An article by R. Vasan of Mayfield Fund, and reposted from Google Cache.
As a result of the impact of the Web, cloud computing, and mobility, technology companies must radically rethink how they build, package, deploy, market, and sell their solutions.
The rise of open source software along with the proliferation of new languages and frameworks provides developers with an ever growing catalog of components to leverage, making it faster and cheaper to build solutions. The operational elements of software have been similarly impacted as cloud computing platforms offer drastically cheaper means of deploying and managing solutions that can serve users globally.
Simultaneously, the Web has fundamentally changed the relationship between vendors and customers. Google has trained us to search for what we want, find it, and get educated. Therefore, vendors must employ sophisticated techniques to attract, nurture, and service prospective customers. Meanwhile, customers are adopting a broad array of devices such as computers, tablets, and smartphones and will increasingly expect to access all their applications, services, and data from these different devices anywhere and at any time.
Developers Cope with Platform Shifts
Until recently, programmers were required to build most of an application's capabilities in a single programming language (C or C++) and one integrated stack, with the Windows PC as the primary platform. Then, in the early to mid-2000s, the target platform started shifting to the browser. Java and LAMP (Linux, Apache, MySQL, and PHP) emerged as the preferred language and architecture for Web applications, with large developer communities coalescing around these key open source layers.
Open source has continued to flourish, and today SourceForge hosts more than 250,000 projects, the top 50 of which have been downloaded in excess of 10 million times. Consequently, there are now strong open source offerings for almost every element in the software stack, ranging from antivirus software (ClamWin) to content management (Alfresco and Drupal) to search (Lucene and Solr) to virtualization (Xen). In fact, the combination of the Linux operating system and the Xen hypervisor are the key open source technologies that provide the foundation for cloud computing.
Initially, companies achieved significant cost savings by using open source technologies, but they still had to make substantial up-front investments for servers, storage, and networking infrastructure. However, in August 2008, after two years in beta, Amazon officially released its Web services platform. The range of services began with raw computing, storage, security, and networking, but they've quickly expanded to include additional infrastructure services, such as database, content management, authentication, messaging, logging, and monitoring. Today, in addition to Amazon, various other providers, including Microsoft, Google, Rackspace, and Salesforce, offer compelling cloud platform capabilities with attractive and variable pricing. For example, Amazon recently added a free tier of service that includes one continuous month (750 hours) of compute with load balancing and a generous amount of storage and bandwidth—10 Gbytes and 15 Gbytes, respectively.
Virtualization, open source, and cloud computing have made it vastly cheaper to build and deploy new software solutions, thus the cloud is where developers and new companies start out.
Marketing Matters Even More
Historically, technology companies were forced to engage in expensive and inefficient direct marketing and selling processes. In enterprise technology, key analyst firms like Gartner and Forrester Research acted as trusted advisors and even gatekeepers to senior IT professionals. Companies consumed substantial funds in deploying large marketing and field sales efforts, but the difficulty of managing complex decision and budget processes led to wildly unpredictable results. Further, the high costs of product development and deployment as well as sales and marketing often forced vendors to target only large enterprises that could spend millions of dollars.
After the dot-com bubble and subsequent global recession, companies altered how they acquired, deployed, and managed technology. At the same time, consumers embraced new Web and mobile technologies that began to influence the solutions used within corporations. However, as the market has continued to grow and evolve, customers of all sizes have grown tired of the constant influx of new technology, and many don't see the value in having to install, configure, and manage multiple solutions. Instead, they expect vendors to provide them with an always-on option that's easily accessible from any device and is packaged and priced based on usage. Salesforce's "no software" motto captures this sentiment best. The new pricing and delivery model of software as a service has also greatly expanded the addressable market for vendors, since small- and medium-size companies can now be served in addition to large enterprises.
But merely addressing the software production and deployment model is no longer enough. It's also necessary to change how companies drive awareness, nurture interest, and ultimately acquire customers. As a result of the fundamental change in the relationship between buyers and vendors, prospects want to learn and convince themselves to buy instead of being sold. Therefore, vendors must provide compelling content in the form of demos, case studies, testimonials, detailed documentation, or even free trials. Patience is required, since the process of nurturing interest and converting prospective buyers to paying customers may take weeks, months, or even years. Vendors must also continue to build out their extended communities of customers and partners as influencer and support mechanisms.
Much can be learned from successful consumer Web companies like Amazon, eBay, and, more recently, Zynga. Both consumer Web and mobile businesses have demonstrated how to be efficient at running campaigns to attract and convert customers. Search is still the key starting point for most purchase decisions, but social media such as blogs, Facebook, Twitter, and so on are an increasingly important means of communicating and sharing information. A variety of new companies like Radian6, Gigya, SEOmoz, and Trada have emerged to specifically help marketers execute social media and search strategies.
Basic Web traffic analysis including Omniture or Google Analytics has been around for a while, and eventually all the sales-related account information ends up in a system like Salesforce. But it's now critical to track and integrate online activity with both marketing and sales interactions, and to keep detailed historical information for analytical purposes, specifically to drive increased efficiencies in acquiring, retaining, and servicing customers.
E-mail blasts were an early form of online marketing, but now companies must also instrument their campaigns to include social media and online webinars and events (WebEx or GoToMeeting). Companies like Marketo and Eloqua have pioneered new solutions for automating marketing programs and providing detailed marketing analyses. While Web analytics, marketing automation, and customer relationship management are key building blocks, no single solution can manage the entire online marketing and selling process. Instead, marketing and sales organizations must be more tightly integrated, and all these new applications must be connected and instrumented to produce actionable business metrics.
Developers as Customers
It's also important to broaden the concept of the prospective customer beyond the end user. In many situations, the customer might be another software developer. Much of the early success in open source and cloud computing was the result of generating large communities of developers around popular software components or frameworks. Companies like JBoss, SpringSource, and Heroku were acquired as much for the communities or ecosystems they attracted as for their technology. Even in crowded markets like e-mail providers or the e-commerce infrastructure, companies like MailChimp and Magento emerged due to their focus on attracting developers with cleanly defined architectures and APIs.
Today, it's somewhat surprising but also exciting to see developers experimenting with a broad range of new programming languages like Ruby, Erlang, Clojure, and Go. Many of these languages were designed specifically to address some of the key advantages associated with cloud computing. In addition to exploring these languages, developers are increasingly taking the opportunity to rethink the entire application architecture. It might not make sense anymore to assume the traditional n-tier architecture of database, application, and Web presentation as distinct layers. Instead, developers are investigating newer frameworks like Hadoop, Memcached/Membase, CouchDB, Nginx, and Node.js. These approaches are gaining interest not only because of their simplicity and scalability, but also because they're built to take advantage of cloud economics and scalability.
Another element contributing to the reexamination of the software architecture is the rapid adoption of smartphones and tablets based on iOS and Android. While Apple may garner most of the attention, Android's open nature has proven to be a compelling platform for carriers and device manufacturers. These mobile platforms and the current poor quality of wireless coverage introduce another set of problems and constraints that the next-generation application architectures must address. Start-up companies are developing intriguing new frameworks like SproutCore, Sencha, and Titanium to enable emerging standards such as HTML5 that help applications span both mobile and Web environments.
Cloud and mobile computing appear to represent yet another software architecture change. These platform shifts have happened almost every decade and take some time to standardize. Recognizing the changes in how customers and developers evaluate and adopt solutions, many start-ups are building new software services that can leverage cost advantages of massive scale while also taking advantage of online marketing to drive highly efficient customer adoption and retention. We're at the very beginning of these platform shifts that will lead to significant opportunities across the entire software landscape.
Mr. Vasan is the managing director of the Mayfield Fund, a venture capital firm in Menlo Park, California.
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