Today's news from One Laptop Per Child was about layoffs due to difficulty in raising money. But the mission remains, and the core driver remains technology, as one of the commentors points out:

"You have done a great job so far, revolutionizing Moore's Law for X86 computing, initiating the industry-wide rush to sell netbooks in the developed countries, thus accelerating the shift to cheaper and lower-power computing.

"The next step I think should be shifting the PC and laptop to the ARM architechture. This would lower cost and lower the power consumption further. And it would accelerate also the industry-wide shift from the wasted CPU cycles and empty processing of X86 to the optimized embedded process and the complete removal of all bloatware from computers. How soon could XO-1.5 or XO-2 be ready with an ARM Cortex A8 core, running some Linux OS with a Sugar interface in collaboration with Google Android as software platform?"

OLPC is not the only outfit with this mission. In India, Novatium has the same mission, and it has a for-profit model. It has been pointed out regularly for a long time that selling to the "bottom of the pyramid" is a good business strategy. It is now more apparent that these strategies will impact developed markets as well. The current downturn will accelerate this as individuals and companies seek to reduce costs.

The Google Price

In manufacturing, we have the China price. In outsourcing, we have the India price. In software-as-a-service, we now have the Google price. Reading the Forrester report on the cost of managing email, what jumps out is how radically lower the Google price is: $8.47 vs. $20.32 for the lowest-priced alternative. Despite all the chants of "You get what you pay for," most businesses will take that differential pretty seriously. Google has set the new benchmark. Every vendor that sells for more will have to spend a lot of marketing dollars explaining why.

Skype on an Unlocked Mobile Device

The rumor (based on a broken embargo, it appears) that Skype Lite will be available on Android and Java-enabled phones gets us closer to the deal we all want: Skype on an unlocked mobile device. Like many people, I don't use a landline at work anymore. I use Skype and a mobile phone. So I am okay when in my office, my home, or a friend's office or home where I can open my laptop and use Skype.

But my mobile bills are way too high. I was intrigued by Validas' offer to reduce mobile bills by untangling their complexity. But I really want a more radical option, and Skype on an unlocked phone gives me that. I get free Skype-to-Skype and cheap Skype-Out calls wherever I have Wi-Fi. Wherever I don't, I use a pre-paid mobile calling card. No fixed costs. Big mobile bills... gone! Hint: don't buy shares in telephone companies.

Don't Worry Apple, There Will Always Be a Luxury Market

Aston Martins may not be selling so well today, but iPhones and Macs are flying off the shelves, and they are surely not cheap. Affordable luxury -- something that makes you feel good but does not really break the bank -- does well in a downturn.

But this is a small counterpoint to the massive main trend of cheaper products driven by both technology and the need to sell to the billions who are joining the global economy. Now, if we can only figure out how to enable billions to join the global consumer economy without doing worse damage to the environment, we will be in great shape. Come on Mr. Tata, what about an electric version of the Tata Nano?

1. Top 10 Semantic Web Products of 2008
2. Top 10 International Products of 2008
3. Top 10 Consumer Web Apps of 2008
4. Top 10 RSS and Syndication Products of 2008
5. Top 10 Mobile Web Products of 2008

Our Criteria

In no order of importance (all three are critical), we looked for three attributes for the top Enterprise web products:

1. Innovation: This is the time for firms that opened up entirely new market categories through disruptive innovation to reap the rewards.
2. Traction: We cannot put a cool new company whose product is just emerging from beta into our top 10. Winners should already have major traction in the market.
3. Longevity: This is a mix of profitability and deep pockets; an ability to outlast the competition.

The market categories that feature in this post are: platforms (with 2 companies making the list), wiki (2), web office (2), CMS 2.0 (1), project collaboration (1), web conferencing (1), and contact networking (1). Note that we didn't consider micro-blogging, RSS or mash-up products, as we consider those to be features rather than products - in the Enterprise market at least.

Drum Roll... and the List

Note: to avoid ranking them (which is impossible because they compete in different markets), the winners aren't in any particular order.

Amazon Web Services (AWS)

Who would have thought that a bookseller could have generated such enthusiasm and loyalty in the developer community? Eons ago, Microsoft won big by winning the hearts and minds of developers. Amazon does that today better than any other company.

Platforms will do well in 2009, though not many will. The platforms market is a race for scale, requiring massively deep pockets. We chose two, but they have lots of very strong competitors breathing down their necks.

Basecamp

37Signals, maker of Basecamp, is a lot of peoples favorite start-up (even its competitors feel obliged to say nice things about the company). The way they do project collaboration is almost as important as what they do. Their "less is more" elegance has become the mantra of developers everywhere. The one issue? It keeps its products separate. You have to choose which one to use. Vendors with suites could take advantage of this.

Confluence (Atlassian)

We are seeing major wiki adoption in the enterprise. It is simply a much easier way to collaborate than by putting lots of complex technology under the general umbrella of the Intranet.

It is hard to pick winners here. The space is crowded. In fact, we picked two for this category (MindTouch is the other). Atlassian seems a safe bet for enterprise, having traction and a good breadth of products. It is also nice that a vendor from the southern-hemisphere (Australia) made the top 10.

DimDim

This is our small-vendor recession play. In a recession, companies travel less, so they use web conferencing more. They also cut whatever budgets they can, and web conferencing isn't spared. DimDim's proposition is incredibly simple: web conferencing for less cost. The one issue? It is still a bit raw, and the company will need deep pockets to satisfy what we expect will be a growing demand.

Google Apps

Google Apps is one of Google's more mature offerings outside of search. It's a huge market, and Google has major traction. The move from PC-based office software to web-based "office tools" accelerated in 2008 and became increasingly mainstream.

The one issue? Google may be spreading itself too thin. Unbelievably, its flagship Gmail is still in beta and suffers from reliability issues, and some modules (such as for spreadsheet) still seem a bit raw compared to those of competitors.

Wordpress

This choice may be controversial. We see a big market in the replacement of first-generation content management systems (CMS), with simpler SaaS tools that have blogging at their core. Automattic's Wordpress is growing in reputation as the platform that delivers this the best.

Deciding between Movable Type and WordPress was a really tough call. Movable Type (which we use for ReadWriteWeb) has major traction in Enterprise accounts. In the end, we chose WordPress based on the quality of its continuous innovation. Salesforce, though, has recently entered this market from a totally different angle. We see CMS 2.0 integrating what are currently stand-alone features: social networking, video, and so on.

LinkedIn

This is a controversial pick. We see this as the "contact networking" space, which will be part of next generation CRM. We deliberately avoided the "social networking" label. Enterprises don't care about being social: they care about managing contacts to make money. Most people would not categorize LinkedIn as "enterprise." It would have been easier to include one of the many vendors that sell white-label enterprise social-networking software. We didn't do that for the same reason we didn't consider micro-blogging as a category: its more a feature than a category, much less a product or company.

But contact networking leader LinkedIn has tackled two of the biggest issues for enterprise: acquiring customers and hiring employees. And it has a huge networks-effect advantage over any of its competitors. It could easily create an "internal enterprise LinkedIn." This is LinkedIn's game to win or lose: it holds the cards in the contact graph deck.

MindTouch Deki

This is the other winner in the crowded wiki ++ space. You can tell a market is in the tornado-high growth stage of the market adoption cycle when it has really tough head-to-head competition. In this particular market, MindTouch and SocialText are banging heads. It looks like a close fight, too close to call really, but we had to make a call and went with MindTouch. It also competes with Atlassian, but not head to head.

We added "++" to "wiki" because the leading vendors are rapidly incorporating micro-blogging, social networking, forums, and other collaboration tools. Integration is key, so we see this market moving towards suites, but with wiki at the core.

Force.com (Salesforce)

This company defined the SaaS/cloud space with brilliant marketing and relentless focus. While it is clearly dominant in the SaaS CRM space, it is also a serious contender in the bigger platform space. If we had to pick one reason why Force.com is a major platform winner, it would be because of its focus on making its partner eco-system succeed. The one big issue? Its core CRM market is being undermined by two serious low-cost competors: SugarCRM and Zoho CRM.

Zoho

Zoho has so many apps, that we can't pick just one! But it is our David-vs-Goliath winner, so deserves to be on this list. At the beginning of the year, the web office market looked crowded. It now has Zoho (David) vs. Google (Goliath), with Microsoft, as always, not to be counted out. In fact, Zoho has yet another Goliath on its hands because it also competes with Salesforce in the CRM space, which points to its one big issue: it is spread very thin, and some of its products show it from their lack of depth.

Limiting It to 10 Is Hard!

This being a time of "back to basics," we had to forgo the luxury of an 11-winner list. We certainly did not allow ourselves a list of 100 companies, which would have kept everybody happy. So we know we have almost certainly missed your favorite company: we expect and hope you'll tell us in the comments.

We were looking for companies that would still be considered success stories one year from now, and hoping to avoid the embarrassment of hailing as a great success a company that crashes and burns in the harsh economy of 2009. That means our top 10 winners should be profitable, or very close to profitability, today. These are companies that would attract a big fat premium if they were to be acquired, even in a lousy market, because they would not be desperate for an exit and could afford to wait out the economy until markets and their valuations become healthier.

We're playing it safe with our top 10 list for one reason: because that is what buyers will be doing.

This is a guest post by Paul Miller, a Semantic Web and Cloud Computing expert who was most recently a Technology Evangelist at UK technology company, Talis.

Not merely some game of buzzword bingo on an unprecedented scale, cloud computing is coming into its own, and it is becoming increasingly easy to see the opportunities for a significant shift in the way we access computational resources and to recognize that the walls separating organizations from their peers, partners, competitors, and customers will become ever-more permeable to the flow of data through which those distant machines will compute.

There are many areas to understand that have already been ascertained in related fields, and many ideas unique to this space to discover. One early challenge is to carve a distinct niche for the place we are moving towards with such rapidity. Far more than "just" a cloud, it is an evolutionary cycle beyond the playful flippancy that diminishes so many of Web 2.0's poster children, and it is difficult to relate to mainstream misconceptions of the semantic web's complexity. Yet this new place is greater than the sum of its parts. So do we sustain the already ephemeral notion of cloud computing? Do we appropriate the "next big thing" label of Web 3.0? Or do we need a fresh attitude towards business computing's apparently insatiable desire to apply labels?

First, though, let us consider the shape of this thing that is taking on more substance with each passing day.

Reporting on last month's Web 2.0 Summit in San Francisco, CNET's Dan Farber notes that "the cloud was omnipresent," before closing his report with the observation that "cloud computing won't be very compelling without what is variously called Web 3.0 or the semantic web."

Indeed.

For too long, the emphasis in cloud computing circles has been almost exclusively on the provision of rapidly scalable and ad hoc remote computing on top of cost-effective commodity hardware. The cloud play by Salesforce, Amazon's EC2, and the rest has been dominated by the implicit assumption that these cloud-based resources are an extension of the corporate data center; a way to simply reduce the costs of enterprise computing.

There is value down this road, but there are bigger opportunities.

Nick Carr is among those who fear that a small number of players may come to dominate the provision of cloud resources. He outlines many of these arguments in his latest book, The Big Switch, and more recently had an interesting discussion with Tim O'Reilly on the topic. Justin Leavesley shares some of Talis' views on the economics behind all of this over on Nodalities, broadly agreeing with Tim O'Reilly:

"It's pretty clear that utility cloud computing is highly capital intensive so it should come as no surprise that there are powerful economies of scale to be had. But the bottom line is that you are talking about plant and power. These are rival goods, scarce resources that are created and consumed. This is not different from many utility industries with one exception: the distribution network has global reach, already exists and is very cheap compared to existing utility distribution networks. It is a lot cheaper to access a computing resource on the other side of the planet than it is to send electricity or gas across the globe... [So] what is to stop economies of scale turning this into a global natural monopoly?

"Actually, unless there are some large network effects, quite a lot stops single companies ruling entire industries. For a start, without network effects, economies of scale tend to run out: the curve is usually U-shaped. Telecoms, gas, rail companies have strong network effects from their infrastructure -- it makes little sense to have duplicate rail networks or gas networks in a country. Utility computing does not have this advantage because the distribution network is not owned by them."

Continuing the conversation, Carr summarizes the usual widely held perception of cloud computing nicely:

"The history of computing has been a history of falling prices (and consequently expanding uses). But the arrival of cloud computing -- which transforms computer processing, data storage, and software applications into utilities served up by central plants -- marks a fundamental change in the economics of computing. It pushes down the price and expands the availability of computing in a way that effectively removes, or at least radically diminishes, capacity constraints on users. A PC suddenly becomes a terminal through which you can access and manipulate a mammoth computer that literally expands to meet your needs. What used to be hard or even impossible suddenly becomes easy."

This is quite true, but it continues and further entrenches the misapprehension that the cloud is little more than an adjunct to the corporate data centre, a misapprehension that we shall get down to challenging in a moment.

First, though, there is a growing recognition that today's market leaders will inevitably need to become more interoperable if this business segment, and they, are to grow. The proprietary nature of their offerings today may allow them to innovate ahead of the standards process (which will be shaped in large part by the lessons they learn), and the relatively high cost of switching to a competitor today may give each the critical mass on which to invest and grow; but the characteristics of the current market are clearly the characteristics of a nascent market: computing's new Wild West. As so often before, standardization, true competition, mainstream adoption, and commoditization will all follow as we move towards phases 2 and 3 of Gartner analyst Thomas Bittman's intriguing analysis of the "evolution of the cloud computing market." Similarly, Erica Naone offered a useful overview of cloud computing's open-source component in Technology Review last month. None of the projects she covers are a significant challenge to Amazon's EC2, Microsoft's Azure, Salesforce's Force.com or Google's App Engine... yet. But together, they help to keep these commercial entrants honest and remind all of us that switching costs can be brought very low indeed if the pain of the status quo becomes too great.

Writing "Welcome to the Data Cloud?" for ZDNet in October, I began to explore the important role that data could and should play in the cloud:

"Just as 'we' used to duplicate and under-utilize computational resources, so we do something very similar with our data. We expensively enter and re-enter the same facts, over and over again. We over-engineer data capture forms and schemas, making collection exorbitantly expensive, whilst often appearing to do all we can to limit opportunities for re-use. Under the all-too-easy banners of 'security' and 'privacy' we secure individual data stores and fail to exploit connections with other sources, whether inside or outside the enterprise.

"In a small way, the efforts of the Linked Data Project's enthusiasts have demonstrated how different things should be. The cloud of contributing data sets grows from month to month, and the number of double-headed arrows denoting a two-way linkage is on the rise. Even the one-way relationships that currently dominate the diagram are a marked improvement on 'business as usual' elsewhere on the data web; even in these cases, data from a third party is being re-used (by means of a link across the web) rather than replicated or re-invented. Costs fall. Opportunities open up. Both resources, potentially, improve. The strands of the web grow stronger."

It is here, in the use and reuse of data, that the potential of the cloud will be realized. Back to the previously cited conversation between Nick Carr and Tim O'Reilly, O'Reilly himself comes very close to saying so:

"In short, Google is the ultimate network effects machine. 'Harnessing collective intelligence' isn't a different idea from network effects, as Nick argues. It is in fact the science of network effects -- understanding and applying the implications of networks.

"I want to emphasize one more point: the heart of my argument about Web 2.0 is that the network effects that matter today are network effects in data. My thought process (outlined in 'The Open Source Paradigm Shift' and then in 'What is Web 2.0?,' went something like this:

1. The consequence of IBM's design of a personal computer made out of commodity, off-the-shelf parts was to drive attractive margins out of hardware and into software, via Clayton Christensen's 'law of conservation of attractive profits.' Hardware became a low margin business; software became a very high margin business.
2. Open-source software and the standardized protocols of the Internet are doing the same thing to software. Margins will go down in software, but per the law of conservation of attractive profits, this means that they will go up somewhere else. Where?
3. The next layer of attractive profits will accrue to companies that build data-backed applications in which the data gets better the more people use the system. This is what I've called Web 2.0.

It's network effects (perhaps more simply described as virtuous circles) in data that ultimately matter, not network effects per se."
(my emphasis)

Talis CTO Ian Davis would appear to agree, commenting:

"People need to be investing in their data as the long-term carrier of value, not the applications around them... The data is more likely to persist than the software, so it's important to get the data right and take care of it."

Salesforce CEO Marc Benioff, too, used his Dreamforce User Conference this month to move a company long associated with the "data-centre extending cloud" firmly in the direction of embracing data and the network. As Krishnan Subramanian noted on Cloud Ave before the keynote:

"Till now, the Force.com platform served business users to develop apps that can be used internally within an organization. They have to tap into Force.com APIs from outside platforms to offer customer-facing web apps. With the new initiative, it becomes easy for customers to allow the Internet users to 'interact' with their data."

Over on VentureBeat, Anthony Ha had more:

"Salesforce.com wants to become an even big player in the cloud computing market with a new service called Force.com Sites, which allows companies to host public-facing web applications in the Force.com platform. That means Salesforce --- nominally a maker of customer relationship management (CRM) software, but also an increasingly important platform for business-related applications --- is moving closer to direct competition with cloud giants like Amazon Web Services and the Google App Engine."

Locked away within an organization and only accessed by that organization's applications, data cannot be put to full use. Much of the value in each individual datum lies in comparing it to other measurements, in delving into detail, and in pulling back to observe the bigger picture.

Organizations that believe that either the big picture or the detail resides in their own systems alone are woefully misguided. Even the most specialized, proprietary, and confidential of data only reveal their true value when put in context, and that context is all the richer when informed by numerous perspectives.

Cloud computing, and the various SaaS movements, have finally brought us to a place where the fiercely guarded and tightly delineated boundaries between the organization and those outside it may become permeable in ways that should benefit the organization rather than threaten it. Data is just a resource. In the terminology of Geoffrey Moore, most data are often mere context, and there are savings to be made both in reusing the data of others and in re-selling necessary context to those prepared to pay. Some data, of course, is core to the business, and this may continue to receive the same reverence and protection that we misguidedly apply to the entire database today. Even here, though, the opportunities afforded by (controlled?) sharing may outweigh any desire to maintain data protectionism.

The language of Groundswell offers opportunities to go further, to embrace and exploit the behaviors and motivations of customers and the wider web.

There is clearly far more to say in clarifying this view of both the components and the whole, but at over 2,000 words, this post has perhaps gone on long enough.

For now, then, we should conclude by asking what role the semantic web has to play in any of this. The semantic web, with its unadulterated recognition of the primacy of the web's hyperlink? The semantic web, designed from the outset to convey context and relationships derived from data spread across the web? The semantic web, supported by technologies that operate openly and on the scale of the web?

Isn't it obvious yet?

Returning to the Web 2.0 Summit with which we began, another presentation was from Kevin Kelly, founding editor of Wired Magazine. Steve Gillmor and Nicole Ferraro reported on his presentation at the time, and the video was subsequently shared online, echoing Kelly's earlier presentation (which I greatly enjoyed), in which he argued:

"You have to be open to having your data shared... which is a much bigger step than just sharing your web pages or your computer."

Yep, here we go, on a journey toward Kevin Kelly's "World Wide Database," which will take in a lot of the shifts facing enterprise computing along the way.

This is a guest post by Paul Miller, a Semantic Web and Cloud Computing expert who was most recently a Technology Evangelist at UK technology company, Talis.

Use of hosted software as a service (SaaS) is growing like crazy, and most products are constantly evolving. What is the best strategy for a tech startup: share its product road map (i.e. its development plans) with the outside world, or keep its cards close to the chest?

Mike McDerment from FreshBooks argues very convincingly for keeping it to yourself:

1. Commitments weigh you down (if you promise something and change your mind later)
2. Keep your competition guessing
3. Purchasing decisions get delayed (as people wait for the next great version)
4. Don't set expectations too high
5. You can bank on surprise and delight

I feel strongly that sharing your product road map to gain (and actually use) feedback from your clients is the best product strategy for any rapidly evolving software company.

We have always been fans of the "Agile" development methodology, and when we embarked on developing Wild Apricot back in early 2006, there was no doubt in our mind how to go about it. Instead of trying to design and develop a "perfect" product (which would probably take a year or more), we created a list of "user stories" (product features) and prioritized them according to what we could do in 3 months.

Wild Apricot aims to simplify life for people in associations and non-profits. It replaces five separate pieces of software with one, saving thousands of dollars and countless hours of data re-entry and reconciliation. It automates trivial administration tasks and lets people focus on their cause and passion.

Our first beta release was launched on June 30th, 2006. Feedback started to trickle in right away, and as we started to count accounts in the dozens and then hundreds and then thousands, it really poured in (and keeps pouring!).

Our initial road map was around 80 entries. Our current list is over 400 items, and the cycle never ends:

• Release an update
• Review accumulated feedback from clients, and add or change items in the work queue
• Reprioritize the new list, and pick top items we can fit into our next update
• Several weeks of intensive development, then testing
• Rinse and repeat

(We currently issue product updates every 6 to 7 weeks on average.)

One curious fact is that half of the items on our original list have not been completed, while we have released a couple of hundred other items that our clients requested from us.

This is the ultimate reason behind this strategy: our own team is smart, but the accumulated wisdom of our clients makes our product development much smarter than it would be if we did it on our own.

Let me circle back to Mike McDerment's points:

Yes, that's why you have to be very careful about what commitments you make, and about sticking to them. We made our share of mistakes: promising that "This feature would be released in a few months," and having clients ridicule us for still not having released it after 18 months.

Here is the process we follow:

We maintain a special discussion forum (a wish list): any client can register and post their ideas, or comment and vote on ideas provided by others. Our support team encourages and directs all clients to join the conversation there.

Our product management team constantly monitors this forum and participates and guides the discussion. After each product release, we conduct a thorough review of the wish list. One frequently voiced criticism of using client feedback to guide your research and development is that all of those ideas are too tactical and are not innovative; the fax machine would never have been invented in this fashion, by just collecting feedback for the good old postal service. My answer is that this is where our team adds the most value. Our job is not simply to take one suggestion after another, but instead to look for patterns and commonality and then generate innovative ideas and features that address the feedback, even though it may be in a totally different way than envisioned by the original client.

As an outcome of that, we regularly update the road map discussion forum, which contains the top 60 items that we consider to be pretty well defined and ready to be queued for detailed analysis and development. We do not allow clients to create new entries in this forum, but they can freely comment and rank threads that we have created.

This list of items forms the core of our work queue, which is reviewed and prioritized for each release. Again, the priority assigned to each item is based mainly on its ranking and comments by clients; but here we also have to weigh those rankings and comments against architectural considerations and the long-term vision for the system.

And of course we have to work a number of "unsexy" items into each release to maintain system and data security, ensure reliability, improve system speed, and deal with bugs.

Finally, the feedback loop closes with our weekly product update posts on our blog.

To address the other points Mike brought up:

For us, the competitive edge is in the execution, not the initial ideas, which are a dime a dozen. Plus, of course, customer service, however lame it might sound: this old-fashioned concept still goes a long way towards winning (and losing) clients.

Because we have this regular rhythm of new releases, people sign up at a steady pace, and the next update is always around the corner anyway. And if somebody needs a particular feature we do not have yet, I would rather have them wait and get more experience down the road than waste too much time shouting "SIGN UP NOW! SPECIAL OFFER ENDS TODAY!"

I say, set them high and deliver on your promises.

But you lose out on anticipation (also see Andy's point #2 below).

Let me close by quoting Andy Sernovitz, author of Word of Mouth Marketing (a must-read book, by the way, for any technology marketer: lots of practical advice). He also thinks that product road maps should be shared and makes these points:

1. Users will be thrilled to know how the product is going to improve.
2. You turn frustration into anticipation.
3. Your fans have something to talk about (more word of mouth!).

To close, I do not think there is a single strategy that works for every company and every team. Freshbooks is a very successful company, and we are looking to them in many respects. Our crowd-sourcing strategy works well for us and is a good fit for our team and product. The journey continues. Check out our release history.

What is your experience with crowdsourcing? Any thoughts on product road maps for software companies?

If you're a non-profit organization wanting to use the Web more effectively, try out the Wild Apricot suite of products and support a RWW sponsor.

• Hardware costs: You have to either buy machines or add your software to existing servers and manage them. If it is a mission-critical application, you will probably need dedicated machines and back-ups.
• Additional software costs: You will most likely need an OS, application server software, a database, monitoring software, etc. Many of these products are open source now, but there are still associated costs.
• Implementation costs: In my experience, the implementation costs associated with a behind-the-firewall solution are always higher than those of a SaaS application. There is simply more to do. You will either pay consultants or use your own valuable resources and time to worry about installing software, integrating it, building servers, configuration, etc.
• Maintenance labor: If you have in-house software, there is going to be some level of effort required to keep it happy. Your IT people will need to take care of it, which will keep them from doing more value-added activities.

Another huge factor here is the ability to get the latest and greatest technology. Once you install software in a data center, it becomes more difficult to upgrade and maintain it (especially if you customize it). In such a case, you will be stuck with old software that you will have to replace in the same time frame described above. In other words, unless you are absolutely sure, beyond a shadow of a doubt, that your licensed software is going to meet your business needs for 5 years or more, then SaaS might make financial sense.

Let's look at a real-world example. A 100-person company has been sharing files via email and internal servers. The executives have finally concluded they need to join the 21st century and put a solution in place. One option is to implement SharePoint. Here is a rough estimate of what that might cost:

Year 1
MOSS server = $4,500
User client access license = $90
Hosting and maintenance = $5,000
Implementation and developer support = $20,000
Total = $29,590

Year 2 and on
Hosting and maintenance = $5,000
Developer support = $3,000
Total = $8,000

I know of a SaaS solution that has 80% of the file-collaboration functionality of SharePoint but charges $850 per month for 100 users.

Year 1
SaaS fees = $10,200
Implementation support = $10,000
Total = $20,200

Year 2 and on
SaaS fees = $10,200
Total = $10,200

It would take over 4 and a half years before the licensed software became cheaper. By that time, I'm quite sure there would be another solution that could replace SharePoint, and the cycle would start again. We can quibble about the numbers, but you get the point. Plus, the numbers don't reflect that the SaaS solution is likely to improve and innovate faster than the licensed software by a significant amount.

What do you think? Have you done this analysis, and what did you conclude?

Salesforce wants to be the dominant cloud platform for business. Their view is that computing has seen two waves: the first was the mainframe, and then the PC client server, and now the third is cloud computing. They have been consistent about this since their inception in March 1999, so this is no recent bandwagon hopping.

2. They Have a Good Shot at Meeting This Ambition

They have a powerful mix of capability and relentless focus. They have the resources -- cash, cash flow, clients, track record, management team, and so on -- needed to execute on this vision. Their competitors are bigger, but Salesforce has the advantage of focus. They are pure play, and they have no legacy to protect.

3. They Are a Marketing Machine with Flair

Having attended a few big rah-rah events, such as Java One, I see that Dreamforce compares well on scale, details, and flair. Its messaging and visuals were consistent and powerful, and everything just worked well. This all costs a lot of money (which relates to the next point), but that money has to be well spent, and they seem to be doing that. The presentations had real flair and humor. Benioff knows how to be controversial to get press. They are a billion-dollar business that still acts like a start-up. Even the music was good.

4. Their Biggest Issue Is Maybe Price

There are many lower-cost competitors to their base CRM application. Now that SaaS is increasingly accepted, due in part to Salesforce's evangelical marketing, smaller competitors spending a tiny fraction of what they spend on marketing can undercut them. Their most visible competitor is Zoho, and it does not look like Zoho is going to shy away from this battle, and they have staying power. So Salesforce is fighting on two fronts. On the one hand they are competing with Oracle and SAP for big enterprise accounts. On the other hand they are fighting low-cost competitors, such as Zoho. This will require all their marketing and management skills.

5. They See Today's Troubled Economy as Their Moment to Win Big

They got their early big traction in the last downturn around 2001 and 2002 and have never looked back. They are greedy while others are fearful. They spend more, grow, and hire, while other firms lay off people. The basic economic advantages of cloud computing, such as lower capital expenditures and a faster time to market, resonate in a downturn to the point that they overcome the resistance of conservative buyers to cloud computing.

6. Their Vendor Eco-System Is Making Money and Acting Bullish

Salesforce knows that this matters. This is the lesson they learned from Microsoft. Will they move into the spaces currently occupied by vendors? Of course they will. Vendors will have to be agile; that is just how the game works. But today, in these tough markets, we see vendors that are profitable, growing, hiring, and raising money. The winners in many segments are being defined now. It is a great time to be an entrepreneur in this space. Salesforce knows how to leverage all its capability to make a few winners do very well and then promote that success big time, thus inspiring others to come on board.

7. They Believe That Good Software Design Matters to the Core Economics of Cloud Computing

They refer constantly to their "multi-tenant kernel," which sounds very techie for a such a marketing-driven company. It does appear that they are not suffering from the scaling and reliability problems that we have seen affecting consumer Web 2.0 ventures such as Twitter and Facebook.

8. They Also Know How to Partner with Big Companies to Make Themselves Look Bigger

They wheeled out large companies, such as Google, Facebook, and Amazon, as partners. The message was, "We are at the center of an eco-system with big partners." This makes large conservative enterprise buyers feel comfortable.

9. Focused Research and Development

They have a predictable and focused R&D plan, with a major theme each year. This again makes large conservative buyers feel comfortable: they know what to expect.

10. They Will Need to be Careful About Usability Issues

They are adding so much functionality and so many partners that they face the danger of users getting confused and going to simpler point solutions. That "hairball-of-complexity" problem bedeviled Microsoft as it grew fast, but Microsoft enjoyed a lock-in that Salesforce cannot count on. The SaaS world is naturally lock-in resistant, with low switching costs. There is no sign of this being an immediate problem for the company, but it is something they will have to look out for.

See also our most recent story about Salesforce: Salesforce.com Says Hello World.

While systems and software used to be very "behind the scenes" and often transaction-based, that is the case no longer. Consumers and businesses alike buy differently, consume differently, and recommend differently. Trends such as social networking, video on demand, and e-commerce will continue to force businesses to adapt to keep up with their customers. They cannot rely on systems that take years to implement, and most don't have the budgets to make large investments, at least they won't for the next couple of years.

The growing focus on SaaS, cloud computing, application platforms, etc. are all responses to this growing trend in the market. There will be other solutions in the future for mobile, etc. that we haven't even imagined. They all drive businesses to use systems that they can deploy, change, and retire quickly. In my main job, I remember meeting a venture capitalist who talked about how his firm looks for opportunities in which it sees lots of "wiggling." He couldn't describe what that really meant, or how one gets paid for wiggling. I thought he was a lunatic.

In retrospect, he does make a good point. Things happen quickly on the Internet and in this changing global economy. When a business sees wiggling (or opportunities), either positive or negative, they need agile systems to respond. One-size-fits-all software and packaging are going the way of the VCR. I think this will continue to grow in importance and focus as enterprises evaluate new systems and invest in new technology. What do you think?

The "Etelos Platform Suite" is squarely aimed at Enterprise. Etelos Founder and CEO Danny Kolke said in the announcement that "our larger partners want the opportunity to have their own marketplaces and tools to manage distribution channels." He also noted that large partners now have applications "that they need to move to the web for implementation and scalability."

This is precisely what IBM recently told us, when explaining why Big Blue is now making serious moves in the browser. IBM told us that their customers don't want to do installs anymore, that they want the rich experience that desktop apps have traditionally provided - but they want to have it in the browser. IBM is the biggest software services company in the world for enterprises, so if they are moving applications to the browser - it's clearly what most big enterprises want these days. Therefore we think this is a very smart move by Etelos, one that is sure to find good demand from enterprises.

Although the terminology is a bit confusing (over-use of the words 'platform' and 'SaaS', for a start), it's worth breaking down what makes up the Etelos Platform Suite. According to Etelos, it consists of four key products:

• SaaS Application Platform: Technology that enables traditional ("shrink-wrapped") software to be distributed as Software as a Service.
• SaaS Marketplace Platform: Easily managed Marketplace that integrates licensing, billing and account management that is designed for Web app distribution.
• SaaS Distribution Platform: Turnkey Marketplace with a company's products or services integrated into it.
• SaaS Syndication Platform: Application developers can publish their app via a network of distributors.

We will continue to track what innovative startups like Etelos, and bigcos like IBM, are doing in the Web Office space. See ReadWriteWeb's Enterprise channel for more news and analysis on these trends.

It was a big party. Amazon and Google were also invited. The message - all aligned with Salesforce.com in their quest to be the dominant Cloud Computing platform for business.

LinkedIn was not at the party. The announcement of Force.com for Facebook, which you can see here, was illustrated with recruiting applications, which is LinkedIn's primary domain. This was designed to show that companies, i.e. the Salesforce.com customer base, could build Force.com applications and deploy them on Facebook.

Sheryl Sandberg told us why we should bother - 120m users on Facebook, 30m joined in the last 3 months (the same number that took them their first 3 years to build).

Oh, and Microsoft was not invited either. In any case they might have got upset at all the jokes about Sharepoint that Benioff used whenever he wanted to play to the gallery.

Benioff told a compelling big picture story that computing has gone through two waves, from mainframe to PC client server and that now we are in the third wave of Cloud Computing. Salesforce.com got into that game early and have the clout and the drive to imagine being the number one player in Cloud Computing for business - assuming that Google will be the number one for consumer.

In this era everything is different - the stack, the players and the potential for value creation. Let's outline the basic shape of this emerging era, in particular defining what makes up the new stack.

At the Top - SaaS: these are the end user services that we actually interact with, such as Basecamp. This is the "final mile". This is what we used to call application software, vertical systems or value added systems. Although SaaS is sometimes also used to describe the layer below, we prefer to label the top as SaaS and the middle as Cloud Computing. Typically this layer has had thousands of companies. These are our bootstrapped Gritty Entrepreneurs.

In the Middle - Cloud Computing: this is the Cloud where we witness the "sound and fury" of BigCos battling it out - Amazon, Google, Microsoft, IBM and others. This layer is the most fluid and where all the deals are. This layer can be seen as two layers, but the difference is very blurry. Some SaaS companies create some "middleware" that they position in this layer. Some start-ups create middleware as their primary focus, with an end game of getting acquired by one of the Cloud BigCos. Over time, these will tend to get rolled up into a few big platforms that compete by providing higher levels of abstraction for developers.

At the Bottom - Core Technology: this is what we might call "traditional Silicon Valley", hard core patent-protected technology sold to big companies that use it as part of their stack. Arista, the latest venture from Andreas Bechtolsheim falls into this category.

Spectators And Players

Most of us are spectators in the Cloud Computing game. It is fun to watch the big guys duke it out and ReadWriteWeb will continue to report on that. Entrepreneurs need to understand the strategies of the big players who will be their "platform partner". But we all have lots of opportunities to be players at the top of the stack, in the SaaS layer. This is where there are low barriers to entry, massively reduced R&D costs and incumbents who will be slow to embrace SaaS for fear of cannibalizing their core business.

Has The Stack Value Inverted?

Traditionally, value was at the bottom of the stack, which is why Microsoft and Intel were so dominant in the past. With a few notable exceptions like SAP, the top of the stack tended to be smaller companies.

It is possible that this has inverted, that the real value is now at the top of the stack and not at the bottom. For example, Arista will probably be very successful, but their market will be limited to the few companies who build huge data centers. Those clients will place huge orders but will also have a lot of negotiating clout.

Lock-In And Network Effects?

So maybe the value is all in the middle now? This is certainly where all the action is today. The two big questions at this layer are:

1. Lock-in? How easy will it be to move your SaaS service between Amazon AWS, Google App Engine, Microsoft Azure and other contenders? Today there is quite a lot of technical lock-in, you cannot move from one to another without some re-coding. But is that a big deal? No, because a) any Platform that jacks up prices will get hammered by their competitors and b) when you do need to move, it may require some coding changes but the move is transparent to end users. So, very little lock-in.

2. Viral Network Effects? Market leaders will get a lower cost of sale, but there is no social media viral effect at the Cloud Computing Platform layer.

Without Lock-In or Viral Network Effects, this layer will be commoditized. It will be very, very big but it will be a thin margin commodity business that is all about scale.

So The SaaS Cream Floats To The Top?

This is our theory. The value is with the small SaaS companies in the "final mile" interacting with end users. This is what we are seeing with our bootstrapped Gritty Entrepreneurs.

What About Players Across Layers?

Next week I will be at Dreamforce, the Salesforce.com annual event in San Francisco. Salesforce.com is the SaaS pioneer that defined the market. At some stage they decided that being on the top layer only was not enough and they created their Force.com "platform" on which others could create applications.

IBM also operates at many layers of the stack. But they do so with separate divisions that would be large companies in their own right.

It will be interesting to see how this stack evolves and specifically how well Salesforce.com succeeds with their mission to operate at both the top and the middle layer.

If you run a traditional enterprise software company, you have plenty of reasons to feel warm and comfortable:

1. Your conservative customers agree with you that change is bad and new technology is a terrible risk. (The people among your clients who don't agree with this won't be talking to you, they will be busy innovating - so you won't hear an opposing view).

2. Your Annual Maintenance Revenues continue to grow, as clients cannot risk a problem with software that is mission critical and complex. As your product is now quite stable, the profit margin is wonderful. (You don't notice that the SaaS barbarians are scaling your castle walls using these fat margins as ladders, saying: "Our SaaS monthly cost is less than your current AMC".)

3. Your Professional Services business continues to grow. Conservative clients prefer to go to the company that built the software, rather than a third party, so you can eat into your ecosystem whenever you have a revenue short-fall. (The fact that the software needs this much implementation hasn't gone unnoticed by the SaaS proponents).

In this benign financial environment, you look at a downturn as a good time to emphasize words like "tried and tested, stable, enterprise, integrated, customized, safety" and so on. You can assume that any drop in License Fee revenue is simply a cyclical problem, that good times will return automatically.

The frog in the slowly boiling water also feels warm and comfortable for a while...

It Is Hard For Old Timers To Get SaaSy

Repeating old mantras in the face of fundamental change is natural, because making that change is really, really hard:

1. Putting SaaS financing on an old product is simply the ASP model and that is terrible economics. You will report horrible results to investors for a long time before it turns positive.

2. However carefully you position your SaaS offering versus your traditional product, you will legitimize SaaS to your conservative clients and hasten the decline of your traditional business.

3. Your current client base is not much help. You need to position the new SaaS offering for a new market, where you will be competing on a level playing field with the start-ups.

Lou Gerstner observed in his famous book on IBM's turnaround in the early 1990s, "Teaching The Elephant To Dance", that culture is everything. Big companies need to learn to act like start-ups again.

IBM: Still Dancing

Lou Gerstner's culture shake-up must have been more than temporary, for once again we see IBM, as big and as old as it gets in IT, leading from the front. Just like they embraced the PC as it threatened the Mainframe and then embraced Linux and open source, so now they are embracing SaaS. This is despite facing all the risks described above.

IBM can be bold primarily because the most critical culture that Gerstner brought back was talking to the client to find out what they want. You can always find some people in a big client who support the old way. But if you have a conversation at senior management levels and contrast SaaS with the old model, you will find tremendous enthusiasm for SaaS.

IBM's move into SaaS is complex, as they are a big company with many moving parts. They are also experts at extending the life of really, really old technology with a tweak here, an image make-over there. AS/400 anyone? IBM is also very good at packaging up all the pieces in a way that clients find attractive, with a few little bits of high value "special sauce" added to all the free and commodity bits in the package. In other words, IBM knows how to make money whichever way the wind blows.

Vignette: Rejuvenating Their Enterprise CMS Brand

Anybody remember when CMS (Content Management System) was the hot technology? If so, maybe you bought stock in Vignette when they did their IPO in February 1999. If you sold before March 2000 you did pretty well. Since then of course, the VIGN stock price has suffered the Dot Com bubble burst and nuclear winter.

For a while Vignette used their IPO cash hoard to buy up smaller cash-strapped enterprise vendors for bargain prices. That seemed like a street smart thing to do, but then SaaS came along to take away some of the fun. Then in April 2008, Vignette changed tack and acquired Vidavee, a SaaS player in video content.

Vignette is well-placed to do more. They have cash in the bank, positive cash flow, they have always understood what enterprises want from the Net and now they can make more aggressive moves in SaaS.

How Is The SaaS Pioneer Doing?

Next week I am at the Salesforce.com Dreamforce 2008 event in San Francisco. Salesforce.com has done more to build the SaaS market than anybody. They are in an interesting position. If we view this as a battle of Romans (big, established enterprise vendors) versus Barbarians (pure play SaaS start-ups), Salesforce.com has the scale of the Romans and the positioning of the Barbarians. It should be an interesting week.

The most extraordinary venting against SaaS came from the CEO of Lawson who, in an interview with ZDNet, predicted that "SaaS would collapse within 2 years". Larry Ellison of Oracle also weighed in during a recent investor conference call, as reported in Information Week, saying that Oracle did not see any money to be made in SaaS.

Just this week, we saw the news that SAP, a company that is investing in SaaS, telling investors that they saw an extraordinary order slowdown in the last 2 weeks due the global credit crisis.

This Is Not Just The "Pooh Corner Debates"

There are people who really believe that SaaS is a passing fad, just Service Bureau 3.0. These people are like Eeyore, the old grey donkey from Winnie The Poo. They think the Tigger types who are constantly running around excited about new technology are just, well ridiculous. There are others, like Piglet, who are just scared of anything new and big. The Wisdom Of Pooh, is just humbly asking asking questions.

But the guys running large enterprise IT vendors are smart. They are just putting on the Eeyore act to appeal to Eeyore clients to keep buying the old stuff as long as possible.

Debunking The SaaS = ASP and Service Bureau Myth

There are similarities between SaaS, ASP and Service Bureau. All are centralized architectures where the hardware is managed by somebody else. But that is where the similarity ends.

The notion that SaaS is taking us back to the days of dumb terminals is simply ridiculous. Have they not heard about AJAX and all the other rich client stuff that actually uses PC cycles to enhance the user experience?

The SaaS detractors are right that the ASP model was really just a financing vehicle. It was the same software, leased and run by somebody else. Yes, the economics of that are lousy.

SaaS is not ASP. SaaS is Net Native software, built to run on the Net. What worries the heck out of the big vendors is that this new code costs a tiny, tiny fraction of the cost that their mammoth old code bases cost. Seeing the traction that 37 Signals have with Basecamp and then seeing that they have only 12 employees is worrying for any old style competitor. You cannot even buy them, they have no VC forcing an exit and they are profitable.

The New New Thing Is Social SaaS

If SaaS was simply doing traditional enterprise IT but with a Net Native design at a fraction of the cost it would be big. But that is only the start. What really differentiates the SaaS winners is that they have a social media/networking twist at the core of their value proposition.

This Downturn Favors The Innovators

Some old style vendors are hoping that this is like the Dot Com crash, when big, solid and reliable beat small and innovative. They are wrong. This cycle is different. The client's risk goes away with SaaS. Try it for free for a while and then start small. The size of your company is not an issue.

This is The Innovation Economy and some people don't like that.

GroupSwim is a company whose SaaS collaboration solution uses semantic technology to automatically tag and rate content including discussions, emails, documents, wikis, and more. As an Enterprise 2.0 Launch Pad finalist, the company was honored for making enterprise team collaboration fun to use thanks to features like thumbs up/thumbs down voting and its ability to monitor your favorite topics.

One of the best features in the latest version of GroupSwim is the new integrated wiki application which puts GroupSwim in more direct competition with services like Central Desktop, existing SharePoint implementations, and Confluence and less directly with other wiki providers like Wetpaint, for example, as well as with other group collaboration suites like Grou.ps.

With GroupSwim's wiki solution, you don't have to learn any sort of technical markup code. Instead, their WYSIWYG editor is easy to use and lets anyone write, share, and collaborate on documents with other team members. You can insert files, images, widgets, and tables into the wiki and if you mess something up, content can be quickly recovered thanks to the wiki's versioning feature. The wiki also offers built in access control permissions so admins can specify who is allowed to edit pages.

Another change to GroupSwim is the addition of system APIs. Where before they offered only a couple (single sign-on and member management), they now have a whole host of APIs to let you better integrate their software with other third party systems your company may be using.

Other features included in the latest update are:

• Redesigned home page for feed style information across all groups
• Hidden groups that are invisible unless user is a member of the group
• New email notification permissions let you tune who can send email notifications
• Improved auto-tagging capability
• Insert files and images directly into discussions and wiki pages
• Various performance enhancements

Why GroupSwim Works

So far, GroupSwim has been so successful in making a name for themselves in the Enterprise 2.0 space, first getting selected as an Enterprise 2.0 LaunchPad finalist and more recently being selected as one of the 12 finalists out of some 85 companies to be a Preview Company at the SIIA OnDemand Conference in November.

We think the reason for the company's success goes beyond the software's feature set alone. What's really appealing about GroupSwim is how easy it is to use. After having spent years editing and uploading files to SharePoint, using GroupSwim is a breath of fresh air - it doesn't feel like work. And that's quite the accomplishment because behind the software's simple Web 2.0 interface, they offer a robust feature set which includes things like role-based permissions, private groups, support for rich media, the ability to embed both Zoho and Google Docs, the ability to add files via email, document previews on the web, suggestive search, and more.  How they managed to cram in all those features while making the software appear so easy is beyond us.

For more info on how GroupSwim works, check out this post which delves into the details of the software including its semantic features. However, the best way to get a feel for how GroupSwim works is to visit their demo sites. On this page, there are three different sites already set up for you to explore. 

In Part 2 of this story, we reveal some of Zoho's cookbook.

At the Web 2.0 Expo in New York last week, Jason Fried of 37 Signals, another company that has done well by defying conventional wisdom, advised entrepreneurs to "follow the chefs". He meant that great Chefs give away their recipes. That just makes you want to come to their restaurants even more. Particularly if the recipe looks complex. And Zoho's looks complex.

So I hope they won't mind me giving out the recipe they revealed when I met with Raju Vegesna, one of their founders, last week. I noted 3 major ingredients:

1. New ways of competing for talent

2. A related cash cow business

3. Pragmatic, non dogmatic approach to winning business

New Ways of Competing for Talent

If I had to select one "secret sauce" in Zoho's recipe, it would be how they recruit. Zoho (with parent company, Adventnet) has 700 developers. All the developers are in India, specifically Chennai.

India is a ridiculously competitive market for developer talent currently. I see parallels with Silicon Valley in 1999, when average developers got inflated expectations and inflated paychecks. Attrition is problem # 1.

Developers see their career path as managing other developers. Your mojo is based on how many people you manage. Managing 1,000 makes you ten times better than managing 100 and so on. This is the reverse of America where a developer will drop custom service work as soon as it is possible to work on a product.

This is a terrible environment for a product company to compete for talent. How does Zoho compete for talent in this market?

1. Hire from school. Yes, school, not college. So they don't compete to hire from final year of College or in the even more hot market of developers with a few years experience. Great code is typically written by young people - which explains a lot of the "college drop out makes $ billions" stories in America.

2. Pay one year of college fees. This is a salary, not a loan, with no strings attached. According to Raju, 90% join Zoho at the end of that year, but there is no obligation. This gives Zoho an edge with the brightest at school as they have an unusual offer.

Zoho's philosophy is that 4 years college when you are young is not right for many people. Better to have life-long learning but get real world experience early and get some cash while you are at it. This gets a big "yes" from parents paying college fees!

Zoho have their own Zoho University. This is not uncommon for big employers in India. It is a necessary complement to hiring early.

Related cash cow

Zoho has a related cash cow business that enable them to fund Zoho. This is not unlike Google. Microsoft's problem is that their cash cow - Office - is the one that both Google and Zoho are going after. That gives them one nasty Innovator's Dilemma.

Zoho's initial cash cow business is selling network management tools. This has been profitable for 12 years. Zoho itself is due to be profitable next year.

The network management tools business is doing the same as Zoho - products at least as good as the competition for a fraction of the price. This business also gives Zoho a capability for running large data centers, which is a core competency for a SaaS business.

Pragmatic, Non Dogmatic Approach to Winning Business

By all accounts, Zoho won GE's business in head to head competition with Google. GE wanted to cut cost and enable collaboration, which meant Microsoft was less of a contender. Google was the obvious "you never got fired for choosing" winner. Why did GE choose Zoho? There are two likely reasons:

1. Zoho allowed GE to run the software in their own data centers. GE has the economies of scale to run their own data centers and clearly prize the control that this enables. Zoho specified the hardware, but GE bought it and deployed it. Is a "Zoho Appliance" far behind?

2. Visual Basic Scripts in Spreadsheets. Current tech orthodoxy frowns on VB, but if you have thousands of existing Excel spreadsheets running VB that would be a show-stopper.

Generally CIOs love technology and innovation. It is why they went into technology. Nor do CIOs want to control everything, they know it is impossible and life is too short. Most see that Social Media technology has positive potential. But they do have legitimate concerns. Specifically, social media startups that want to tap enterprise budgets need to deal with 5 big worries:

1. Unpredictable scaling issues. Twitter failure is OK when we are just twittering about our cats, but would be totally unacceptable if this was an enterprise app. The viral nature of adoption is a concern for people who have to ensure that the lights are on and the trains run on time. If you are asking people to do serious business on your service, you have to be solid on the reliability and performance scores.

2. Security against IP loss. This is a legitimate concern. The impact can be major. The fact is that it is no longer possible to "bolt the stable door" as the horse has already escaped. It is virtually impossible to stop an employee, either foolishly or maliciously, sending digital data that should not be sent. Just make sure that your service does not make this worse and has some reasonable controls.

3. Integration. This is the big "well what about...." objection. Just touting open Internet standards is not enough. You need to show how to build adapters to internal legacy systems that don't work to those standards. Without integration you cannot answer the next one. Building adapters is tedious work. But once you have a library of them, they become a barrier to entry.

4. Loss of productivity. Services for consumers do not need to answer the productivity question. We do this stuff for fun and in our free time. But when that time creeps into the 9-5 workday, it is a legitimate concern for those who pay the salaries.

5. Accidental brand damage. People who grew up with social media know that the brand cannot be be protected other than by great products and services. Anything bad that happens will get out there. However this scares the bejesus out of traditional Enterprise managers. It is also a legitimate concern that if you give a lot of powerful social media tools to people who don't know how to use them wisely, there will be a lot of collateral damage. Like physicians you need to show that your service will "do no harm".

These are all negative, objection issues. Clearly there needs to be a compelling positive reason. We will focus on that in a future post. First step is making sure these objections don't stop you on the way in.

If you want to listen directly to one CIO who is thinking hard about this, see this podcast by Intel CIO John "JJ" Johnson on social media in the enterprise.

What have you experienced? As a vendor, have you found and handled these or other issues? As a customer, have Social Media start-ups shown a good understanding of these issues? What other issues are critical?