Scott Burkett's Pothole on the Infobahn » web2.0

Web 2.0 Sanity Check

Scott Burkett — Sun, 14 Jan 2007 16:23:13 +0000

Jack Humphrey had a great post this morning summing up why he thinks the Web 2.0 free-for-all is over, yet the Web 2.0 movement is just beginning. A great read, especially if you are an entrepreneur feverishly building an online community, social network, video-sharing site, etc. that you think you are going to sell for millions in the next 30 days. This is a logical and timely extension to my post on the real value of a social network.

The real winners are going to be those who can innovate and build businesses around them – not just be the first guy to clear a path into the woods.

Cheers.

Technology Cost Comparison: Web 1.0 vs 2.0

Scott Burkett — Mon, 01 Jan 2007 01:56:44 +0000

Inspired again by this post from Fred Wilson at Union Square Ventures, I began thinking of the differences in the capital required to launch something these days. Much ado has been made over Web 2.0, and how much cheaper it is to build technology solutions these todays.

I came across an old proposal that I received from a vendor years ago (in the 1.0 days), and got a good laugh out of it.

We all know that things are cheaper to build these days, but I thought it might be interesting to put together a post illustrating the actual dollar differences in hardware, software, services, and labor costs. And yes, this is my last official post for 2006 – so happy new year in advance (4 hours from now!).

Preface

Note: I am using the phrases “Web 1.0″ and “Web 2.0″ to simply represent the passing of time.

The numbers that I am using to represent the Web 1.0 days are taken from a series of documents from a startup I was working with at the time. I am going to show those vendor dollars (and time components, where possible), and compare them to what my estimate would be if I were building that same system today. The focus, of course, will be on dollars, time, and trends.

The exact specifications of the proposed system are not important. For the purposes of this post, consider the proposed system to be a “typical” B2B/ASP procurement system. The only important criteria here at this point is that there should be a suitable “stage” environment, which would run parallel to the production environment.

These numbers only reflect hardware, software, and outsourced labor costs – they do not reflect internal IT spend (laptops, mobile fees, etc.), and do not reflect salaries of FTEs or other business-related expenses. I think it is safe to say that there were more than a few companies back then spending money on frivilous non-essential items.

Enterprise Software Costs
The original system was built on a stack comprised of ATG’s Dynamo web application server (with the personalization license add-on), and Netscape’s Enterprise Web Server. The backend was facilitated by an high-end Oracle database.

On the application side of things, we were building upon Oracle Exchange, which was Oracle’s attempt at fighting Commerce One and Ariba. It was *supposed* to provide a big pile of transactional and catalog management capabilities – it turned out to be a vaporous pile of ****, but that’s probably a post best left for another day.

Interwoven was the content management system (CMS) of choice, and Verity was selected to provide “search” capabilities.

We implemented a very high-end CRM solution built around Silknet’s product and Aspect’s ACD (call center) solution.

Component	Qty	Unit Price	Total
Oracle Database	1	120K	120K
ATG Dynamo	4	10K	40K
ATG Personalization License	4	20K	80K
ATG Development Seats	5	10K	50K
ATG Staging Licenses	4	5K	20K
Netscape Enterprise Server	2	1K	2K
Silknet	1	170K	170K
Silknet Maintenance (1st year)	1	34K	34K
Aspect ACD	1	250K	250K
Aspect Maintenance (1st year)	1	41K	41K
Oracle Exchange	1	825K	825K
Interwoven Bundle	1	90K	90K
Verity Bundle	1	120K	120K
			$1,842,000

Nearly $2M in infrastructure software spend, and we haven’t written any code or hired any employees. As you will see in a moment, for a tiny fraction of this same amount, you could very likely build not only the entire application, but build the entire company around it.

If I were building this same system today (as a startup), it would very likely be built upon the LAMP stack (Linux, Apache, MySQL, PHP). Why? Low cost, high human resource availability, and sufficient scalability. For CRM purposes, I would do a 5 minute download and install of the free version of SugarCRM.

For the CMS, take your pick – there are several dozen very high quality open sourced/GPL’d CMS products out there that are comparable in functionality (PostNUKE, Plone, Joomla/Mambo, Etomite, Apache’s Lenya, etc). Building a CMS framework from scratch is certainly an option as well – very easy to do with current toolkits. Adding search capabilities is just as easy (Apache’s Nutch project, htdig, Sphinx, even Google).

Total cost? $0. Gotta love freely available, open sourced, GPL’d software.

Hardware Costs
In the original system, the servers were all obtained from Sun, and were broken down as follows:

Component	Qty	Unit Price	Total
Sun Microsystem E250 (1 CPU unit) – front-end web server	2	10K	20K
Sun Microsystem E250 (2 CPU unit) – Dynamo hosts	2	20K	40K
Sun Microsystem E450 (2 CPU unit) – database server	1	30K	30K
50 Gbyte RAID device (back-end storage)	1	40K	40K
			$130,000

We were eventually going to add some additional hardware, but this was our initial environment (about $130K worth). Obviously hardware is more powerful now, so to support the same number of users, logic tells us that we would need fewer of today’s servers. Of course, web services are more widely adopted now by B2B users, so our number of users would probably go up – in the end, it is probably works out about the same.

The bottom line is that you can obtain a nice 2U or 4U rackmounted server, dual or even quad CPUs, loaded with several gigabytes of RAM, 15K RPM SCSI RAID arrays, for less than 10K each (I’ve recently procured them around the 7-8K point.) If I were building a system comprised of six (6) physical servers, you’d be looking at less than $50K, which would be a savings of $80K.

That of course assumes I am interested in launching with relatively high-end hardware. If you really wanted to pinch pennies, you could slide down the scale a bit – remember, hardware is more powerful these days, so perhaps a dual CPU (or even dual core) unit would suffice in lieu of a quad-CPU rig. You get the idea.

Hosting Costs
Hosting was one of those things that really became a racket in the 1990s. Now, it is back to being a commodity, where it should be. Hosting providers have to differentiate themselves by tacking on true value-added services (imagine that).

Oracle was charging us $300K/year for hosting their Oracle Exchange. $50K per month! That didn’t count the $100K we spent on routers, switches, and other network equipment (so we could do our own hosting for our core online service – again, imagine that).

In the first year, that represents a $400K spend on hosting.

In today’s market, we could have hosted all of our servers, on a reasonably fast pipe (against a fiber ring) with a reasonable throughput capacity of say, 10Mbps, for less than $5K per month (much less, depending upon the vendor, if we were co-locating the servers, leasing a full rack vs. 1/2 rack, etc.)

Labor Costs
If the savings in software, hardware, and hosting hasn’t made a strong enough case, wait until you see the labor savings.

I am reminded of one of the great “de-motivational” posters available at despair.com, which says “Consulting: If you are not part of the solution, there’s good money to be made in prolonging the problem.” I both made, and spent, a small fortune in consulting during the 1990s.

We had a veritable army of people working on this project. We were paying one consulting team (from a typical vendor) a total of about $3.4M over a nine month stretch to build our core product. An additional $840K was budgeted for another four (4) month phase after that.

We had another team working against a $1.4M purchase order to build out our customer care portal. And finally, a third, smaller team consulting with us on “corporate strategy” against a $480K purchase order.

I won’t count the latter (corporate strategy consulting), as no startup in their right mind would pay for that service today. Nevertheless, the total labor bill came to around $5.6M.

With a decent offshoring team (even in India, where the prices have been rising steadily), you could build this entire application for between $500K – $1M (as a reasonable estimate based on my experiences in both worlds.) If you wanted to use one of the cheaper, emerging countries (Vietnam comes to mind), you could probably build it for less than $500K.

For that matter, a dosmestic team in your own office could build it for at least half of the original price. Even cheaper if you “inshored” to a cheaper development shop in a smaller market. Finding a handful of college kids with a penchant for creating things is also an option.

What about scability?
There are some who would scream that PHP isn’t as scalable as J2EE. To those people, I simply say fire up your web browser and go to “yahoo.com.” Is it fast? That’s PHP. People who claim PHP isn’t scalable simply don’t know how to scale a PHP application.

MySQL was certainly not scalable a few years ago, but they have made tremendous strides in bringing their product up to enterprise levels (with the added functionality around replication, transactions, clustering, etc.) These days, I have no problem deploying MySQL 5 in a production environment.

Friendster has scaled to north of 40M users using PHP and MySQL. That represents about 39.9M more users than most startups have right before they crash and burn. :)

Why the big difference?
For starters, I should point out that a great many vendors really pumped up their prices in the 1.0 days. Thankfully, the days of billing out a fresh-faced college graduate as a technical resource for $300/hour are long gone. This clearly played into those inflated costs. Everyone was going along for the ride. The “get big now” pressure from investors also added a “kerosene on the fire” factor as well.

The passing of time has also helped. Time has a great knack for putting downward pressure on costs, especially when the environment becomes hypercompetitive.

Open source/GPL tools have continued to develop. They are at a point now where they are viable at the enterprise level. Additionally, they have matured to the point where they can signficantly reduce the amount of effort required to create something from scratch. There are exponentially more freely available libraries, tools, and canned solutions than was available just a few years ago. Back in those days, you had to either create things from scratch (and hope you could reuse them later for other things), or open your checkbook and pay for the best vendor-peddled solution you could find. No more.

Additionally, the bursting of the bubble forced the “rackets” to shift to being pure commodities, and driven more by corporate consumers. Hosting is the big example of this. The benefit here has been better service and lower costs from hosting providers.

Hardware has evolved to the point where an entire rack of horsepower five years ago can fit into a single 4U space. Pricing has also fallen to the point where even the lowliest startup can afford a serious array of horsepower. Illustrative of this point is that for the price of our original hardware ($130K), you could actually launch many Web 2.0 type plays, at least in an initial beta state!

The continued evolution of Linux has also played a tremendous part in all of this, and it shouldn’t be overlooked. Over the years, I have used OS solutions from Microsoft, IBM (AIX), HP (HPUX), Sun (Solaris, SunOS), etc. None have played such an important role in helping startups watch their bottom line, and put serious firepower online more than Linux. From price (free) to scability to POSIX compliance – you just can’t beat it. If you are a startup, and you are building your solution around costlier platforms, you are simply wasting your money, or worse, the money of your investors – period – end of the story.

The offshoring revolution has certainly played a key role in the lowering of labor costs – no doubt about it. And given that hourly rates from India have gone up dramatically over the years, we are moving into a second wave of offshoring. We are seeing CMMI Level 5 shops popping up in places like Vietnam. The decentralization of the labor market through places like odesk.com and elance.com have also played a hand in things.

Summary
Not much to summarize really – it is obviously cheaper to get things done these days, and there are lots of valid reasons as to why that is.

To circle back to Fred Wilson’s original post – the reduced technology-related spend is not a panacea for successful startups. As Fred points out, eventually, the capital requirements to build a sucessful company come full circle. However, you can definitely take advantage of certain trends to substantially lower the slope of the spending curve – which obviously assists you in controlling your burn.

I don’t think anything amazingly profound or prophetic has come out of this post, but it was fun to put together. Hopefully, you enjoyed it and found it of interest.

Cheers.

Quasi-Death of a Web 2.0 Play

Scott Burkett — Sun, 11 Jun 2006 19:18:04 +0000

As the world moves merrily along towards roughly Web 2.26beta (by my calculations), we are seeing the beginning (I think) of the thinning of the ranks with existing Web 2.0 plays. I received an email the other day from the folks at Fruitcast. Fruitcast is/was a play that catered to providing integrated audio ads for podcasters. In the email, they outlined the reasons why the service was being shut down, albeit allegedly temporarily.

I want to point out a couple of things on this front, though.

First and foremost, I want to point out that this isn’t a knock on Fruitcast, or their team. It seemed like a great service (I even used it myself.) However, I am always of the belief that if you can learn something from the failures of others, the better. If I’m gonna fail, I’d rather fail by committing my own, unique, blunderous errors, rather than falling prey to “common pitfalls.”

Next, I want to talk about the “seven P’s”. You may remember the “4 P’s” from your Marketing 101 class in college (Product, Price, Place, Promotion). Well, the “seven P’s” of which I speak are not related to those “4 P’s” from Marketing 101. They are different.

What are the “seven P’s”? With a nod to Dick Marcincko, former U.S. Navy SEAL, who introduced me to the phrase years ago:

Proper Prior Planning Prevents Piss Poor Performance.

Web 2.0 startups are notoriously easy to start these days. They are not necessarily capital intensive businesses. However, just because it is becoming increasingly easy for two guys in a garage to launch an earth-shattering new venture, doesn’t mean that the concepts of business management go by the wayside. Being successful in business requires planning – period.

Fruitcast clearly did not secure enough capital and resources to move their plan forward. I am also reminded of the quote from German Field Marshall Helmuth von Moltke:

Kein Plan überlebt Kontakt mit dem Feind.

Or better known in English as:

No plan survives first contact with the enemy.

The plan Fruitcast had, if they had one at all, clearly didn’t hold up. Additionally, even the best-laid plans have to adapt to the everchanging landscape of the “battlefield” – be it in business or warfare. When the first round is fired, and all hell breaks loose, you’d better be in a position to be nimble. Adapt, improvise, and overcome.

Their email (full text below) provides a litany of issues describing why they are having to take a “hiatus.” However, many of the stated issues could have (should have) easily been addressed in the planning stages of their business (bandwidth, server downtime, lack of customers).

One of my favorite lines is where the Fruitcast guys inform us that they are “going to put Fruitcast on a brief hiatus, so we can work on it without annoying our member podcasters in the meantime.” Hmm. Call me crazy, but I would call shutting your service down for the summer “annoying to your members.” Probably even more so. A proper development plan would have provided an environment for handling such an event. The current service could have been continued while work progressed on the “2.0″ version. Just my two cents.

Bootstrapping isn’t for every business, and it isn’t for everyone. I believe you can bootstrap your way into relative obscurity if you aren’t careful. At some point, if you want to go big, you need capital, be it from the inside (founders, organic revenue growth, etc.) or from the outside (investors).

Finally, I will leave you pondering these questions:

Fruitcast has stated that they are going to “be back soon.” But have they worn out their welcome?
Users have high expectations these days, as do sponsors (their customer segment). What are the chances of a comeback?
Will adoption be there this time?
If they re-emerge with a solid business plan and adequate resources, will the market view this favorably, or will they forever be viewed as a “could-have-been?”
Given the increasing number of “podcast advertising” plays popping up on the radar, have they missed their window of opportunity to be a player in this space?

I certainly wish the Fruitcast team nothing but success. I think the core of their idea is still a solid one.

Here is the original Fruitcast email, if you’d like to read it:

Dearest Fruitcasters,

We’re not going to beat around the bush — Fruitcast needs a lot of work. As one of the podcasters who has signed up for our service, you’ve experienced our ups and downs, server moves, service outages, etc., and most of you have been wonderfully patient with us while we try to figure all these things out. Now it’s time to make some things right.

-= OUR MAJOR ISSUES =-

Here are the biggest problems we’ve been facing:

1. LACK OF ADVERTISERS. We’re working on educating the ad industry, but it’s going to take some time before we have enough advertisers to satisfy even a fraction of the podcasters who are wanting to run ads. We’re now working on some exciting new ways to make it even *easier* for smaller advertisers to run campaigns on podcasts.

2. BANDWIDTH. If we were a VC-funded firm with heaps of money to throw around, we could easy take care of this — but we’re not. We’re running on a relatively efficient budget, and we’ve had to try to find a good balance between power and cost. Our current hosting solution just isn’t cutting it (as you may have noticed), and we’re working on some potential relationships with hosting/bandwidth providers to get the kind of solution that Fruitcast really needs.

3. SERVER DOWNTIME. It’s totally unacceptable for a middle-man solution like Fruitcast to go down as often as it does. There are a combination of issues, including the hosting platform, code quirks, less-than-adequate handling of non-standard feeds, etc., that are causing some of these problems. In addition to seeking a more stable platform, we’re also building a number of monitoring tools that will help the Fruitcast system react and self-adjust as necessary to ensure uptime.

-= HOW WE’RE GONNA FIX IT =-

You guys, the podcasters, have been bearing the brunt of these issues. Because we’re a genuinely podcaster-oriented company, this has been an acutely painful truth for us. We could continue to tweak and hope that you guys put up with these issues until we could finish them, but we simply can’t tolerate the downtime and other issues that you’ve been facing. We’re not going to get between you and your listeners until we can promise consistent uptime and high-quality service.

So, we’re going to take some drastic measures:

1. FRUITCAST IS OUT FOR SUMMER: We’re going to put Fruitcast on a brief hiatus, so we can work on it without annoying our member podcasters in the meantime.

2. REVAMPED PLATFORM: We’re going to completely rewrite our ad serving platform to incorporate the many fun, fascinating, and occasionally painful lessons we’ve learned over the past several months.

3. MORE FLEXIBLE OPTIONS: Long ads, short ads, live reads, sponsorship spots, radio spots. We’ve listened to your feedback, and you’ve indicated that you’re quite comfortable with offering a variety of options to advertisers. We’re going to give it to them.

4. MORE PODCASTER CONTROL: You should have the ability to approve or reject every advertiser who wants to put a spot on your podcast. We’ll give you that ability.

5. MORE PROMOTION: Our new system will give allow you to recruit potential advertisers right from your own website. (We’ve also got a number of other clever ideas up our sleeve.)

6. QUALITY CONTROL: We’ve allowed every podcaster who signed up to be listed in our directory, and it doesn’t seem like that’s fair to the advertisers, or to podcasters who are putting a ton of effort into their work. We’re not going to tell you what to podcast about, but we will have certain requirements for feed integrity, hosting consistency, audio quality, etc.

-= WHAT THIS MEANS FOR YOU =-

The most important thing for you to do right now is to CHANGE YOUR FEED to use your base url instead of your Fruitcast url. For most of you, this should be as simple as changing the url in Feedburner, but some of you may have used the actual Fruitcast url as your primary feed, and you’ll have to let your subscribers know that it’s changing. (Sorry!)

We’ll do everything we can, including manually redirecting every feed, to make this as smooth a transition as possible. However, the sooner you can get your listeners back onto your base feed url, the easier the transition will be.

-= THIS IS THE BEGINNING =-

We’re going to bust our behinds and come out with Fruitcast v2.0 as soon as possible. We genuinely appreciate you, the members, for standing by us through the rough times of an early startup. This isn’t goodbye — it’s more like a trip to the supermarket. We’ll be back, and we’ll be bringing ice cream with us.

(More updates will come soon…feel free to reply with any questions you might have.)

Good night, and good luck!

The Fruitcast Crew

Cheers.

Speaking at the Kettering Executive Network

Scott Burkett — Mon, 13 Feb 2006 01:42:12 +0000

For those of you who are members of The Kettering Executive Network (an executive networking group here in Atlanta), I will be delivering a presentation entitled “Business Blogging: Leveraging Web 2.0 to Extend Your Personal Brand”.

I will provide an overview of business blogging, and share you some solid strategies for taking advantage of blogging to further build your executive brand.

I will be presenting on Friday, February 17th, 2006, at 10:00am. The meeting will be held in Suite 700 of the Seibel Systems building at 1 Glenlake Parkway.

If you are not a member of Kettering, but would like to have the presentation delivered for your organization, by all means, let me know.

I look forward to seeing you all there!

Cheers.