Attention Web 3.0 start-ups: redirect 25% of your R&D budget to market validation

July 9th, 2009 by Greg Boutin

In my observations on the Semantic Technology conference last month, I mentioned I would be blogging separately about the dire lack of investments by Web 3.0 start-ups in market understanding and marketing.

Before I start, let me signal some conflict of interest here: in the course of my job, I lead efforts on market understanding and positioning, brand awareness and lead generation. The idea is that developing my market is in the interest of start-ups with a stake in Web 3.0 and the semantic web. I get more business when they do :) But please do discount my words for this bias, and decide for yourself, when all is said and done, whether we have a solid case here or not.

My main claim with this post is that companies in the Web 3.0 and semantic web space are downright bad at filling unmet
needs, packaging their offer effectively and cutting through the market
noise to secure users and revenues. It even appears this incapacity to grow revenues has a direct impact on their
ability to make money (ok, it’s sunny outside, after five days of clouds there is no harm in having a little fun, is there? ;)

The large and growing number of players at SemTech told me that we are already in a crowded market. And yet: few real products, and very few sales. Most of the people there live on R&D funding from public institutions and overtrusting angels, not client receivables.

Why?

As a VC said during his talk, “this is a very early-stage market”.

Allow me to translate.

That’s code for “I don’t get it, what are you guys selling
here? Better fix that quick if you want me to come back next year”

This has been an early-stage market for over 8 years, which by my estimate is 1,302 web years. And it is going to remain so, as long as players prefer to hire one more Java
“guru” as opposed to investing properly in market research, a business model and
some marketing.

It was obvious, just going around, attending presentations and talking to people, that the business side of those companies is generally in an advanced state of starvation.

So many companies that presented couldn’t enunciate any reason to use their products in an hour, let alone an elevator pitch. Too many had inexpressive and even customer-hostile names (ask me for examples by email…) and geeky logos that don’t talk to their audience; too many, to present their product, sent technology experts apparently missing the “communication” function; too many didn’t have a clue about their market, how to penetrate it, and no thought as to why, when and how often would anybody use their “solution”. Please, let’s call it a technology.

If Web 3.0 companies are eager to become mainstream, it didn’t show in San Jose.

I brought up the problem of underinvestment in market understanding and marketing up at my talk as well as with a few start-up executives. The most common response was that resources at start-ups are limited. I know they are, but I don’t buy it when I see the same companies already employing a dozen folks working on the product development side and hiring extra R&D FTEs. What’s the ROI of that as opposed to taking one dedicated business person on board (and it doesn’t even have to be full-time to start paying off)? I can recognize a case of feature and scope creep when I see one, and this is the supersized version of it. “Just one more feature!”

The reason for that are diverse, and have a lot to do with the academic and R&D origins of this stuff. I’ll expand on this in a broader post on my other blog To Revenue at some point, and explain how I think even fundamental R&D is moving towards a more market-driven approach. Suffice to say, most if not all of the investment for the semantic web went into R&D and technology development to build the tools (standards and applications), and nothing, or very little, to test and refine our initial understanding of the market problems these technologies would solve, and evaluate the best way to solve them.

Luckily, the solution is simple: as a good rule of thumb, I’d see every start-up in the web 3.0 and semantic web space
redirect at least 25% of its R&D expense to consumer research,
brand awareness, partnerships and marketing. All good things that will
make a start-up stronger if they don’t kill it (better that than a slow, painful agony).

As I see it, the development of any market solution is an exercize in bridging the gap between two things: technological possibilities and market needs. Focus on one at the expense of the other, and you’ll find yourself quickly in la-la land.

I can’t keep count of the numbers of start-ups I come across that have gone too far along the product development curve and find themselves with a technology they don’t know how to sell and to whom. Invariably, they haven’t tested the waters prior to funding  development or continued to tune that development to meet real needs.

Why risk a reality check? It was just all too exciting at the time.

So curb your enthusiasm and get yourself a suit, with that free business budget you just found.

PS. Business folks need to explore ways to deliver more value, too. It takes a special kind to be effective at a tech venture, and the rapid changes in marketing also make it challenging to deliver business results if you come from a traditional marketing background. I talked about the difficulties in balancing the tech and biz needs and cultures here, and I will tackle the marketing revolution in a future post.

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  • http://www.swirrl.com Bill Roberts

    Greg – I think you’re absolutely right. Of course in all startups it’s important to understand your market and what problem you’re solving. In semweb startups, where the technology can be rather obscure at times, we’ve got to work even harder to translate that for potential customers.
    Although I’ve always tried not to get carried away with the product side of things, I’ve recently realised that I’ve simply not doing enough talking to customers and am trying to mend my ways :-)

  • Greg

    Hi Bill, thanks for your note, it’s always a pleasure to hear from you. The point-of-view of someone immersed in those issues and already selling a product is invaluable.
    To make it more tangible, I thought I’d take the example of your website, if you allow me. I just took a look at it and find its design user-friendly. However who and why someone would use this doesn’t jump out of the page. Why would I want to use a connected wiki? What does that do for me? One thing that I think could be of use would be to add user cases, showing examples of users in your typical segments (small business etc), how they use it and how they benefit from it, with testimonials.
    Also, is that something that you promote as a replacement for the on-premise wiki? I tweeted yesterday about seeking a wiki for a start-up I am getting involved with. If that’s a typical use-case scenario, it would be good for your company to track the word “wiki” or “seek/want/need wiki’ on tweet and offer your product when possible.
    You would also likely learn a lot about user’s needs this way (I tweeted that I needed one on the cloud that lets me categorize pages in folders and through tags).
    I am conjecturing quite a bit above just to give an illustration of what can be done to quickly and cheaply improve business results, this is really not about Swirrl but more to illustrate the general idea, so I hope you don’t mind.