Chat and the Consumerization of IT

It was in 2001, the same year the iPod was introduced, that Douglas Neal and John Taylor coined the phrase “Consumerization of IT”; they set down a specific definition in this 2004 position paper:

The defining aspect of consumerization is the concept of ‘dual use’. Increasingly, hardware devices, network infrastructure and value-added services will be used by both businesses and consumers. This will require IT organizations to rethink their investments and strategies.

Neal and Taylor’s argument was rooted in math: there were more consumers than there were IT users, which meant that over the long run the rate of improvement in consumer technologies would exceed that of enterprise-focused ones; IT departments needed to grapple with increased demand from their users to use the same technology they used at home. The pinnacle of the trend seemed to be the iPhone: designed unabashedly as a consumer device, Apple’s product was so superior to what was on the market that employees clamored to use it for company business; surprisingly, Apple helped out, adding significant enterprise-focused features to the iPhone.

Meanwhile, a year earlier Google had launched Google Apps for your domain, bringing popular Google consumer applications like Gmail, Google Talk, and Google Calendar to enterprises. The company basically repeated Neal and Taylor’s thesis in the blog post announcement:

A hosted service like Google Apps for Your Domain eliminates many of the expenses and hassles of maintaining a communications infrastructure, which is welcome relief for many small business owners and IT staffers. Organizations can let Google be the experts in delivering high quality email, messaging, and other web-based services while they focus on the needs of their users and their day-to-day business.

Former Microsoft CEO Steve Ballmer originally dismissed Google Apps, but eventually Microsoft viewed the cloud service as a mortal threat; four years later Ballmer had adopted Consumerization of IT as one of his main talking points, writing in Microsoft’s 2012 shareholder letter:

Fantastic devices and services for end users will drive our enterprise businesses forward given the increasing influence employees have in the technology they use at work — a trend commonly referred to as the Consumerization of IT. It’s one more reason Microsoft is committed to delivering devices and services that people love and businesses need.

In Ballmer’s interpretation, Consumerization of IT was about delivering enterprise products that were IT-friendly with a nice consumer-like interface on top, and while outside observers may have considered the latter a particularly significant challenge for Microsoft, there’s no question the company was well-placed when it came to the former; after all, IT managers were the ultimate decision-makers.

Meanwhile, an enterprise startup called Atlassian, founded in 2002, was offering a new definition of Consumerization of IT. Their main product, the developer-focused JIRA project management software, was not a consumer product ported to the enterprise, like Google Apps, nor was it a traditional IT-product with a consumer-like interface peddled to IT managers to get users off their backs. What was so innovative about JIRA was how it was sold: to teams, not companies. Thanks to the distributive power of the web the company never bothered to build a sales force to wine-and-dine CIOs; rather the product could be downloaded from a website (and later signed up for as a cloud service) and paid for with a credit card; the primary form of marketing was word-of-mouth.

So which definition of the Consumerization of IT is most meaningful? Is it consumer products ported to IT, consumer UI on traditional enterprise products, or a new business model that transforms the relationship between buyers and sellers? Certainly all three factors are important to the rise of software as a service, but the upcoming chat wars will provide an interesting test as to which is the most important.

Approach 1: Workplace by Facebook

Earlier this week Facebook formally introduced Workplace by Facebook. From the company’s blog:

At Facebook, we’ve had an internal version of our app to help run our company for many years. We’ve seen that just as Facebook keeps you connected to friends and family, it can do the same with coworkers…We’ve brought the best of Facebook to the workplace — whether it’s basic infrastructure such as News Feed, or the ability to create and share in Groups or via chat, or useful features such as Live, Reactions, Search and Trending posts. This means you can chat with a colleague across the world in real time, host a virtual brainstorm in a Group, or follow along with your CEO’s presentation on Facebook Live. We’ve also built unique, Workplace-only features that companies can benefit from such as a dashboard with analytics and integrations with single sign-on, in addition to identity providers that allow companies to more easily integrate Workplace with their existing IT systems.

Workplace is a near perfect application of Neal and Taylor’s original thesis: Facebook has already done much of the R&D and all of the backend buildout for the product by virtue of building the Facebook consumer app, meaning it can offer a very robust service at very competitive prices.

Moreover, it’s a service that potential users already know how to use; training and adoption remain significant barriers for all enterprise products, including cloud-based ones, which means Workplace will have a head start over competitors.

Still, there are challenges that arise from Workplace’s consumer roots: for one, while Facebook is promising that Workplace data will be both secure and independent from Facebook itself, the company will still have a reputational problem to overcome. Relatedly, the business model is a complete departure: Facebook has never charged for software before, and as Google learned a decade ago, licensing revenue come with new obligations around service and responsiveness that require the development of completely new organizational skills.

There’s one more hangup: it’s not as easy to get started as Facebook suggests. You need to apply, at which point you will be contacted by Facebook’s sales team, who “will work with you to understand your needs and help launch Workplace across your organisation.”1 This is understandable given that Workplace’s biggest gains come from connecting the entire organization, but it’s a lot closer to a traditional enterprise selling motion.

Approach 2: Skype Teams by Microsoft

Microsoft already owns Yammer, which will have to give up its mantle as “Facebook for work.” It seems much of the company’s energies, though, have been focused on building Skype Teams, a product first reported by MS Power User in early September:

Skype Teams is going to be Microsoft’s take on messaging apps for teams. Skype Teams will include a lot of similar features which you’ll find on Slack. For example, Skype Teams will allow you to chat in different groups within a team, also known as “channels”. Additionally, users will be able to talk to each other via Direct Messages on Skype Teams.

This isn’t exactly a surprise given reports Microsoft considered (some say tried) buying Slack; at the time it was reported that Bill Gates was a particularly vocal proponent of building a competitor. What is more interesting is the licensing model, which was reported by Petri late last month:

Skype Teams will be part of Office 365 and will be available to anyone who is already subscribed to a business plan, likely starting with E3 SKU. Skype Teams integrates deeply with your Office 365 content as well, with the ability to share your calendar inside the app as well as join meetings too. To no surprise, this application is built on the company’s new cloud platform and very well may be the future of Skype for Business. Make no mistake, Microsoft is going for the jugular on Slack with this product as many corporate customers already use Office 365 and with this product being bundled into that service, there will be no need to pay for Slack.

This is very much in-line with the Ballmer view: build a product explicitly for enterprise that has all the trappings of consumer software. Then, in true Microsoft fashion, leverage its existing position in companies to drive adoption. In the case of Skype Teams, companies that have Office 365 will have the choice of paying extra for Slack or simply using Skype Teams for free; ideally they will never even try to compare the two — and Microsoft will have an entire field organization working to ensure that is exactly what happens.

There are, of course, challenges with this approach. As is their wont Microsoft seems to be over-indexing on brand awareness (Skype ?) as opposed to brand reputation (Skype ?). More importantly, Microsoft has to prove they can build a competitive user experience while avoiding the temptation of competing on features; when Instagram copied Snapchat’s Stories feature I wrote in The Audacity of Copying Well:

The problem with focusing on features as a means of differentiation is that nothing happens in a vacuum: category-defining products by definition get a lot of the user experience right from the beginning, and the parts that aren’t perfect — like Facebook’s sharing settings or the iPhone’s icon-based UI — become the standard anyways simply because everyone gets used to them.

Perhaps more importantly, though, Microsoft’s Office 365-based model is a double-edged sword: the “you already paid for it” pitch is one that resonates with CIOs, not necessarily users and team leaders who may already be using a competitor — or be tempted to try.

Approach 3: Slack

The only thing that has grown faster than Slack’s user base and valuation is its hype and mindshare among the tech press, so it’s not a surprise that Workplace by Facebook is being characterized as a Slack competitor; undoubtedly Skype Teams will be described the same way.

Slack represents the evolution of the Atlassian model: getting started takes nothing more than an email address. There is no server software to install, no contracts to sign, and you don’t even need a credit card.2 There is a generous free level, which means the only friction entailed in giving the product a try — or in accepting an invitation — is said sign-up. And as we’ve learned in the consumer space, when everything else is equal the quality of the user experience matters most.

Moreover, because this is messaging, the user experience is about more than the user interface: it is first and foremost about who else is using Slack. And, at least amongst developers, that is a whole host of other people and interest groups one might want to be connected to. No, Slack cannot leverage itself into a particular company through another SKU like Microsoft will leverage Office 365 for Skype Teams, but that means the company can willingly (or unwillingly) let its users connect to teams far beyond their own organization, adding on a consumer-like network effect; granted, this won’t necessarily drive CIO decision-making, but it does enhance the end user experience, which matters more the lower down the hierarchy the decision-maker is.

Where Slack is weaker is, well, being a proper enterprise app. While it is used widely in startups, Atlassian’s Hipchat has won contracts at bigger companies like Apple, Twitter, and Uber. In some cases this is because Atlassian offers an on-premise version, in others it comes down to issues like compliance and data storage. Slack will surely catch up, but it’s worth noting that feature weakness is a natural outcome of the model: there are no CIOs demanding features via sales people desperate to close a deal. The feedback loops are a little looser.

Slack’s network effect notwithstanding, the reality of enterprise software is that there will likely be multiple winners. Facebook’s product looks very compelling, but it’s fair to wonder if the company will be truly committed to the category; Google came out of the gate fast a decade ago, and then let its enterprise efforts stagnate until this year. Microsoft’s product hasn’t even launched yet, but presuming it is good enough the ability to leverage Office 365 is a real advantage. Slack, meanwhile, has all of the advantages of a startup: singular focus, aligned incentives, and, most potent of all, a new kind of business model.

What has to worry Microsoft is that their advantage is waning: being a part of Office 365 is great…as long as a company uses Office 365. For all the good work that CEO Satya Nadella has done to reorient Microsoft away from Windows and towards services, the company is still lacking a new generation of products that sell themselves — and, by extension, sell the rest of Microsoft.

Of course that may be unrealistic: as I wrote in the case of Oracle the attractiveness of suites is greatly diminished in a world of cloud-based software; decision-making is devolving away from CIOs concerned with up-front costs and having one throat to choke, to users and managers concerned with the user experience. And, by extension, in an a la carte world standard interfaces and easy integrations become paramount: that means ecosystem building and developer support, which are a whole lot easier to accomplish if your product is free for anyone to use (advantage Slack).

Maybe that is the ultimate meaning of Consumerization of IT: it’s not just products and user interfaces moving from consumer to enterprise; rather, the ultimate manifestation is an enterprise product that can be used by consumers. That means scalable infrastructure, it means nailing the user experience, and, most critically, it means an entirely new business model.

  1. Note the spelling: organisation with an ‘s’. You can tell Workplace was developed in Facebook’s London office, not in California 

  2. This is the case for Atlassian’s cloud-based products as well