Subject: Re: Successful FSBs
From: "peter bryn jones" <peterjones@eudoramail.com>
Date: Sat, 26 Oct 2002 08:36:56 -0700

>>>>> "Tim" == Tim O'Reilly <tim@oreilly.com> writes:

   Tim> FWIW, what set me off was the name of the thread
   Tim> (which was, after all, "Successful FSBs") as
   Tim> contrasted with the tone of the discussion, which
   Tim> might have been more appropriately titled,
   Tim> "Can 'Pure' FSBs be successful?"

Is it possible to define a successful FSB by separating successful from FSB as
follows?

Firstly, an FSB could be defined as a business that creates value for users by releasing
free software. In other words, releasing software that does something useful for users.

In order to define successful I am going to assume that a business can be judged in
financial / economic terms. Also, as this business will presumably be operating in a
free software environment, it may be possible for the business to capture some of the
value it created for users resulting from this free software. The proportion of the
value that is captured will depend on factors such as business model, strategic position
etc.

A successful FSB can then be defined as a business in which the increase in value
of the business, attributed to the captured value resulting from the release of the
free software, is greater than the expenditure required to develop and release that
software.

Conversely, an unsuccessful FSB would be one in which the development and related expenditure
outweighed the return of value to the business. This case would result in a decrease
in the value of the business (assuming a rational market / valuation).

Please note, the magnitude of the value created for users does not itself determine
whether or not an FSB is successful, using this definition.

Normally I would expect value to be created by releasing software that offers new functionality,
although it could be achieved by removing the costs associated with using proprietary
software, through the creation of an alternative. Value can be captured by acting as
a standard service company for the free software. In the case of replacing proprietary
software the value created for users would be equivalent to the cost of the proprietary
software, if the free software was similarly useful, and a proportion of this value
could be captured by offering service contracts for this software. Obviously free software
developers would do well to offer superior software, but this is additional value created
over and above the proprietary cost savings.

The definition above can be used to draw a distinction between successful FSBs and successful
proprietary software businesses. Proprietary software businesses can be judged successful
if they make an overall return on their R&D, even if they decrease the value of the
overall environment for users. This approach would appear to go against the philosophy
of the free software movement which seems to take account of the interests of the community
as a whole, rather than just the individual business. See below for more on this.

This definition can also be adapted to apply to people in the free software movement
who are not acting on a commercial basis. The return of value to them could be described
as intangible in the form of recognition, satisfaction etc. In this case it is up to
the individual to determine if they got a positive return from the experience of developing
and releasing free software, i.e. whether they had been successful.

In summary:

An FSB is a business that creates value for users through the release of free software.

A successful FSB is a business that manages to capture enough of the value it creates
for users, through the release of free software, to generate a positive return on the
associated costs.

P.S. A successful FSB could have been defined as a business that manages to capture
enough value through the release of free software to generate a positive return on the
associated costs without necessarily creating overall value for the user community.
In this case the primary objective behind releasing free software is to capture value
for the business, rather than create value for the community as a whole. Maybe this
distinction can be used to differentiate between pure free software businesses (that
create overall value for the community) versus some other categories of free software
development which do not create overall value for users.

Finally to answer Tims question, within the definitions above, yes I think it is possible
for pure FSBs to be successful. Just create value for users of your free software, and
then capture enough of that value to generate a positive return on the combined development
costs, costs of bringing the software to market and costs associated with capturing
some of the value created. Easy in theory, more difficult in practice!

----

peterjones@eudoramail.com



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