Subject: Successful FSBs
From: "peter bryn jones" <peterjones@eudoramail.com>
Date: Thu, 31 Oct 2002 13:30:58 -0800

>>>>>On Mon, 28 Oct 2002 14:52:13   Chris Maeda wrote:

 Chris>How does your definition of "successful" differ from
 Chris>the standard definition of "profitable" ??  How can a
 Chris>FSB be successful without being profitable, or vice versa?

Having assumed that "...a business can be judged in financial / economic terms" I agree
that profitability is important in the long run. However, the "captured value" I refer
to below is the increase in the value of the business (e.g. increase in share price)
resulting from the release of free software, not how profitable the business is. They
are subtly different.

 >>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.

What I was trying to focus on was how a business could be worth something as a result
of releasing free software. The key steps are to create something of value for users
and then capture some of that value.

Google, for example, creates a huge amount of value for users by enabling them to find
things on the Internet (for free). They then capture a little of that value by selling
sponsored links which are relevant to the search results. I don't know if they have
always been profitable, but I expect there was a point where they were not profitable
and still worth something. It was when they became worth something that they became
a "successful" FSB.

I have assumed here that this is the only service they offer. This is not true, but
keeps the example simple.

I realise that all this talk of "profitability" and "creating value" may not naturally
interest people on this list. The reason for including them in a possible definition
of a FSB is that they could offer some useful insights.

Looking at the example again, it is interesting to note that Google actually destroys
a little of the value it creates for users by introducing these sponsored links. I would
prefer that the results displayed were directly generated by their search algorithm.
However, in order to capture value for their business they have chosen to introduce
the sponsored links.

One interesting question to consider would be "What would happen if another business
offered a similar service to Google without the sponsored link feature?" Also, if the
offerings were comparable, which one do you think users would choose? Would Google be
considered successful if users abandoned it for another search engine? What are the
factors that enable a FSB, such as Google, to capture value whilst preventing others
from destroying its business in this way?

The suggested definition implies that a Google would move from being "successful" to
"unsuccessful" when it becomes valueless, and that for it to have qualified as a FSB
in the first place it must have generated its value as a result of the release of software
that was free to use. This may not be how the list views the term "free".

On the other hand, would Google qualify as a business without the sponsored link feature.
Without other revenue streams resulting from these users it would fail to capture any
value for itself and, in my opinion, would not constitute a business.


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