Subject: Re: Free *Network* Software Business?
From: "Michael R. Bernstein" <michael@fandomhome.com>
Date: Wed, 03 Dec 2008 11:14:47 -0700
Wed, 03 Dec 2008 11:14:47 -0700

On Wed, 2008-12-03 at 17:42 +0900, Stephen J. Turnbull wrote:
> Ben Tilly writes:
> 
>  > I think you're drawing a needless distinction.  The data and formats
>  > are complements of each other.  If he thinks he can make money from
>  > creating data, then he has a revenue incentive to create the
>  > format.
> 
> Sure.  But the original post presented only the issue of the format.
> It turns out that the format is not interesting (except that a war of
> proprietary formats might kill the market).

Exactly. While future evolution of the format might *become*
interesting, an initial naive implementation (which is all that is
really necessary to get this market going) wouldn't be.

>  > There is a critical difference here.  Tom created a distributed
>  > version control system (arch), but never tried to make money by
>  > supplying data that people would want to put *into* arch.
> 
> Sure.  My point is that being the creator of the format has nothing to
> do with making money from it, except that if you are going into the
> distribution business, you can hope to avoid the mistake of killing
> the goose with a proprietary format by starting with a dominant, open
> format.

Thanks. That's my analysis as well.

>  > If he has the skills and talents to deliver the content successfully,
>  > I don't think he needs any more of a first mover advantage than being
>  > the name associated with the project, who created the free samples
>  > that everyone first sees.  (Which, if they are good enough, will
>  > probably continue to be standard examples for some time.)
> 
> True.  However AIUI, he doesn't believe that he personally can create
> excellent content.  He wants to be the guy with his hand on the valve
> for others' excellent content.

Ah. Well, I think I have the talent and skills necessary to great *good*
content, but perhaps not not excellent content (we'll have to see).

I also do not have the skills and training that would intuitively seem
most naturally applicable to this new medium, but it *is* a new medium,
and I don't think that matters quite as much as it might seem at first
blush. While sign painting could be considered a relevant skill for
typeface design by a layman, the relationship breaks down under any
close examination.

I think I have the talent to make a pretty good try at pioneering this
area artistically, and then capitalize on it. I could be fooling myself,
though.

>  > [T]he fact that he's thinking about [the content that he wants to
>  > deliver] means he's already doing something better than Tom ever
>  > did.
> 
> You misunderstand Tom.  Tom *did* think about content delivery,
> although he was never able to make the content he had in mind concrete
> enough to convince others.  Nor was he willing to go into the
> distribution business to prove his point.  GNU Arch, we hardly knew
> ya.  RIP.
> 
>  > > Why would a premium content provider pay you, rather than use your own
>  > > free format as a threat to support charging you a franchise fee as a
>  > > distributor for their content?  More fearsome yet, do you think you
>  > > can beat Amazon, iTunes, and Rhapsody at this game if the format is
>  > > free for them to use?
>  > 
>  > The content providers are not his target audience.
> 
> No, they're the suppliers of the premium content that is going to
> provide for his kids' college education.  Their price is the marginal
> cost of his product.

Let me see if I can clear this up. There is no existing content for
conversion. Content for this format can be developed for existing
brands, but costs will not be any lower than developing completely new
content for new brands.

To a certain extent brands will drive consumer demand for the new
content though, so licensing those brands or a revenue split is
appropriate, but there is no shortage of smaller independent brands to
approach if the big boys won't play ball, and in any case early adopters
would be more likely to be attracted to independent brands.

>   If the format is free, then competition with the
> second-movers is going to jack up that cost, and is greatly to the
> advantage of second-movers because he pays the cost of original
> development of the format and they don't.

I don't expect the format development cost to be very high.

>   Furthermore, he now has to
> play innovation leapfrog with them, unless he gets it really right the
> first time.

Well, my first attempt will be sufficiently sophisticated for the first
several years of the market at least (in some ways, it really is an
obvious idea). Possibly longer, given the inertia markets can exhibit. I
don't think innovation at the format level will be particularly
compelling for some time.

If the market grows enough to warrant it, developing a more
sophisticated follow-on format is probably something that would end up
happening in a standards organization.

> The only example I know of of getting the data format right the first
> time is git, and even there Linus cheated.

Well, I don't think I'll get it right the first time, but it will be
*good enough*.

>  > The copyright on your implementation of how to access the data.
>  > However I must admit that if the format is designed for easy exchange
>  > of data, it would be easy to reverse engineer and that wouldn't be a
>  > very good barrier to entry.
>  > 
>  > >  > Part of why I'm being coy is that it actually won't be particularly
>  > >  > difficult to devise a format for this new purpose
>  > >
>  > > Ah, so it's not about the format after all.  It's about the content.
>  > 
>  > He said that several paragraphs ago.
> 
> Yeah, but he never repudiated his original post where he said it was
> about the format.

Hmm. Here is what I said:

        "So, I think it is possible this new data format could create
        it's own network effects, and thus create an ecosystem and minor
        industry."

To be completely explicit, I expect it to create a minor *content*
industry. Or, perhaps not so minor.

>  > As natural as that seems to you, it took some time for the shareware
>  > market in desktop themes to go away.  A temporary opportunity of that
>  > size could easily repay the effort of creating the market.
> 
> And a fizzle could leave one in substantial debt.  The theme and
> screen saver formats were volunteer efforts, and the business free
> rode on the format.  Micheal is talking about investing in creating a
> format, then investing in a service of connecting content providers to
> users.  Seems very risky to me.
> 
> I'd take out a patent, first. ;-)

I'll reiterate that I don't think the format creation itself will be a
major investment. A much larger investment is the web service that
interprets the format.

>  > I'd agree with that.  This sounds to me like it would create a
>  > probably transient business opportunity.  But if he's good at creating
>  > this kind of content, he should be able to transfer to other kinds of
>  > content creation.
> 
> Again, he already said that content creation is not his bag.  He wants
> to get a share of the profits from the distribution channel.

To make this work I have to create both the content *and* the
distribution channel. I think I can parlay pioneering the new medium
into a longer term distribution business, but I could be wrong. In any
case I do not believe that I could create a durable *monopoly* position
in the market I create, though I think I have a shot at a reasonably
large, even dominant one. Disney comes to mind, but that seems
grandiose, as I don't think the market is *that* big.

- Michael


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