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Consumerization of the Enterprise By @BostonVC | @CloudExpo [#Cloud]

Consumer VCs like to make light of the Founders Fund mantra ‘We wanted flying cars, instead we got 140 characters.’

Consumerization of the Enterprise – Phase 2

Consumer VCs like to make light of the Founders Fund mantra ‘We wanted flying cars, instead we got 140 characters.' For those of us working in the enterprise, it's actually the reverse, "They promised us 140 characters, instead we got Workday."

Since 2010, SaaS applications were supposed to "consumerize", but as anyone who has used the majority of SaaS applications released prior to 2014 knows, they are still clunky, punishing interfaces that happen to be hosted in someone else's datacenter. 2014 is proving to be the year where this changes, with a large wave of new-generation SaaS apps that really deliver on a delightful user experience. Employees and managers are taking notice of these new user-friendly tools, causing adoption to explode from the bottoms up.

Consumerization of IT - the second wave

Up until about 10 years ago, large enterprises were the primary consumers of technology, and they drove the agenda for where dollars were invested and innovation happened. But between 2000 and 2008, consumers overtook enterprises and became the largest buyers of technology. Ever since then, consumers have driven the most important innovations. And enterprise technology has struggled to keep up, in what is known as the consumerization of IT.

In the first wave of consumerization, employees brought their smartphones and tablets to work, and expected their IT groups to support these to access corporate systems. But ever since apps like Uber became ubiquitous, a second wave of consumerization has started to happen: Consumers now expect an Uber-like experience in their work lives. And yesterday's enterprise systems fall woefully short of that bar.

Consumers used to say "I'll deal with whatever system you give me," then they said, "I'll bring a better system, just support it," now they're saying "I expect a system that enables a better way of working, deliver it". The baseline expectation has shifted, and this has been led by an increasing number of experiences in their personal lives becoming easier and better. Using Uber and Lyft as an example, it's less about the gorgeous UI/UX of the apps, but more about how they rewrote the unpleasant experience of hailing and riding in a cab, making the consumer feel like a VIP in the process.

Customer-facing Systems - the first challenge

This problem is most acute when it comes to the interface between a business and its customers. In the past, most business used people as the primary interface to their customers. But consumers and corporate buyers hate the inconvenience of restricted business hours, long wait times, complex IVR menus, and staff that are often less than knowledgeable. They prefer self-service. And now they expect that self-service to be easily accessible on their smartphone, with the same kind of beautifully-thought-out user experience that they have seen is possible with leading consumer apps. If they don't find the kind of digital experience that they are looking for, they will often look for a competitor that can offer it to them. And finding a competitor usually requires just a few clicks.

Digital Experience defines your brand

To summarize,  Digital Experience is now defining the brand of more and more companies. Customers expect to place orders, check status, get notifications of changes and updates, etc. via simple and elegant mobile apps. The quality of the experience in using a company's mobile app now frequently defines how the buyer thinks about that company. This has become so important that Forrester Research went so far as to say that "In the 21stcentury, successful brands will rise and fall based on software."

Not just Customers, but Employees too

But it doesn't just stop there. Although customers are the most important priority, right behind them come a company's employees. Increasingly tech-savvy employees are experiencing how mundane tasks can be re-written by apps like Uber and Shypp, and are looking to redefine the painful tasks in their work lives. Sadly most current IT systems are a far cry from this. Even the first generation of SaaS solutions are being viewed as legacy and unsatisfactory. Just ask sales people what they think of Salesforce.com. Most will tell you that they hate it, as it makes them do more work. This is because CRM was designed for the sales manager and not the sales person.

Surprisingly, even Workday is viewed as a legacy system in SaaS clothing. Users of Workday in our portfolio companies consistently tell us how much they hate the user experience. (One individual showed me the eight page word document that their HR department had to put together to guide them through the many complex steps of a performance review.) Workday was designed for the HR professional who was OK going through a long training and setup period, and not for the employee and manager who are looking for simple and convenient ways to get their job done.

What we notice with SaaS apps like Salesforce and Workday is a focus on being system of record that solves a particular business problem. Employees are often slaves to the system, doing tedious data entry. What's missing is a focus on rewriting the way that work gets done. And the quality of the user experience in using the app. New SaaS companies are emerging to address this gap.

To get around the inefficiencies at work, employees and managers are purchasing next generation, consumer-grade, SaaS applications using just a credit card, without waiting for IT approval. Savvy SaaS vendors take advantage of this with either Freemium offerings, or low priced offerings that enter via an individual or small department. Then, once they have proven the success of the system, they call higher in the organization to expand the usage of the application, touting the success of the current users as proof of the effectiveness of their software.

For this strategy to work, the developers of this next generation of SaaS apps know that they have to immediately delight the user, and keep them engaged over time. There is a huge focus on the user experience. And careful steps are taken to measure and optimize user engagement. These apps are no longer the old style of thin client web application where the page is rendered on the server, and has to be reloaded with every change in the app. Instead the application development paradigm has changed, and developers now use frameworks like Meteor to build "thick client" apps written in Javascript to enable the kind of instant refresh that consumers have gotten used to in Facebook, Google Maps, etc. Part of the magic of Uber is that you see your car moving on the map, without having to constantly hit the refresh button.

Frequently, mobile apps are becoming the most important client, as users look for the convenience of any time, any place, access, and apps take advantage of the many converged features on a smartphone (geo-location, multi-modal communications, camera, address book, calendar, etc.)

Companies like Zendesk have led the way by re-writing how businesses interact with their customers. And the experience of using the app is a pleasure due to "beautifully simple" design. Their application is easy to set up, simple and intuitive, yet full of powerful functionality. By dropping a couple of lines of JavaScript onto your web site you enable an entire customer self-service help desk. That help desk enables a new and easier way for customers to interact with your business and get resolution to their problems. [continued...]

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More Stories By David Skok

David Skok joined Matrix Partners as a General Partner in May 2001. He has a wealth of experience running companies. He started his first company in 1977 at age 22. Since then he has founded a total of four separate companies and performed one turn-around. Three of these companies went public.

Skok joined Matrix from SilverStream Software, which he founded in June 1996. Prior to its July 2002 acquisition by Novell, SilverStream was a public company that had reached a revenue run rate in excess of $100M, with approximately 800 employees and offices in more than 20 countries around the world. His work as a value added investor is best known for helping JBoss take its Open Source business to a successful exit with its sale to Red Hat, and for helping AppIQ, Tabblo and Diligent Technologies, which have all had successful exits, from their inceptions to their acquisitions by HP and IBM.

He serves on the boards of Digium (makers of the very popular Asterisk Open Source PBX/telephony software), CloudSwitch, Enservio, OpenSpan, Solidworks, VideoIQ, and HubSpot. In addition to his broad focus on enterprise software, he is specifically focused on the areas of cloud computing, Open Source, Software as a Service (SaaS), marketing automation, virtualization, storage, and data center automation.