Subject: Re: Free *Network* Software Business?
From: "Ben Tilly" <btilly@gmail.com>
Date: Tue, 2 Dec 2008 23:51:10 -0800

On Tue, Dec 2, 2008 at 10:51 PM, Stephen J. Turnbull <stephen@xemacs.org> wrote:
> Michael R. Bernstein writes:
>  > On Tue, 2008-12-02 at 18:15 -0800, Ben Tilly wrote:
[...]
>  > 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).
>
> That's how you monetize the data, by providing a format in which it
> can flow.  How do you monetize the format?

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.

>  > 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.

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.  Given what
arch does, that would not make sense to try, but still he didn't try
it.

Incidentally Tom is utterly wrong if he claims to have created the
distributed VCS industry.  BitMover began working on BitKeeper back in
1997 and released it in 1998.  Tom Lord began working on arch in 2001,
and nothing arch ever did was as effective in promoting the idea of a
distributed VCS as the adoption of BitKeeper for the Linux kernel in
2002.

> 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.

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.)  It isn't a
permanent advantage, but it could easily be enough to make the initial
investment worthwhile.

Of course this is dependent on his ability to deliver the content
successfully.  If he is not talented this way, then he'll be in Tom's
boat.  But that possibility notwithstanding, the fact that he's
thinking about it means he's already doing something better than Tom
ever did.

>  > 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?  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.  And his target
company size is small enough that he could be happy with the business
opportunity while the market is way too small to interest Amazon,
iTunes, or Rhapsody.  And if it does become big enough to interest the
big players, they can dominate the scene and still leave enough crumbs
to keep a 5-10 person company in business.

>  > > 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.

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.

>  > 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.
>  >
>  > 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 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.

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.

> 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.

The ring tone market is heavily dependent on artificial barriers to
discourage people from making their own ring tones from mp3 files.  I
don't think this situation is stable.  In fact I strongly suspect that
if we repeated this conversation in a decade, ring tones would join
desktop themes and screen savers as things that were big for a while
then went away.

If that prediction is wrong, then I ascribe the continued success of
ring tones entirely to efforts by cell phone carriers to maintain a
market that is very profitable for them.

> That last contrast (distribution) should worry you.  The others will
> help you gauge opportunity.

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.

Cheers,
Ben