Subject: Re: Successful FSBs
From: "Benjamin J. Tilly " <ben_tilly@operamail.com>
Date: Wed, 25 Sep 2002 22:13:56 +0500

"Stephen J. Turnbull" <stephen@xemacs.org> wrote:
> >>>>> "Tim" == Tim O'Reilly <tim@oreilly.com> writes:
[...]
>     Tim> I've always liked to point out that humans like to think in
>     Tim> terms of boundaries, but that natural events tend more to
>     Tim> gradients surrounding an increasingly dense core.
> 
> How to be a perfect businessman: become perfectly One with The Market,
> and then do what comes naturally.  No argument from me; that's
> precisely analogous to what I say when trying to teach graduate
> students to stop being _students_ and start being _economists_.
> But...
[...]

I disagree.

What you describe is good advice for making the right
short-term decisions.  It is horrible advice if the easy
short-term decisions lead you off a cliff.  A classic
instance are the twin dynamics pointed out in The
Innovator's Dilemma:

1. Companies are under pressure to increase profit margins
   and improve products.
2. Customers are under pressure to replace high-margin
   technologies with low-margin ones when the low-margin
   ones become good enough for their needs.

If technologies improve faster than customer needs
increase, this means that the natural path for technology
companies to take leads over a nasty cliff when the next
technology improves into usability.  At that point it
does no good to improve your product further because it
already does more than your bottom end customers you need.
And restructuring to get your profit margins low enough is
virtually impossible to do.

To pick one current instance, Sun has a good product
whose role in the IT industry has kept moving upscale.
(How many people run it on their workstations any more?)
Linux running on x86 hardware is much worse, but it has
become good enough for a lot of customers.  As a result
there have been a series of high-profile Linux conversions
in a number of industries.

Sun has been trying to figure out how to get people who
are going to switch from Solaris to Linux to switch to
Linux offered by Sun.  The problem is that Sun is geared
towards producing a much higher-margin set of products
than Linux vendors are.  As a result they have to find
the line between gold-plating that low-end customers
don't want which destroys the value proposition of Linux,
and cutting out things that customers *do* care about.
Finding that line takes a lot of work (particularly since
every one of those value-adds matters to someone), and it
is highly unlikely that Sun will succeed.

All this despite the fact that Sun has, by all accounts,
been very good at paying attention to customers, giving
them what they ask for, etc.  In other words Sun's
troubles are not mismanagement, they are the natural
result of basic business forces.

So how does this relate to the problem of FSBs, other
than the fact that technologies centered around free
software support several disruptive technologies?  Well
the basic value proposition of free software is that it
guarantees customers low margins on the software product.
This is good for getting customers to switch, but runs
counter to the natural desire of businesses to improve
their margins.  Therefore businesses that engage in free
software strategies are under pressure to find higher
margin businesses to be in.  Some of the options for
doing that are consistent with being an FSB.  Some are
not.

Cheers,
Ben

PS Why is it a big deal to decide what the label "fsb"
should refer to?  O'Reilly made a lot of money from Perl,
and supported it in return.  Said support included hiring
many well-known Perl people, and helping resolve at least
one bitter dispute with a significant investment.
Judging from the articles from the time which they have
on their site, this was a deliberate business strategy.
If we don't count O'Reilly as an fsb, is discussing this
course of events now off-topic on this list?
-- 
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