Subject: Re: appliance-based business models
From: Brian Behlendorf <brian@collab.net>
Date: Tue, 25 Oct 2005 14:26:50 -0700 (PDT)

On Tue, 25 Oct 2005, Joe Corneli wrote:
> You're the expert, not me.  But remember the context in which I spoke
> up.  I had just read:
>
>  Another appeal to the appliance model is that you're charging for
>  the value you're providing to the customer - not for a markup on
>  your costs of doing business.
>
> Why would the appliance model per se lead to this way of thinking (if
> what we're talking about here is a way of thinking)?

I should have probably said "justifying your fee" rather than "charging", 
and comparing it to either the support fee or the work-for-hire 
engineering approach.  In work-for-hire, you say "this is our engineering 
fee per hour, and it'll take X hours".  Support models vary as well, but 
most include some sort of "you can report N incidents per month", or some 
other cliff where additional money is needed for additional staff 
attention.  Generally the sales approach is "hey, this requires time, time 
from smart people, and that's why you see that price on the invoice". 
With an appliance, as with the ASP approach, you typically price on usage: 
# of users per month, Mbps capacity, GB of data stored.  That makes it 
possible to grow the business without needing to increase headcount 
correspondingly.  Depends on what kind of business you want to be in, but 
if you don't have that ability to grow revenue superlinear to growing 
staff, you should just realize you're a consultancy and organize, market, 
sell, and deliver accordingly.

On Tue, 25 Oct 2005, Jim Thompson wrote:
>> Another appeal to the appliance model is that you're charging for
>> the value you're providing to the customer - not for a markup on
>> your costs of doing business.
>> 
> I hadn't commented on this yet, but when I first read it, I thought "shades 
> of Digital Equipment!"

Definitely a company who didn't see the Innovator's Delimma coming; all it 
means is that the goal lines are constantly being moved, and what's 
differentiating today (if it's any good) becomes commodity tomorrow.

 	Brian