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Original author: 
Liz Gannes

Google has warned that it will shut down its Google Reader news aggregator July 1. Many people (myself very much included) are mourning a beloved and useful product, but the company cited declining usage.

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Shutterstock/Yuri Arcurs

Under CEO Larry Page, Google has made a practice of “spring cleaning” throughout all the seasons so it can narrow its focus. Reader was just a another bullet point on the latest closure list.

But the shutdown wasn’t just a matter of company culture and bigger priorities, sources said. Google is also trying to better orient itself so that it stops getting into trouble with repeated missteps around compliance issues, particularly privacy.

That means every team needs to have people dedicated to dealing with these compliance and privacy issues — lawyers, policy experts, etc. Google didn’t even have a product manager or full-time engineer responsible for Reader when it was killed, so the company didn’t want to add in the additional infrastructure and staff, the sources said.

But at the same time, Google Reader was too deeply integrated into Google Apps to spin it off and sell it, like the company did last year with its SketchUp 3-D modeling software.

The context for this concern about compliance is Google’s repeated public failures on privacy due to lack of oversight and coordination. It’s pretty clear why Page is trying to run a tighter ship.

Regulators have had ample reasons to go after the company. Google recently paid $7 million to settle with U.S. attorneys general over its years-long international Street View Wi-Fi incident, while agreeing to more closely police its employees. And last summer the company paid $22.5 million for breaking the terms of its U.S. Federal Trade Commission agreement over informing users accurately about privacy practices when it used a trick to install ad cookies for users of Apple’s Web browser Safari.

In the Wi-Spy case, after repeatedly downplaying the incident, Google ultimately disclosed that an engineer had devised the drive-by plan to collect user data from unsecured Wi-Fi networks, and had easily passed it through rubber-stamp approval processes.

In the Safari bypass case, Google said it was just trying to check whether users were logged into Google+, and any resulting tracking was inadvertent and no personal information was collected. Ultimately, what the company was held accountable for was having an out-of-date help page — an even more basic slip-up.

While it might not be obvious how Google Reader could be compromised by similar lapses — perhaps policies could fall out of date, or user RSS subscription lists could be exposed — the point is that Google wasn’t willing to commit to ensuring that it was well-run.

So how many users would Google Reader need to make it a valuable enough product to be worthy of investment and a real team?

A petition to save Reader on Change.org has nearly 150,000 signatures. That’s clearly not enough.

Google wouldn’t disclose how many users the product had, but Flipboard CEO Mike McCue told me yesterday that two million people have connected their Google Reader accounts to the Flipboard visual news apps. So you have to imagine it’s probably an order of magnitude larger than two million.

(By the way, many people involved with the product agree that it wasn’t just tech news fanatics who loved the service, but politics junkies and mommy bloggers and anyone who likes to mainline fresh content from their preferred outlets.)

Nick Baum, one of the original Reader product managers who’s no longer at Google, noted that in the early days of the product there were “several millions” of weekly active users.

In a conversation this weekend, Baum said, ”My sense is, if it’s a consumer product at Google that’s not making money, unless it’s going to get to 100 million users it’s not worth doing.”

But Baum left the team in 2007 — before the rise of Twitter — and he notes Google never put the resources in to do things like help new Google Reader users find feeds to follow and parse the most interesting content from high-volume outlets.

The irony, Baum said, is that if Google Reader were out seeking venture funding in Silicon Valley with its high-value audience, it most likely would have gotten it. “As a startup they would have been perfectly viable,” he said. Not to mention, startups don’t have to worry about compliance issues.

“Someday someone will do something in this space that will work,”  Baum said. “And maybe then Google will buy them.”

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A pervasive myth exists among tech founders: If they build a product that consumers will love, it will magically trickle into Fortune 500 companies.

The logic works something like this: Devote the bulk of your funding to designing the product. CIO’s will fork over a piece of their sizable budget if enough employees get hooked and use it at work. Founders often tell me that just like cloud storage company Dropbox or enterprise social network Yammer, their product will be a hit with large organizations if it’s well-designed and easy to deploy.

Do a search for “Dropbox problem” or “Dropbox effect” and you’ll find thousands of articles. I agree that Dropbox has inspired more enterprise founders to experiment with freemium models or to build intuitive products, but it is not proof that a consumer-focused company can simply change focus to the enterprise without having to reengineer its technology from the ground up.

You can’t just ‘pivot’ to the enterprise

“Dropbox’s message is that business users want products that are simple and sexy,” said Ray Wang, the principal analyst and CEO of Constellation Research. That may be true, but according to Wang, to meet the needs of IT, you have to “do a lot more.”

For example, an enterprise startup needs a sales and support infrastructure to handle requests, and the product must be significantly more scalable and secure than a consumer product.

The “consumerization of the enterprise” trend is very real; it means that employees are embracing the latest mobile and social technology and applications, and they are bringing their own devices to work.

But this trend has not replaced traditional enterprise sales cycles. Even new-age startups like Yammer (recently acquired by Microsoft for $1.2 billion), which once spread the notion that big companies will embrace new technologies the same way that people do with consumer products, later hired a full enterprise sales and customer support team.

“It’s a beautiful story that has been spread by investors and founders,” said Mike Driscoll, the CEO of Metamarkets, a “big data startup” in San Francisco. Driscoll said that he is already on the hunt for a new sales executive, preferably with experience working for a legacy vendor like IBM or EMC.

Likewise Box, a Dropbox competitor, had to make sweeping changes before approaching the enterprise. It brought on adult supervision in the form of Whitney Tidmarsh Bouck, a former chief marketing officer at enterprise technology company EMC. To land big-name customers like The Gap and Volkswagen, Bouck said the startup needed “dedicated product marketers and resources.”

“It is our central point of focus,” she added. The product team had to incorporate scalability, integration and security controls, mobile technology, Active Directory support, and so on. Most importantly, she said, “it’s a long-term consultative sales approach that is a world apart from a consumer or SMB [small to medium-sized business] play.”

Ben Horowitz, the cofounder and general partner of Andreessen Horowitz, was one of the first venture capitalists to dispel the myth. As he put it in a blog post:

Encouraged by the new trend, innovative entrepreneurs imagine a world where consumers find great solutions to help their employers in the same way that they find great products to help themselves. In the imaginary enterprise, these individuals will then take the initiative to convince their collegues to buy the solution. Through this method, if the product is truly great, there will be little or no need to actually sell it.

The actual enterprise works a bit differently. Meet the new enterprise customer. He’s a lot like the old enterprise customer.

Indeed, when employees set up accounts for consumer-focused services without permission, the IT department is at risk of losing control over corporate data, whether it’s emails, reports, or instant-messaging chatter. However, this does not mean that the IT executives will strike deals with these tech providers to preserve security and governance.

Sand Hill is part of the problem

Greg Piesco Putnam, cofounder of Aktana, an enterprise sales startup, told me that most venture capital firms accepted the Dropbox myth without question when he was raising funds.

“They were looking for stories of the consumerization of IT, and the entrepreneurs who told those stories raised big rounds,” he recalled. ”The question that was not asked was whether IT departments would actually respond to these user demands.” He explained that in the enterprise, startups need to convince at least three key decision-makers: IT, business, and operations.

Wang told me he often hears about high-performing, early-stage consumer startups that shift gears once their investors demand to see a solid business plan. Entrepreneurs are aware that their investors are angling for a piece of the trillion-dollar market for enterprise software.

“You get folks saying, I’m going to enterprise now to cover my butt, but the product might not have been designed for that,” said Wang, who draws a useful comparison to the adoption of email programs Lotus and Outlook. The latter was widely used in the enterprise despite its design flaws. “In the enterprise, the best sales and marketing wins, not the best product,” he said.

At the Disrupt conference in San Francisco, young enterprise founders from startups like Asana contested this point, clearly demonstrating that the myth is still pervasive.

“The distribution model has changed,” Asana‘s CEO Justin Rosenstein said, and he argued that the CIO is the end-user for enterprise software. “You don’t have to be sales-driven or marketing-driven; you have to be product-driven,” Rosenstein said. “It will be the best product that wins,” he added. Asana is a task management software started by former Facebook founder Dustin Moskovitz and Rosenstein, an former Google employee.

“Nothing is relatively different, it’s just evolved,” hit back Cloudera COO Kirk Dunn. Dunn is right to advise caution: a young company will not succeed without a full customer support and sales team. In the enterprise, product simply isn’t enough. “You can have a great product and great sales-focused company,” Todd McKinnon, the CEO of cloud startup Okta, offered as a conciliatory response.

At startup demo days and hackathons, young founders are slowly waking up to the importance of traditional enterprise sales. ”At the enterprise level, a great product doesn’t sell itself; it takes a great sales and marketing organization to engage buyers, procurement organizations, and IT departments to close a large enterprise deal,” said Mark Trang, the cofounder of SocialPandas, a CRM startup that recently debuted at Founders Den.

The roots of the ‘Dropbox myth’

Dropbox is a consumer startup and wasn’t build to store and share terabytes of sensitive data for a Fortune 500 company. As VentureBeat reported earlier, with its third major security breach this year, the fast-growing private company has become a problem child for chief information officers.

“We’re consistently replacing Dropbox in the enterprise,” Vineet Jain, the CEO of enterprise cloud storage startup Egnyte, told VentureBeat. “It’s incessantly used in enterprise until IT shuts it down.”

If you are selling to consumers or small companies that behave like consumers, moving away from the old enterprise sales and channel models may make perfect sense. However, if you plan to strike multimillion-dollar deals with enterprise companies, the chief information officer is still the chief decision-maker.

In short, the Dropbox model didn’t even work for Dropbox.

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