Subject: Re: Free *Network* Software Business?
From: "Ben Tilly" <btilly@gmail.com>
Date: Tue, 2 Dec 2008 21:58:59 -0800

On Tue, Dec 2, 2008 at 9:04 PM, Michael R. Bernstein
<michael@fandomhome.com> wrote:
>
> 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? I was hoping for some feedback by now...
>>
>> My reason for not responding is that I don't see how you'd monetize a
>> free data format.
>
> Generally speaking, I expect the free availability of the format, and
> the availability of free/open data (or content) in that format, to
> actually create a market for proprietary/licensed data in the free
> format, as well as services related to aggregating demand and supply
> (free fonts and clip art help create demand for higher quality
> offerings).

It sounds like you know your business model then. :-D

In this case your goal is to get your format widely adopted.  For
which you might want to use the BSD license.  You should also aim to
get your product incorporated into existing products - for instance
make a Firefox plugin yourself.

> 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.

Right.

>> The most applicable business models would seem to be providing support
>> and training for your system, or else making money off of proprietary
>> tools built on top of your data format.  Without details I can't guess
>> whether either of those is viable.
>
> There may be some service and consulting revenue from companies that
> want to deploy the service internally, but I am actually not sure how
> soon any of that would materialize (could be a few years). Data-creation
> (or content-creation) services may materialize sooner (think custom
> typeface design). Proprietary tools (think fontographer) could be
> lucrative, but I may simply have to cede that portion of the market to
> someone else as it is not my area of expertise.

Well with the model you're aiming for, you want to make deploying as
fast and painless as possible.  Which indicates that you won't get
much service and consulting revenue.

[...]
>> 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.
>
> The Sleepycat model could work for the webservice, but the GhostScript
> model won't. Perhaps for libraries intended to be used by desktop apps
> though... Hmm... No, probably not.

If your goal is adoption, you may not want to put up artificial
barriers to inclusion in proprietary products.  Or perhaps you do.  It
is hard to say.

The dynamic you've got to think about is whether the potential market
will grow too much faster than your ability to supply it.  If it does,
you could create a huge market but never benefit much from it.  For
instance if Microsoft likes your idea, then incorporates it into a
hundred million desktops in a year, everyone is going to look to
Microsoft for direction and you'll be forgotten.

>> You also haven't said how difficult it will be to launch this project
>> and what size of company you're looking to build on it.  It is much
>> easier to, for instance, come up with a business model around a niche
>> product that will work for a personal consultancy than it is to come
>> up with one that is keeping a several hundred person enterprise going.
>
> Part of why I'm being coy is that it actually won't be particularly
> difficult to devise a format for this new purpose (though it could be
> done well or poorly), create the supporting web service, and launch the
> company, but my resources are slim at the moment, so it could still take
> me a while.
>
> While the marketplace created by this format could be pretty darn big, I
> don't have *any* illusions about being able to corner it. Initial
> success will probably be marked by sustainable revenues that support
> 5-10 employees. How far the company could grow beyond that is anybody's
> guess depending on whether I'm right about the format leading to an
> explosion of creativity *and* demand for content, both consumer and
> corporate.

If you haven't run a company before then you probably should find a
good mentor.  Also read up on startups.  Paul Graham has written a
number of potentially applicable essays.

> For example, royalty-free clip-art is a pretty big business (though not
> as big as digital fonts) with both high end and low end offerings, but
> could you have actually *predicted* that with any certainty at the very
> beginning of the desktop-publishing revolution? Or the current market
> for cell phone ringtones as recently as a decade ago?
>
> On the other hand, desktop themes and backgrounds are a niche that few
> consumers have ever paid for, or pay very much, though some artists are
> able to make a living at it, and some aggregators have built successful
> businesses.
>
> And yet on a third hand, screen-savers were quite popular and profitable
> for a while, and then that market mostly dried up.
>
> I am quite simply not sure how big this new market will be, just that
> there is, in fact, one waiting to be created.

Uncertainty is part of life.

Cheers,
Ben