Subject: Re: appliance-based business models
From: "David Kaufman" <david@gigawatt.com>
Date: Tue, 25 Oct 2005 18:30:38 -0400

Hi Joe,

Joe Corneli <jcorneli@planetmath.org> wrote:
>       Joe> (BTW, your words about "value to the customer" versus
>       "markup Joe> on your costs of doing business" strike me as
>       being red Joe> herrings; the actual pricepoint is determined by
>       supply and Joe> demand.)
>
>   I hate to say it, but you're taking Econ 101 too seriously. :-)
>
> 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 think your herring and Stephen's cost-curves both missed the mark. 
The "other appeal to the appliance model", to which I think Brian was 
referring was its appeal to us, to the free software *developer* (and 
free software business person wannabe).  The appliance model appeals, to 
me at least, as a way of making money ethically.  Yes, Free Software 
also appeals somewhat to clueful customers as high quality but, as a way 
of increasing perceived value and price, I think free as in beer is low 
on the features bullet-list.  Selling a box however, that is truly 
*worth* ten times the sum of its parts, *because* of the software that 
you installed on it (and, perhaps, just coincidentally you also wrote or 
helped to write) is quite appealing to developers, is it not?  Is that 
not a decent way to spend your days (even if nights are still spent up 
toy the eyeballs in debuggers, compilers and bug tracking data?   To me 
it just *feels* like a far more ethical reason to get paid for your good 
and productive work adding value to the box and the system of its 
perhaps less clued customer-users, and their interactions with your own 
(hopefully less clueless) support API's (I mean employees) than simply 
taking a percentage markup on some hardware that you resell (bleh).

See the appeal?  Like poprietary software licenses and source-secret 
security solutions, I detect in our community (and share) a strong 
repulsion towards high-pressure sales, slick marketing, and evil 
corporation in general.  I'm still looking sideways at MySQL for taking 
VC money and "going corporate", but that experiment is still ongoing, so 
far not unsuccessful (though I've yet to peek at their balance sheet), 
and to me, the outcome is still unclear. But the point is that we 
distrust software for profit.  Mere mention of the word profit itself 
can cause bloddy jihad on many free software project mailing lists, 
though that's probably because the word so often connotates money that 
you get paid, but don't actually earn.  It's not a repulsion towards 
capitalism, per se, but just towards capitalism's seediest underbelly. 
The free software community attracts people with high ethical standards 
(in some cases, extracts it from them).  The daily grind of giving, or 
contributing to, the gift of some piece of excellent code to the world, 
combined with delivering it in it's most readily useful form, to users 
who value it so much that you can then get paid well to come back 
tomorrow and do it some more, do it better even, is, I would think, a 
quite appealing prospect for many of us.

Marty at Sourcefire may know there people out there better qualified 
even than he to pick hardware for, install and run the snort software he 
created, but I'll bet he feels damned good that, even while the 
marketing tactics or advertising claims his company makes may go over 
the top, most customers will choose Sourcefire over the competition 
because of Snort's reputation as the best of the breed and his 
reputation as its creator.

That's free software job satisfaction.  He knows that in the end his 
appliance business will succeed or fail based on the merit of the 
product, now a combination of snort, chips, boxes and wires, and perhaps 
most importantly a foolproof system of packaging and deploying it all so 
that it can't fail to detect intrusions.  The software meritocracy is 
now extended to the physical world and the challenge is no longer 
elegant algorithms and efficient data design, but the more thorny 
problems of parts and people and proceedures that must come together 
into systems of well, business.

Still the meritocracy exists.  But here the reward comes only after 
overcoming real-world system design challenges.  Now we must fix the bug 
where the customer plugs it in upside down or on the same power strip as 
the office coffeemaker.  Here we have to write the procedure where the 
tech support folks take the call to explain why coffee and electricity 
don't go together while still making the customer feel happy that they 
chose your product, and will still enthusiatically recommend your 
company to others, because you treat people like people, and, well, not 
like bugs.  The rewards in this new meritocracy are not about users and 
fixes and downloads and patches and perhaps fame.

There's nothing wrong with seeking that other thing, fortune.  You still 
get to be challenged, if you chose to take on the challenges, though 
they may lie a bit outside of our comfort zone.  Here successes are 
measured in sales not downloads, in satisfied customers (a rare form of 
"paid user" seldom seen in the wild).  I'd take a lot of satisfaction in 
making software upgradess, bug fixes and releases early, often and 
entriely free (and easy) while my closed source competitors tend to 
delay bug fixes to the next version of the bigger faster box, so they 
can call them new features charge for them, while I make more money by 
simplying pointing this tactic out to the trade press and slurping up 
the refugees as their customers flee. (shakes head, wakes up from 
dream).

As has perhaps everyone else here, I've contemplated many ways to "make 
money in the free software business" over the years that, upon 
reflection, I just didn't feel *comfortable* with.  You don't want to 
violate the GPL, even in spirit.  You don't want to offend (or abandon, 
or short-change) the very free software community of which you are so 
proud to be a part.  And our community is Very Sensitive to even the 
"appearance of propriety" :-)  I personally don't want to gouge the 
market, charge exorbitant prices, pay 90% sales commisiions.  That's the 
part of the free economy I detest.  I's rather make money without 
misleading my customers, holding back features for ransom, subtley 
locking them into my technology against their will, or take any of their 
freedoms from them using Silly Lawyer Tricks.  I don't want to just 
avoid the *appearance* of all the "evil" things that stubbornly appear 
to be indispensable to turning a profit in the software "publishing" 
industry, I want to really *do* good work, leave the world a bit better 
than I found it, *and* get paid well.  Too much to ask?

The concept of selling free software seems, to most people at first 
blush, to be an oxymoron.  And some of my friends, family and colleagues 
(most of who are outside the free software community, but even some 
inside or on the fringe of it) tell me that I'd be a moron to try.  I 
can usually counter that they are not qualified to make such a judgment, 
standing there with a $1.50 bottle of Free Water in their hand.  But 
over time I've disappointedly succumbed to the disappointing possibility 
that Doing Good, and Doing Good Work (i.e. Free Software work), may just 
have to be mostly orthogonal to Getting Paid Well, or having a 
successful business that scales well.  So disproving that suspicion has 
a windmill at which I repeatedly tilt.  As do many of you, right?  And 
everyone else that's "in" the software industry, but who prefers to 
spend their time in the free software community?  Hence this list?

So the Sourcefire/Snort situation has admittedly gotten me a little 
excited that theirs may be a way to effectively straddle the free 
software and profitable software worlds without compromising the 
freedoms and fairness we enjoy in the former or settling for mere 
"lifestyle business", one-man-show, small-potatoes or also-ran status in 
the latter.

-dave