The Joe Kraus Q&A : Better Late?

I had the pleasure of sitting at dinner with Joe Kraus, CEO JotSpot, at the Enterprise Irregulars dinner last month. Kraus is a pioneer in the Enterprise 2.0 “movement,” much like Ross Mayfield, CEO SocialText, Harvard professor Andrew McAfee, and others. I asked him if he would do a Q&A on my blog, and he agreed. The rumor of the evening was that JotSpot was to be acquired by Yahoo. I asked him about that, and he unequivocally denied it. As we all know now, the suitor was none other than the 400-lb gorilla, Google. Good for Joe.

The interview is still provides excellent lessons learned from a pioneering Next Net strategic thinker.

Joe Kraus Q&A, 10/24/06

I’ve heard you say before that JotSpot is trying to start a DIY revolution. If that’s the case– who are we revolting against? And how will we know we’ve won?

My general view is the biggest technological revolutions have been do it yourself (DIY). And whether it’s the personal computer which was DIY computing– taking computing out of the hands of experts and giving it to everyday people; desktop publishing– which was taking publishing out of the hands of experts giving it to everyday people, or podcasting– taking radio essentially out of the hands of experts and giving it to everyday people. Those are the powerful revolutions where big, mass phenomenons occur. I think that the web has been a DIY publishing revolution for about a dozen years whether you trace it to HTML to ms front page, geocities, yahoo groups, blogging wikis that’s all really an evolution of the DIY publishing world. I think there’s a new revolution coming that’s called DIY applications.I think you see it with JotSpot’s vision; you see it with Dabble DB, Coghead—you basically see this notion of ‘how do you enable normal or non-technical, or maybe just slightly technical or technically-leaning person to be able to make a place online not where somebody reads something, but where somebody does something.’

I think that any time you are having any kind of DIY revolution, the thing you are revolting against are two things: expertise and capital.So if you look at the PC/desktop publishing/podcasting revolution, you are looking to revolt against the expertise required to do the thing enabled. Podcasting is enabling people who are not experts in broadcasting over FM signals, allowing them to get their message out in a form that previously would have been acceptable to them. Second thing it revolts against is the need to have a lot of capital to do that.You don’t need a radio station to get your signal out.You’re revolting against the expertise required to make an application typically involved with folks that maybe know statically typed or dynamic languages like Java or C++ or pearl or python.And you’re revolting against the capital required in paying experts to build those programs.

And in terms of how do you know when you’ve won?I think you know when you’ve won when Today, you’re average person at your small business doesn’t hesitate to take excel and make a customer list.I think the day that somebody just assumes that you should be able to make a simple application and take it for granted? I think you know you’ve won.When it becomes invisible is the time you know you’ve won. Take search for example, you didn’t take that for granted a dozen or so years ago.It’s a testament to ‘now you know the Internet is here to stay.’

What is your advice to startups? Is there anything you would have done differently?

Let me talk about something I would have done for sure differently at JotSpot. I’ve come to no longer believe in betas. More specifically what I mean is far too often companies put their product in beta, but don’t put their business model in beta. Jotspot did that. We put our product in beta at the first web 2.0 conference.But we didn’t simultaneously test our business model.We got a lot of product feedback, but we learned nothing in the four, five, six months of beta time about whether our business model was going to fly.In particular, not the notion of subscriptions of not, but the notion of what is the metric of value that people care about?Is it users? pages? wikis?; is it file size storage? and the only way you learn is by doing.

So my advice to startups in this particular category is if you’re going to put your product in beta—put your business model in beta with it. Far too often we are too product focused and not business-model focused. That’s one thing I definitely would have done differently with JotSpot.

Can you describe JotSpot’s “heavy user?”

Heavy user? I think about the adoption process where wikis in companies get very sticky.”Heavy users” come from wikis starting in a small group. In a classic adoption pattern, you have a small group and a champion who’s maybe going to run a new project. The champion decides that instead of passing information around overemail, we’re going to create a wiki where it’s a centralized repository where we take our notes, put our feedback, store our files, and it’s basically a project wiki.And that person is so enthusiastic about it he’s able to carry the day and get his team members or her team members to participate.

Once they start participating they say, hey this is a much better way of doing things.That project is hopefully successful in the company and peers say, ‘how did you do that?’ or they are invited into the wiki as a way of being briefed on what’s going on and they see it and they bring it to their category and start new projects using this technology.And off it goes, to ultimately become the intranet or the tool by which all information inside the company is managed with each group having their own section of the wiki.

That has been the adoption curve for every heavy user that we’ve got be it companies like Leapfrog which make children’s toys and uses JotSpot across the entire company to manage the company… British Telecom… similar adoption process.

Rumors abound over JotSpot’s potential suitors. Is it your intention to sell?

I think any time you build a company designed to be sold, you ultimately get less value if it’s sold. You reduce the number of options that you have. If I as a suitor know you have no options, why would I pay any kind of money for you? If on the other hand, I think you do have a chance at being a successful independent entity, I should probably pay up now because the cost of acquiring you later might be too great. So my view is, the answer to this question should always be, ‘you are building to be a large, sustainable independent company.’

But to recognize that at any time in the company’s life there’s a risk/reward curve and if somebody’s willing to pay off of that curve, you should at least hear that discussion. That’s my rational view on the topic. Is it your intention to sell? No, we intend to be an independent company. But there’s always a price at which you would sell unless you’re totally emotional about the topic which leads to its own set of problems.

My general view on this is Americans are optimists. My favorite quote on this was a Times/CNN poll in the year 2000. When asked the question: “Are you in the top 1% of earners, 19% of people said yes and a full 20% said they would be.” So a full 39% of Americans believe they are or will be in the top 1% of earners in the country which is a testament to optimism as a shared cultural foundation.I think that’s even more pointed in Silicon Valley. Every time a YouTube gets bought, a Delicious gets bought, a Flickr gets bought everybody believes they are going to be in that category. As a result you have a whole host of companies designed to be sold which I think is a dangerous thing.

Truthfully while there is a whole lot of innovation in this web 2.0 cycle because it’s so much cheaper to make companies these days or build products and bring them to market, I think that if you don’t design to be independent, most likely you’re not going to have a good outcome.

What was a key turning point in JotSpot’s history? The eBay relationship?

We started 3 and a half years ago. In hindsight, at Excite, we had some very pivotal episodes measured in the span of weeks or days where deals done that altered the trajectory of the company that were make or break moments. I don’t know what those are here yet.I look at the eBay thing as an important relationship for us and a highly valued one. One that took JotSpot from… we no longer have the questions of, “Can you scale? Can you deploy? Again, it’s a large public site. Having the eBay security team vetting you is certainly another mark of validation.But different than the Excite case (the Netscape distribution deal) which allowed the company to go public… having had those moments, it’s a little tough to put eBay in that category.

Maybe my standards are too strict. I do think an interesting turning point was when I first saw a wiki. It was one of those aha moments like the Internet in 1993. It was a great technology useful for so many things, but trapped in the land of the nerds.

Is JotSpot targeting enterprise users and how are they defined?

To me it’s more about business users. Because I believe wikis are most useful in the service of business and the reason that is that wikis require trust. If you’re going to allow people to self-edit that requires trust. If you’re going to allow people to edit stuff themselves you’ve got to trust them. There are very few examples of open Internet trust with the exception of Wikipedia.It’s hard to build trust on the open Internet. At work it’s easy to build trust because everybody’s working for the same company you know who people are in general and, their edits are signed/marked, and there are repercussions if you do something really bad, e.g., you can get fired.So trust is easier to provide in businesses. There is an inherent need to collaborate inside of businesses. And that’s why I think JotSpot is really focused on business cases rather than Wetpaint or Wikia which are focused on consumer cases.

Finally the reason that is the consumer use model requires an indirect payment model—typically they’re advertising-based.In order to be successful in that space you have to have a ton of page views because it’s a scale business. It’s a winner-takes-all high scale kind of business.That’s why we’re focused from a business model POV on businesses because they’re willing to pay directly as opposed to indirectly through advertising.

How do you define enterprise?

There are definitely requirements between an SMB, say with 10 employees, and a company with 250 employees and a company of several thousand employees. But, given the adoption model of Wikis, and the pricing model that we have that facilitate the bottom up adoption, the workgroup of ten people that adopts the product say, at British Telecom, looks a whole lot like the company of ten. So, the feature set at the first point of adoption. The question becomes as you get bigger and bigger inside the company, then you start to get issues around integration with existing systems, authentication, single sign-on, backup, etc.

What is the “value metric” related to enterprise 2.0 apps?

In the end, it has to relate to cost-savings, increased revenue or an indirect measure of that like productivity.Businesses only do things for two reasons either they save money or they make money, and then again, indirect measure of that, productivity for example. My view on office 1.0 is it was all centered around productivity.Microsoft was all about making you more productive. It was very individual-oriented. At the center of Office 2.0 is collaboration. This is why I think wikis are a fundamental tool of that.

In the end, I think collaboration however measured is to do things more efficiently and accurately.The end metric has to be productivity—that’s the one that most affects the top and bottom line. And the reason productivity is increased in this instance is not because I can write the document faster, but because I can share the document more efficiently and faster.

How do you position JotSpot against its competitors?

The big difference between JotSpot and traditional wiki vendors is JotSpot is a collaborative applications platform that is designed to allow you to build your own collaborative applications if you want.Or build a variety of collaborative applications inside the same environment. Most wikis are just collaborative web pages. JotSpot is trying through its collaborative applications platform is apply the wiki metaphor of moving the web from a monologue to a dialogue to the familiarity people have with the traditional office applications.

So, in a traditional wiki, when you create a new you can only create one kind of page which is a web page.It has no structure on it; so if you wanted to put a calendar on a wiki, it doesn’t look like Outlook anymore and it you lose all the structured information, i.e., a calendar event, start and end times, does it repeat?… If you want to move an Excel spreadsheet into a wiki, typically you lose all of the ability to do any of the sorting that you might do. If you had an action item list, you could no longer like you could in Excel, sort it, now it’s nice that it’s in a wiki page, a web page, that’s shareable, but at the same time, you lose a lot of the ability that you have in Excel. In JotSpot, when you create a page, you get to select from a whole range of wiki page types as we call them. If you want to create a wiki spreadsheet, a wiki to do list, a wiki calendar—those actually look like the applications you would expect them to look like and act like those applications, but you bring a wiki metaphor to them so they’re shared and under the same version model.

That’s the big difference between us and every body else and traditional wiki vendors.So you rarely run out of steam with JotSpot. The difference between us and the office 2.0 vendors is in the case of something like if you’re going head to head against MS and Office 2.0 or you’re trying to bring Office online, I think you are committing suicide. I think MS has a long, long time because consumer habits die really hard. They take a long time to die. Just take Mapquest vs. Yahoo or Google maps. Google and Yahoo maps are really superior, but they are still dwarfed in share by Mapquest because people don’t change that quickly. And if you don’t think people will change quickly in maps, how slow do you think they’ll change something like Office? The tools we’ve used daily for a decade or more. You’re not changing all that fast.

So to move office online I think to move those applications online is pure suicide, esp. if you’re not a deep-pocketed company. Google I give a shot to because it’s got to go head to head, it’s got the deep pockets, it’s got the will and the staying power, and it’s got the brand to do so. Jotspot’s approach to this is we’ll never survive on our own. So, let’s base our offering which is broader than traditional wiki vendors, because it offers things like calendaring and spreadsheets, but oriented around a wiki so it’s something new. The early adopter market is focused on that right now– not trying to go after the main market by moving traditional office productivity apps right online.

What do you love (and hate) about running a next generation Internet company?

There’s a bunch of stuff I love about stuff costing a lot less. Excite took $3m dollars to get some ideas to get to market and JotSpot took about $100K. I love that fact. To me the definition of web 2.0 is really about cheap innovation. It’s cheap innovation because whether it’s computers being cheaper or it’s open source software meaning your software on top of which you build your software is now free be it from MySQL to your operating system to your web server or your app server or via adwords that allow you to get to niche markets very cheaply and efficiently… be it off shore labor—a little company like JotSpot having people in Romania, Germany, India whereas when Excite was formed there was no chance of having access to that—that all has made cheap innovation possible because it’s so much cheaper to bring products to market. That’s great.

There are consequences too.It’s cheaper for competitors to get to market too. You have a much more frenetic marketplace whereas before, with more capital required you end up having fewer competitors then it’s great for consumers. While a lot of these companies will not make it because of either the intense competition or just the natural fate of startups—too early for the market, missing the market, etc., I think the fact that there are more competitors always benefits customers in the end. I like that for the most part there’s a sense of trying to create, that the business model is equation is important at the very beginning. And that people are trying to figure that out.

There’s essentially some rationalism in both entrepreneurs and to some degree, funders. I think some of that is starting to erode both caused by two things: the more acquisitions are done in an eye-ball oriented environment. People want to fund eye-ball oriented companies. Nothing’s actually wrong with that. I just think your chances are low when.To me the question of YouTube being bought for 1.6 billion dollars is not a question of ‘did they pay too much?’ It’s ‘how could the ninth most popular site on the web only be worth $1.6 billion?’ So I like some of the rationalism that’s involved.

That flows through to employees I think that people have expectations I remember in the 90s there was a huge sense of entitlement for employees. Despite there are so many companies coming up, the pace of entitlement has not come up with it. One of the things that is difficult is continues to finding great talent. But what has amazed me is how Google has maintained as a 9,000 person company a reputation, and has the ability to acquire amazing people who historically are only startup people. Startup people who are willing to go to an 8-9000 people company and believe that it will be just like a small company, but with the reach and financial resources of a company like Google.

What do you hate about it?

I think that somehow in this environment, Silicon Valley is a bit of an echo chamber. I think it’s even more so in this environment somehow. That we risk all talking to ourselves and I am.I think that that is a good thing on some level, but a bad thing if your employees feel that praise in the echo chamber—of the “web 2.0 crowd”—is equivalent to business success that is bad.It’s not a hate; it’s a risk. I feel there is a clubbiness about web 2.0 and has some real assets because it’s smart people thinking ahead, but the truism of that is being early is the same as being wrong. The other danger is if your employees feel that praise is the same as business model success then you’re not guiding people the right way.