Friday, February 13, 2009

Do Enterprise Virtual Worlds Suck?

Tell us what you really think Raph;

Second Life technology continues its slow move towards being an enterprise solution with the announcement that the SL-derived OpenSim project is getting commercialized by 3Di. Enterprise was a big buzzword this year at the Virtual Worlds conf in Hollywood. (Of course, in the midst of it, someone had to ask “what is enterprise anyway?” It means “selling VWs to businesses”). The penny has also dropped for some users that SL itself seems to be trending in this direction — as Tateru Nino writes on Massively,

When you look at the hiring of Tom Hale, the ongoing hiring of enterprise sales and marketing staff, and the licensing of the Immersive Workspaces product from Rivers Run Red, this all seems to signal a clear direction for where Linden Lab is taking Second Life. Clearer than anything else we’ve seen in a year, certainly.

Of course, we have also seen Forterra and their OLIVE platform (derived originally from the codebase) continue to focus on this area over several years, with particular success in work for the military. Is all this a surrender of the dream? What about user-creation virtual worlds for consumers? I’m not personally particularly excited about enterprise and it has never been something I have paid attention to. But rather than me ranting about it, I went and asked Jason Hable, our VP of Business Operations (and former VC) why enterprise isn’t necessarily an appealing direction. His answers:

Sales cycles are notoriously long because of:
- Testing, trialing and approval levels
- Unproven return on investment
- New tech can wallow within the “labs” groups on discretionary budgets for years before being rolled out to business units (if ever)
- Rank and file aversion to new technologies (especially without prior consumer touchstones

The business model isn’t as attractive as consumer due to:
- Slow, linear growth
- Lower margins due to customization and service requirements
- Lower exit multiples due to lower margins and slower growth
And also noteworthy today,
- Drop of enterprise spending on new technology during recessions

He ended with a note saying that enterprise isn’t necessarily a bad business — just less attractive, and there’s a learning curve that many of the VW crowd have not had to climb yet and underappreciate.

My take?

* It takes a long time to sell to enterprises. Lots of folks need to approve a purchase, if there’s any significant cost to it.
* There is no clear ROI for the enterprise. Meaning, how does the company prove that they are making more money thanks to this purchase and service contract? This matters more the more expensive the product is. If it’s in reduced travel costs, then it’s in direct competition with stuff like Webex.
* Slow adoption — a new tech group within the company may adopt it, but enterprises are slow to adopt as a whole. Just think about how hard it has been to get companies to change which version of MS Office they use, for example.
* The business model — it’s licensing and and service contracts, so it is only as scalable as the number of enterprises, and the margins aren’t great.
* It’s a communication technology, and those rely on everyone being on them. Sure, there’s a business in enterprise phone systems — but in the end, everyone wants to be on the real phone system.

In the end, for me the answer comes down to the fact that over the longer haul, the consumer tail wags the enterprise dog in some ways. No companies want Gmail, and in fact many ban it, but everyone uses it anyway for the convenience and because it’s where their non-work lives reside. If there’s a common consumer standard out there, enterprise is often obliged to adapt to it, rather than the other way around. Granted, given the slow pace at which enterprises move, it can take a long time, and there’s money to be made in the interim… so sure, enterprise is a viable strategy.
Right now, there is no common consumer standard at all — in fact, I have made the case before that it is actually premature for the market to move towards interoperability standards; we’re in the midst of a ferment of invention that could be short-circuited by overly aggressive convergence on a standard. But when it does happen, I am pretty sure that it’ll be arising from the consumer space and not the enterprise space. Enterprise solutions are driven by opposite needs:

* Walled gardens.
* High levels of privacy and security.
* Heavily customizable software that can be tailored to specific and generally non-replicable solutions.

So why the move away from consumers? Well, because monetization has been demonstrated quite effectively in entertainment worlds, but not to the same degree in “social” virtual worlds. Lots of eyeballs hitting, but not necessarily paying — or perhaps not paying enough to equal the sort of burn or investment that the worlds have seen. This was part of the reason, I suspect, that split in two and originally ditched the consumer service — and of course, today Makena (the other half that stuck with the consumer service) spends a lot of their time on… middleware. But in the end, consumers are where the scalable revenue lies. It is arguable whether even something like World of Warcraft is truly “mass market” yet — it’s got enough North American users to be in the same ballpark as something like Gossip Girl, but Gossip Girl is itself a heavily targeted niche show — just a very lucrative niche. So we’re simply not yet at the place where the mass market consumer is jumping on even the entertainment worlds. But we’re getting there at a rapid clip. And the possibilities are exciting and unpredictable, whereas to me, anyway, enterprise is kinda boring. :)

So, no, the dream isn’t dead. Consumer virtual worlds are still coming on strong, despite the focus on enterprise lately. It may be that part of the reason why these slightly older worlds and platforms are having to shift is that they are simply the wrong design for the consumer space, and the future belongs to stuff that looks more like Lively, Whirled, SmallWorlds, Vivaty, and yes, Metaplace. I sure hope so, because the very different architecture choices made there can grow back to the big immersive experiences, but I am unsure that the big architectures can shrink down to the smaller needs of the ordinary person.

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