There does seem to be a general upswing in the visibility of math in the commercial world, starting with the extension of the quant revolution in the finance markets to the optimization of a diverse set of industries. The rise in the popularity of poker, and the influx of new players, has led to some new popular interest in math as well - books like The Mathematics of Poker (which I recommend) were hard to imagine on bookstore shelves a few years ago, but have been remarkably successful.

In the world of technology-driven startups, which was the context for Ann’s comment, I draw an imaginary line between two applications of math:

• Creation of a fundamentally new product, business or market
• Optimization of an existing business

The latter of these applications is the one that is driving the quant revolution in finance, poker, and a thousand other areas. In the online world, some big ideas have already broken ground and fundamentally changed the way a number of markets work. The mechanics of business online and the rush to market, however, mean that a lot of the decades of quant optimization in the offline world has been left behind.

I’m pretty excited about the opportunities that come from taking inefficiencies out of businesses that operate at Internet scale, as well as recapturing some of the subtleties of the offline markets. Math is cool again, and some very cool new answers are being created to the age-old question asked of math teachers - “But when will I ever use this?”

‘On behalf of’ logins

LinkedIn and Plaxo are examples of sites doing this to import contact information. In fact, Plaxo makes this functionality available as a service to developers of other applications. Slide, RockYou, Photobucket and a bunch of other widget publishers do this to smooth the process of getting their widgets on users’ pages on MySpace, Bebo, Hi5 and the others. Also, some of the more interesting mashups involve data from the deep web, and require usernames/passwords to get it from 3rd party sites.

API-based authentication

Contrast the ‘on behalf of’ approach with that of Facebook, which exposes APIs providing for access by 3rd party applications, on behalf of users, through a direct authentication by the user to Facebook. As long as the APIs support the access required, this eliminates the need for the 3rd party to collect usernames and passwords.

The fact that MySpace and others don’t have API access (or complete enough APIs) to their sites is what has driven developers to collect credentials and act on behalf of users.

Some sites actually have APIs but don’t take advantage of the fact that they could use them to tighten up security. While Salesforce could use the Facebook-style authentication for 3rd party apps, they instead have those apps solicit and store user credentials (by policy, they allow only “certified” apps to do so).

Why are ‘on behalf of’ logins a problem?

If the 3rd party site is deserving of users’ trust, and everything works properly, there should be nothing wrong with these logins. We don’t worry much about local applications doing this type of thing: blog editors, web design programs, browsers and countless other local apps all store user credentials for 3rd party apps and sites. In fact, this type of login is enabling startups to drive innovation in the new social network ecosystem; if they had to wait for the MySpaces of the world to publish APIs or enable new functionality, these companies would be dead in the water.

In reality, there are some real problems to think about. In addition to a couple of shared issues, the key differences from local applications are also the problems here:

• Trust of the application and vendor - an issue with both web and local applications. The decentralized and volatile nature of web applications, and the lack of user-centric security infrastructure (such as local anti-virus and anti-malware software), make this a tough problem for web applications.
• Authorization of the specific actions that apps take on behalf of their users - an issue with both web and local applications; if this is done really well, the problem of trust of the app and vendor is diminished.
• Location of user credentials - in web applications, these credentials live ‘in the cloud’ somewhere. The vendor claims and reality of the security of those credentials are at best hard to verify.
• Scale - the barriers of installing, and updating, local software limit the scale of this problem in that world. Web applications are easy to sign up for and can be updated multiple times a day, leading to a lot of complexity in managing overall user security.

It looks like a solution probably starts with a way to give users centralized control and management of:

• Authentication credentials
• Authorization of ‘on behalf of’ logins
• Authorization of specific ‘on behalf of’ actions

What about OpenID?

OpenID is a framework for decentralized identity. It supports decentralized authentication and structured sharing of personal information.

‘Decentralized’ in OpenID terms means decentralized from the perspective of web applications; this can in fact mean centralized from the user’s perspective. OpenID could be used to do logins on behalf of users without the collection of credentials, but it does not address the problem of authorization of those ‘on behalf of’ actions. The structured sharing of personal information involves a narrow kind of authorization, but too limited to solve this problem.

The transparency of ‘on behalf of’ action is itself a pretty complex problem - it requires giving the user a way to see and understand what the 3rd party app will go and do for them on the other site. I’m not sure whether this is a problem OpenID is interested in tackling. If it develops momentum as an identity standard, it would certainly be nice to see it go beyond authentication and identity to a more complete view of security (something Microsoft’s virtually dead Passport initiative and the Liberty Alliance project both failed to do).

Small buyers of technology, acting early in the technology adoption life-cycle, are motivated by hope (hope == ROI, opportunity, etc). Large buyers of technology, acting late in the life-cycle, are motivated by fear (fear == risk of loss or punishment).

A good example of this can be found in the typical upgrade cycle. Early, individuals and small groups upgrade to new hardware, operating systems and applications because they hope that access to new features and capabilities will be more than worth the effort and disruption of the upgrade. Large groups don’t upgrade until much later, even if the benefits of doing so are dramatic; they often wait until the fear of loss of support from vendors forces a transition.

I remember experiencing this dichotomy in the major changes to the practice of information security as the commercial Internet grew in the mid 1990’s. Security shifted from an operational part of IT, where purchases were motivated by fear of loss rather than ROI, to a source of enabling technology for new ways of doing business. Within startups and large existing enterprise, small teams tried to figure out how to build online businesses. Along the way, they pushed the nascent Internet security product companies into building the right pieces to enable and protect the new ecommerce ventures.

Today, it seems like information security has largely returned to the operational state: anti-malware technology is a cost of doing business online, regulatory requirements drive new security spending, and fear of public outcry and regulatory enforcement prompts increased scrutiny on the handling of customer data.

It is likely that large organizations will miss much of the benefit of web 2.0 technologies as well, as they wait for incumbent software vendors to deliver later in the adoption cycle, when they will buy out of fear of being left behind by competitors. Most of the startup companies I see trying to sell innovative technologies into the enterprise today through the IT organization haven’t really figured this out.

A few companies, however, are dealing with this really well. Most are SaaS plays, and Salesforce is among the first of the good examples. Salesforce established small, dedicated groups of customers who bought the service with company credit cards rather than purchase orders, and used it without the authorization of central IT. Companies like 37 Signals, Zoho, ConceptShare, and countless others are using roughly the same model.

Going back to the idea of hope vs. fear in the acquisition of technology, I think there are a few things these startups could be doing differently to scale sales to big organizations.

Enterprise Freemium

The freemium pricing plans offered by the three startups I mentioned above are structured in a way that makes sense for small teams, but breaks for very large ones. They all offer some kind of free trial, and then price their services based on the amount of use (number of users, amount of storage, etc). Within a large company, this means that a small number of initial users can evaluate the product, and probably pay for ongoing use on a credit card, but growth becomes more difficult at that point. After the trial period, new users typically can’t be added without moving up to a pricing plan that supports them. The team footing the bill, however, is only willing and able to pay for its own use, not the much higher prices that come with larger plans.

I think there could be an enterprise twist on the freemium model, with the following characteristics:

• Free trial for each additional user within a company
• Easy options for billing/payment by user or group, rather than for the whole company
• Premium options for IT

The last of these, ‘Premium options for IT,’ is the most important. Knowing that IT won’t make early technology buys to support their users’ hopes for opportunity and improvement, the startup should support broad grassroots adoption of their products at lower levels. When the motivators that drive IT purchasing, such as fear of losing central control over data, backups, users, access control, and management complexity, kick in due to the grassroots use, the startup needs to be there to directly support IT with purchase options.

For a SaaS product, these IT premiums might be things like onsite, appliance-based offerings of:

• Directory services integration for user accounts
• Enterprise backup integration
• Data integration with reporting, dashboard, data warehouse and other systems

There are plenty of examples of enterprise IT banning the emerging technologies that come onto their radar when they don’t have a way to mitigate their fears. The best way I can think of for the startup to deal with this is not the traditional attempt to convince IT that their fears are unfounded, but rather giving IT a way to purchase that mitigation in the way they are used to and comfortable with.

This isn’t a big shift for most startups. The model still provides early revenue and a short sales process, but also offers a level of scale previously available only to those selling to a central organization. From a product perspective, this approach requires some thinking about the needs of IT and perhaps some new development; chances are that the thinking and planning will have benefits for internal SaaS operations if done early, and the development can be done at the right time to fit in with the adoption and growth of the product. If startups continue to deliver these innovative SaaS products with direct application in the enterprise, there may even be a Feedburner or Mashery model here: a company could focus on providing the IT premium layer for SaaS offerings.

As promised, here are the slides from today’s presentation. We talked so much about each point that I’m not sure how much value these have to folks who weren’t in the room… maybe we can get the organizers to do audio or video next time.

Whether building a new company from scratch, or keeping a big company competitive, emerging technologies have changed the rules. Open source software, web services, mashups, AJAX, Ruby, Rails, and RSS… only a few of a seemingly endless list of technologies that have redefined what is possible for small teams. This talk will focus on startup experiences, lessons learned about technology choices and tradeoffs, and on building, funding and running a technology startup in the new environment.

The Emerging Technologies for the Enterprise folks are also putting on a pre-conference breakfast for CxO’s and executives on the 15th. I’ll be the keynote speaker for that event, talking about Tiger Team Innovation:

Startup companies use small teams beginning with a blank slate and the latest emerging technologies to build incredible value overnight. This talk will focus on using the same techniques, with a few twists, to deliver measurable value to the enterprise in new ways.

The main conference is open to everyone and seems to be quite reasonably priced compared to most such events; registration is here. I believe the breakfast is by invitation, so if you’d like to attend leave a comment or send me email and I’ll ask the organizers to include you.