| In the Groove: An Interview with Ray Ozzie, Groove Networks
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| by Angel Mehta, Managing Director, Sterling-Hoffman Management Consultants
Handpicked by Bill Gates to serve as Chief Technology Officer at Microsoft, Ray Ozzie is still perhaps known to industry insiders as the man who created Lotus Notes in the early days of the software industry. After leaving Microsoft, Ozzie went into stealth mode. His latest venture is a top secret software company called Cocomo. Sterling Hoffman: What is your response to industry comments that Groove Networks is really just an updated version of Lotus Notes? Ray Ozzie: To truly understand the differences between Notes and Groove, you need to explore the way humans naturally interact with each other. That's what we did that led us to choose a decentralized model for Groove, rather than a centralized model like Notes. Think about it - humans interact in a wide variety of ways. Sometimes we want to express emotion, whether its urgency, surprise, impatience, etc. Sometimes we might want to communicate in different time domains, and others we may need to do something in real time. Sometimes images are the best descriptor; others it might be text or numbers. What I'm getting at is that people are inherently multi-temporal, multimedia creatures and we pick our tools-pen and paper, a phone, a fax - based on how we feel it best to communicate with other people in a particular situation. Now, contrast that to the state of the technology. In Notes, the core paradigm that users interacted with was a form, a document. You could do any kind of communicating you wanted, as long as it fit in a form. Go to the Web, what is the dominant paradigm on the Web? It's the form, it's the page. The reason that a lot of these Web-based collaboration systems are not dramatically taking off, and not taking us into a new dimension of functionality, is that they're just simply propagating the same model that Notes had and that the Web had: you get pages and you put pages. It's a very constrained mode of usage. Groove is designed from the outset to embrace multiple media and modes of collaboration. You can sketch in it, you can talk in it, you can include pictures, and, of course, you can use forms. It handles everything from real-time or near real-time interaction to totally disconnected interaction very, very smoothly without any change in how you use it. Sterling Hoffman: In your opinion, has the attitude towards an 'IPO' changed in this market? How so? Ray Ozzie: More than just the attitude has changed. The requirements have changed as well. You have to be profitable, or clearly on your way to profitability, and you must be demonstrating quarter-over-quarter revenue growth. A couple of years ago, the attitude was 'Why not go public?' Today, the attitude is, 'Why go public if you don't have to?' As for Groove Networks, our ambition is take the company public when we're confident we can deliver consistent results for our shareholders. Sterling Hoffman: What are your / Groove's key priorities for the next 2 quarters? Ray Ozzie: On the product front, we're working on a few things. Our 2.1 release of Groove Workspace is slated for later this summer. I can't give you specifics on what it will include, but we'll be enhancing our integration with email, which remains the collaboration tool of choice. We're also focused on more tightly integrating Groove with Microsoft technologies, including making it easier for developers to build Groove tools from within Visual Studio.NET. On the sales side, our number one priority is extending our reach into Fortune 1000 organizations, and helping our current customers accelerate adoption of Groove. Other priorities include communicating our value proposition more effectively and increasing sales of Groove from our Web site by cultivating a customer base among small businesses and individuals. From an alliances standpoint, one of the key milestones in Q3 will be the availability of software applications with embedded Groove collaboration services from our partner PTC. This is the first example of our "powered by" Groove strategy where ISVs can leverage Groove platform services to add a collaborative dimension to existing applications. Sterling Hoffman: Why do you think collaboration type products are so 'hot' right now? Ray Ozzie: All collaboration products, at a fundamental level, help individuals bridge boundaries separating them from others with whom they need to interact to get their job done. Collaboration is "hot" right now because these barriers between individuals - geographic, organizational, temporal - are growing in dimension and number. More and more, project teams are comprised of dispersed groups of individuals, including representatives from multiple organizations. A multitude of factors are contributing to this "decentralization" of the workplace including increased outsourcing of key business functions, reduction of travel budgets and a growing percentage of teleworkers across all industries. To help "bridge the gap," collaboration products are being used to create virtual workspaces that allow these teams to work more intimately with each other, as if they were in the same room. Our belief, of course, is that a decentralized architecture is best suited to meet the needs of decentralized project teams, because like email, it corresponds to the style and modes within which they work: ad-hoc, end user-initiated interaction in real-time, asynchronous and offline situations, securely across firewalls. Sterling Hoffman: How would you describe your customer-base at this point in time? Ray Ozzie: We currently have more than 30 Fortune 1000 class customers at various stages of deployment. Most are in pilot stages, while others like GlaxoSmithKline are approaching broader scale deployments. Our 2.0 release addresses many of the enterprise readiness requirements some of our earlier customers had helped us define. From a vertical standpoint, we're seeing early traction in industries that have highly decentralized processes, such as pharmaceutical, professional services, and government. Groove allows businesses in these industries to increase their "return on connection" in the relationships they now deeply rely on with customers, partners and suppliers. In addition to our enterprise base, we're having early success in selling Groove Workspace as an out-of-the-box solution to small businesses and individuals. Our Web site is the key channel here, though we anticipate developing additional channels with the VAR and solution provider communities over time. Sterling Hoffman: Current market data indicates that customers are extremely skeptical about new software purchases. Are you having the same experience? How do you convince a company that the Groove platform impacts their bottom line? Ray Ozzie: Certainly, given the current economic situation, IT organizations are working with low-growth, or no-growth budgets and require demonstrable ROI from every initiative. For emerging software vendors with unproven solutions, that requirement is even more stringent. That said, we believe that there is a real need to improve the way businesses interact with members of their value chains. As I've mentioned, our core tenet is that a decentralized business environment requires a decentralized communications architecture such as Groove to better support the strategic imperatives of the business. Today, the primary paradigm for cross-company collaboration is email. Email works in that it seamlessly connects individuals across boundaries, be they temporal, geographic or organizational. But email breaks down when business processes require richer collaboration functionality. We believe Groove retains the end-user driven model of email, but adds real benefits including richer tools, end-to-end security, presence awareness and more. At a fundamental level, these benefits allow dispersed project teams to get work done faster. It's all about reducing costs, or increasing the top line. We believe Groove contributes to both. Sterling Hoffman: How often do you as CEO get involved in sales situations? In your opinion, are companies buying the product because they believe in Ray Ozzie or because they believe in the product? Ray Ozzie: From time to time I do engage our enterprise customers in sales situations. But I'd object to the assertion that any company would commit funds and resources towards any IT solution based solely on the reputation of one individual. Software development is inherently a deeply collaborative art, and without the collective talents of our development team, solutions group and sales and marketing teams, Groove could never have become what it is today. Sterling Hoffman: What has been the overall response from clients using Groove? Do you have any particulars on how it has impacted their businesses? Ray Ozzie: We're a bit early in the timeline to report on Groove's direct impact on the bottom line of our enterprise customers' businesses. As I said earlier, most of our large customers are piloting the software with several small teams inside and outside their companies. I can report that results of these pilots have been very positive. I would encourage you to speak to one or two of our customers to solicit feedback from the source. We can provide their names if you're interested. Sterling Hoffman: What was your adoption rate when you initially launched Groove? Who were your fastest adopters? Ray Ozzie: As a private company, we don't release download or adoption rates. I can tell you that one of the metrics by which we measure adoption is downloads that were initiated by a Groove invitation from another user. That percentage continues to increase month by month, which is a strong indication that there is a network effect with Groove. More than 50% of the people who download our preview edition indicate they heard about Groove from a colleague or friend. As I indicated earlier, the biggest adopters have been companies in the pharmaceutical and professional services industries. We've also experienced significant interest from various government organizations because of our ability to address a primary need today - secure, cross-agency communication, collaboration and coordination of activities. Sterling Hoffman: What are your key performance indicators for the next 12 - 24 months? Ray Ozzie: This could be a long list, but the two key ones are the number of new customers we're able to attract, as well as the rate of adoption within those accounts. We're focused on reducing the sales cycle, and increasing the rate of adoption among our early customers, particularly enterprise customers. This is a challenging business environment in which to accomplish those objectives, but I'm confident we're doing what's required to meet these objectives. Sterling Hoffman: What have been some of the more significant achievements of Groove since 9/11? Ray Ozzie: Three jump to mind. 1) We established a Government Systems Division in the Beltway to focus on the government's need to enhance secure, cross-agency communication and collaboration among various agencies. 2) We attracted some significant financing from Microsoft, and we hired Chuck Teubner as president and COO. He's having an enormously positive impact on the company. And 3) We've extended our relationships with Microsoft beyond the technical community, and begun to gain significant mindshare among Microsoft's sales and marketing organizations. Sterling Hoffman: How has your role as CEO changed over the last 2 years? How much of that change is due to Groove's natural evolution, and how much of it is due to the state of the market? Ray Ozzie: My role has definitely changed. The first few years while we were developing Groove, I was largely inwardly focused. Although I didn't code, I spent a great deal defining the design and architecture of the product. In the past couple of years, I've been far more outwardly focused, communicating our value proposition to customers, prospects, analysts, and the press, among others. This transition really has been in line with the evolution of the company from a technology-driven to a customer-driven organization. Sterling Hoffman: What's changed in terms of strategy in 2002, relative to 3 years ago? Ray Ozzie: The strategy is always evolving, as is the product as we prioritize development based upon market feedback. Three yeas ago, we were still in stealth mode, and still focused solely on developing the product. Today, we now have Groove Workspace 2.0 in the market and our direct sales force is focused on selling to line of business managers within Fortune 1000 companies who recognize that email is an ineffective and insecure tool for working with others on various business processes both within and beyond company boundaries. We launched Groove Workspace 2.0 in mid April and began selling the product to small businesses and individuals from our Web site. We've been pleased with the rate of sales to date and feel that this channel will be successful for us as well. Angel Mehta is a Managing Director at Sterling-Hoffman, a retained executive search firm that represents venture capital firms and enterprise software companies in VP Sales, VP Marketing, and C-Level recruitment projects. He can be reached via email at: amehta@sterlinghoffman.net. |
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