media executives do not expect a silver bullet; no single feature will transform their business. They do need lots of new features that in aggregate make a difference to their mission of connecting buyers and sellers. This may suit the reality of many smaller, younger Web 2.0 startups that get referred to as a feature (not a product and certainly not a company).

These may not be the transformational deals that startups dream about, but they may be the niche market ‚Ä?bowling pins‚Ä? through which a sustainable business can be created.

Pic credit: Marshall Astor

Comment from Bruce Judson on 2007-09-03

2007-09-04T04:14:48Z

Great and thoughtful post. Businesses are typically faster adopters of new technology and more likely to spend money on valuable, new services as opposed to consumers. So, your basic reasoning is sound.

It seems to me there are two central questions here:

1.) I am increasingly hearing that both large and medium size businesses will not do work with smaller Web 2.0 start-ups. Companies want to know that their business providers will be around in the future--particularly if they are providing a necessary service. So, to the extent prospects believe Web 2.0 companies may fail these Web 2.0 companies become caught in a death spiral.

2.) With regard to the level of competition and the volume of high quality free services that are now available on the Web it feels somewhat like 1999 again. If there are marginal differences between companies providing similar services (i.e. how many video editing start-ups do we need?) then price competition forces these companies literally to start giving away valuable products and services just to get in the door.

Last week, we took advantage of this growing trend by launching "Free For Today" (http://www.FreeForToday.com) which is great for businesses as it highlights the availability of high quality services that are now available free on the Web. However, this trend also suggests that Web 2.0 companies are losing pricing power in the B2B arena.

Your post certainly raises a lot of important issues.

Bruce Judson
Founder, Free For Today.com

Comment from Darren on 2007-09-04

2007-09-04T07:30:11Z

I think the problem is as mentioned in the post above is trust. Business is likely to trust the bigger players as they will be around next year but would you trust your business data and functions with a startup?

I do agree with the b2b market being a good one. Yesterday I was at the dentist and they had a new computer system put in and it was the normal windows looking thing. I was laughing because they were having no end of problems with it. The problems seems to be network related and the messenging function was not working for them. Now if this had been a web20 startup it would of all been browser based and been on line and therefore simple things like messeging would have worked out the box. Also there would be no install needed and therefore the costs to the customer would have been a lot less. So if someone is looking for an idea for a startup theres one for free :p

Comment from Tijs on 2007-09-04

2007-09-04T08:24:28Z

Wasn't it Kawasaki (or Paul Graham) who said that if you were out of startup ideas, just go and take on a normal job for a while and you'll run into 10 problems to solve in the first few weeks.

Comment from Niall Cook on 2007-09-04

2007-09-04T10:30:51Z

Good post, but I take issue with this statement: "Note that I am not talking about Enterprise 2.0. That is behind the firewall stuff that is mostly catered to by classic enterprise players..."

Is it really? I don't think so. Whilst *some* Enterprise 2.0 applications are indeed behind the firewall and sold by the big guys, there are plenty of others that are hosted on a SaaS basis and provided by smaller, more nimble players.

Comment from Graeme Thickins on 2007-09-04

2007-09-04T14:33:11Z

Great post, Bernard....and great catch, Niall. But I still wouldn't want to be a SaaS startup trying to sell into the enterprise -- or, for that matter, into the ubiquitous "SMB." It is extremely hard for Internet startups to get traction selling to businesses when the majority of them are comfortable buying only from recognized brands.

Comment from Niall Cook on 2007-09-04

2007-09-04T17:05:48Z

Ah yes, Graeme, but that all depends who's doing the buying. IT departments, I agree. But end users who can expense it 'under the radar'...

Comment from bernard lunn on 2007-09-04

2007-09-04T21:32:36Z

Thanks for the comments. Yes I meant that opportunity is in SaaS and not behind the firewall. SaaS that is bought "retail" by individuals and expensed is the way in that does not involve CIO level scrutiny. Of course then it has to get traction woth lots of users. That's no different from marketing to consumers. Its the problem domain thats different and not the style of markeing.
Yes it is a problem that a lot of failing ventures just give away stuff as a desperate measure, but they do fade away eventually. In many niches, survival till when the tide goes out is all that matters!

Comment from Bob Warfield on 2007-09-04

2007-09-05T02:12:10Z

Repurposing an existing Web 2.0 offering may not get the job done. There are some fundamental differences in how businesses think that revolve around governance, security, and control. Activities inside the firewall that can grow departmentally may creep in under the radar, but that's an early adopter strategy more than a crossing the chasm strategy. Not that it isn't a good place to start.

Applying Web 2.0 outside the firewall is also interesting, but here the Thought Police will have a lot more to say about what is acceptible.

See my blog post on Trust Fabrics for more thoughts on how business thinks of Web 2.0 differently than consumers:

http://smoothspan.wordpress.com/2007/08/28/business-web-20-demands-a-different-trust-fabric-than-social-web-20/

Best,

Comment from Jim Donovan on 2007-09-04

2007-09-05T05:17:55Z

There are some great examples around. Atlassian (http://www.atlassian.com/ sells behind the firewall stuff to the enterprise enduser, over the web.

I'd caution the "delivery mode" purists getting too precious about what will work and what won't. We'll see lots of different solutions, delivered in many different ways. Functionality, aesthetics, ease of use, peace of mind, value are what's important. The mechanics of delivery are just means to an end and not the end in itself.

Comment from bernard lunn on 2007-09-05

2007-09-05T18:30:39Z

Bob, your post on Trust Fabrics was great, a nice way of presenting the issue. Firewall (you are either in or out) is too restrictive and Social Network is not applicable in the real world of business. I think there can be real opportunities in this area. Lets chat sometime. You can reach me at first name dot last name at gmail dot com. Bernard