Subject: Re: Free *Network* Software Business?
From: "Michael R. Bernstein" <michael@fandomhome.com>
Date: Wed, 03 Dec 2008 10:24:33 -0700
Wed, 03 Dec 2008 10:24:33 -0700

On Wed, 2008-12-03 at 15:51 +0900, Stephen J. Turnbull wrote:
> Michael R. Bernstein writes:
>  > On Tue, 2008-12-02 at 18:15 -0800, Ben Tilly wrote:
>  > > On Tue, Dec 2, 2008 at 5:52 PM, Michael R. Bernstein 
> 
>  > >         Am I being *too* coy?
> 
> Yes.

Sorry. I'll try to do better, without giving away the actual idea.

> That's how you monetize the data, by providing a format in which it
> can flow.  How do you monetize the format?

I'm not sure I can, and it may be foolish to try.

>  > I don't expect that market to be winner-take-all, but I do expect to get
>  > a healthy slice of the new ecosystem by virtue of having helped created
>  > it.
> 
> That's a path to poverty.  Search the FSB archives for posts by Tom
> bellyaching about how he created the distributed VCS industry but got
> no money or respect for his contribution.  The facts are as he states
> them; it's his expectation of being rewarded for his contribution that
> was faulty.

No need to search the archives. My participation in this list goes back
over four years, so I've followed those conversations at the time.

> IOW, "by virtue of" is meaningless here.  You need to point to
> concrete first mover advantages that you can argue will accrue to the
> innovator of a data format suitable for this genus of content.

That's a good point. I think I'll get a critical mass of early adopters
quite quickly and be able to create considerable brand-equity as a
destination for this content.

There is also the matter of developing institutional expertise in
creating content for this new format. It is *not* a matter of conversion
of existing assets. 

Whether I can parlay that into a more durable barrier to entry is an
open question.

>  > I've had some more time to think about this, and I believe that
>  > operating a free consumer service where users can use free content as
>  > well as purchase access to premium content for use *with* the service,
>  > may be the way to go.
> 
> 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?

Existing content providers mostly have *brands* as relevant assets, not
actual content.

I don't really expect to go after the large content providers
immediately, as there are many smaller brands and artists that would be
more tractable and have rabidly loyal fan-bases.

>   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?

That, is a *very* good question. I am not sure, except that I think it
will take time for the largest players to move in.

Yet, even though this is an area more closely related to their existing
offerings, you don't see any of those players trying to create a market
in MIDI files, for example.

Here is one strategy I have been mulling:

        1) The webservice is primed with some CC-BY-SA content to make
        it immediately useful to users.
        
        2) I expect *some* users to begin creating their own modified
        content and uploading it to be shared (obviously under the same
        terms).
        
        2a) There *may* be a crowdsourcing angle here for content
        production, I haven't worked that out just yet.
        
        3) I create some 'premium' content, that the user must pay to
        access (something on the order of a ringtone fee). The user can
        try before they buy.
        
        4) Once paid, the user can use the content. They can also
        actually download the file under a noncommercial (probably
        CC-BY-NC-ND, but perhaps CC-BY-NC or CC-BY-NC-SA) license,
        giving the user data portability and freedom to move to another
        service (and remember, the service itself is a F/OSS
        application), but prevents a competing service from charging for
        the premium content I've created/provided.
        
Some consequences and twists I expect:
        
        1) Some large media brands will set up their own competing
        services with their branded offerings, but will likely have to
        give it away. To the extent that large brands have experimented
        with the antecedents of this medium at all, it has always been
        as free giveaways for promotional purposes (and no thought for
        portability).
        
        I may wait util some of these free offerings exist (indicating
        critical mass) before I launch the premium offerings I mentioned
        above.
        
        2) Competing services could create their own premium content, of
        course, and license it under terms that prevent me from making
        equivalent use of it, but I'm betting that disabling portability
        (either by disabling downloads or via too-restrictive
        licensing), will lead to shunning (or piracy) by users. IOW, I
        think I can create a social norm for content portability.
        
        3) I would fully expect free public sites that are mere
        aggregators to spring up, and for that matter for these files to
        show up on bittorrent. To use those files, a user would have to
        find it, download it, and then upload it to a service (say the
        one I operate). These files are not necessarily small. So the
        access fee I charge is really for the convenience of immediate
        gratification.

>  > > Depending on what you're doing, other models may work.  For instance
>  > > Sleepycat built a pretty good business around offering a free product
>  > > which you had to pay to incorporate into proprietary products.  And
>  > > for many years Aladdin made money from Ghostscript by having a
>  > > proprietary product that they would open source old versions of.  Both
>  > > of those models require that you maintain ownership of the copyright
>  > > though.
> 
> Er, what copyright?  Once you allow people to access the interface
> freely, you're dead.  You'd have to proprietize the interface itself
> here, as I understand it.  I think you really need a patent to get any
> mileage from the data format itself.

I'd have to get a pretty savvy investor to 

> > [snip discussion of fonts, desktop themes, and screensavers]
> 
> I think it's pretty easy to see the difference in hindsight, and you
> should take advantage of that hindsight to refine your estimates.
> 
> Desktop themes are *background*.  They should not be obtrusive, and
> once you've got a pleasant one, there's little reason for most users
> to change.  They're also easy to create on the hobbyist level.
> Finally, distribution takes place in the open source context, openly
> over the internet.
> 
> Screen savers are even more so.
> 
> Ring tones, on the other hand, are part of the way you present
> yourself to the world.  They're heavily tied to your self-image, and
> to fashion.  Many (most?) popular ring-tones are currently popular
> music themes, which are backed up by heavy handed titans like RIAA,
> and they have a natural proprietary distribution channel.
> 
> That last contrast (distribution) should worry you.  The others will
> help you gauge opportunity.

Thanks for this. I believe that the service I intend to provide will
*definitely* tie into self-image, perhaps more so than ringtones do,
though perhaps not for as broad an audience.

Distribution *does* worry me. I think I basically have two choices,
neutralize incumbents' distribution advantages, or try to create my own.
I think the former is a more viable approach.

- Michael


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