Subject: implementing revenues
From: Tom Lord <lord@regexps.com>
Date: Wed, 19 Sep 2001 18:03:40 -0700 (PDT)


I was reading some news and SEC data today.  Very interesting.

Two strategies are commonly offered for FSBs: task-based contract
services and boxed IT and developer products (which help create a
market for task-based contracts).

The costs of task-based contracts are always going to be proportional
to their price, and competition will always push the margin towards 0.
Moreover, there's nothing, aside from convenience, that ties such
services to a particular corporation -- the barriers to engineers just
leaving and taking their customers with them are low.  It's important
to offer task-based contracts, because that's an important part of a
"total solution", but it isn't really a basis for growth.

The margin for boxes of Free Software is, again by competitive
pressure, always going to be low.  The number of IT departments and
developers buying boxes is always going to be small compared to the
number of consumers and other end-users in the world.  Some non-FSB
companies have big revenue proportional to the number of end-users and
thus have lots to spend making developers and IT departments happy
Sooner or later those competitors will win in IT and developer markets
on the strength of their technology.  In doing so, they'll have plenty
of opportunity to, indirectly, further lock-in consumers and other
end-users.  So, boxes also don't provide a basis for growth.

So, shouldn't a very high FSB priority be to figure out how to win
big in consumer markets?

A third strategy is net-based upgrade subscriptions.  There, at least,
the cost of the service is low compared to aggregate price, and
there's potential to get a number of customers proportional to the
total number of consumer/end-users.  But there's a hidden cost that
makes these services trickier: content.  There has to be a continuous
stream of value in those upgrades, and it has to compete against
similar but proprietary services from non-FSBs.

FSBs therefore need low-cost ways of developing consumer-oriented
software content -- they have to become better at this than their
non-proprietary competitors.  For this, there are at least two
strategies: (1) pray to the magic cauldren; (2) develop innovative
technology that supports super-efficient creation of consumer-oriented
software content.  So, who wants to be a customer of my R&D lab?

-t