The next phase of ‘consumerization of the enterprise’

In 2009, when I moved to the Bay Area from India and started learning the ropes on enterprise software, one of the buzz phrases in the industry was ‘Consumerization of the enterprise’. At the time, the ‘consumerization’ was about bridging of the huge gap in usability of software people used at work vs. what they used as consumers. Think Oracle, SAP, even Salesforce.com and then think of Google, Facebook, Twitter. The gap in usability and design was obvious. That first phase of the consumerization is still playing out in the enterprise world. Companies such as Yammer, Box, RelateIQ, Asana, Marketo, Zendesk and several others have led the charge in terms of building software that is easy and intuitive to use for business users.

In my view, we’re now beginning to see the second phase of this ‘consumerization’. And this time, it’s more than the UI. It’s about the business model. If you think about it, most enterprise software business models come down to a very simple equation: Customer pays for the software. Pricing models can vary (freemium, free trials, paid POCs etc.) but in the end the customer pays for the use of software. On the other hand, some of the best consumer software that we use on a daily basis is free. I don’t pay to use Google, Facebook, Twitter, YouTube or even iTunes for that matter (till I actually buy something on iTunes). Consumer software monetizes mostly via advertising or commerce. I think we’re going to see an emerging genre of enterprise software that monetizes similarly. Two models that I’m beginning to see emerge are:

  • Enterprise marketplaces: Companies such as oDesk, 99Designs and a few others pioneered marketplaces in the enterprise world a few years ago, but those were still marketplaces where the primary outcome was buyer meets seller for an infrequent transaction. Next-gen marketplaces like uTest, Contently, Scripted, Upcounsel and Boost Media not only provide a network of freelancers on the seller side, but also offer deep workflows for the buyer organization to manage the work being outsourced through them. The workflows being offered here are as much a part of the value prop to the enterprise as the commerce transaction itself. Additionally, addressing mission critical functions as content marketing, usability testing, advertising etc. allows for these companies to establish almost a subscription-like engagement with their customers. Some of these startups are indeed pricing their offering as a subscription to ensure predictability, but the subscription tiers are based on the volume of transactions.
  • The iTunes model: Zenefits and Quartzy are two early stage startups that come to mind here. Both solutions represent modern UIs, are free to use for their customers, and monetize through commerce that happens over their software. Buyers only pay when they buy a service/product from another vendor via the solution. The core software workflow is completely free, and the commerce piece is optional. This is quite powerful as a business model. Business users don’t normally get to use enterprise-grade software for free!

In my mind, this shift towards consumer business models in enterprise software could be a pretty important one. It would allow for scalability, and network effects of a kind that enterprise software hasn’t seen in the past.

This is still an evolving thesis for me, and I’d love to hear about other startups that are deploying a consumer business model to the enterprise world, and the learnings from those.