Subject: Re: Revenue and business models
From: "Stephen J. Turnbull" <>
Date: Thu, 15 Jun 2006 19:54:26 +0900

>>>>> "Thomas" == Thomas Lord <> writes:

    Thomas> DV Henkel-Wallace wrote:

    Thomas> You summarize your earlier conclusion:

    >> How about you offer your customer a choice:
    >> "I'll offer you the software you want and you choose from the
    >> following three options:
    >> 1 - you give me $300K upon delivery.
    >> 2 - you give me $30K a month for the 12 months after delivery.
    >> 3 - you give me $.35 per unit until your $400K bill is paid off."

    Thomas> What /I/ got from your earlier post was that #3 is very
    Thomas> desirable from the customer perspective.  I had never
    Thomas> thought of that before.  In fact, if the offer is for a
    Thomas> proprietary program and is "3a. - you give $.35 per unit,"
    Thomas> with no cap, it can /still /be attractive to the customer.

    Thomas> I don't think "3a." can be done consistently with the GPL,
    Thomas> although at least one company tries.  I'm certain it isn't
    Thomas> consistent with the /intent/ of the free software
    Thomas> movement.  But adding that cap, and getting "3", is a
    Thomas> different story.

In what form money is transferred is basically irrelevant.  All you
need is a sophisticated third party (I'll call it the "bank"), and it
can be anything you want.  Here's how it works.  You go to the
customer.  You say "I want $300K up front".  The customer says, "Wait
a minute."  She goes to the bank and says, "I will sign a contract
that pays you $0.35 per widget in perpetuity.  Here's my business
plan.  What will you give me for this?" and the bank says "$280K".
She comes back to you and says, "How about $280K?"  You grumble a bit,
but you say "done!", don't you?

This is what is called "intermediation" (the bank's role in turning a
cash flow that is convenient for the customer into a cash flow that is
convenient for you) and "securitization" (turning a private contract
into a commodity marketable to third parties).  Both are very big
business today.

Where's the free software in the story above?  *There isn't any*; it's
completely generic.

How do you put the free software in the story?  Any way you like.  You
aren't constraining the customer.  She still has all her rights with
respect to the software; she just has this side contract with the bank
that costs her money if she does certain things that happen to involve
the software.  But the bank doesn't know, and doesn't need to!  All
they do is count widgets.  Where is there any infringement of the
customer's software freedom?

I believe that this argument is perfectly applicable to the Red Hat
seat license, too, even though you do have to know about the software
to verify compliance.[1]

[1]  Of course you're unlikely to find a bank expert enough to assess
the value of software in an innovative industry, so what normally
happens is that one of the parties accepts the others' cash flow
proposal, usually after bargaining for a better level, of course.  In
this case, Red Hat is playing the role of the "bank" as well as the
software vendor, for the convenience of the customer.  What's wrong
with that?

Graduate School of Systems and Information Engineering   University of Tsukuba        Tennodai 1-1-1 Tsukuba 305-8573 JAPAN
        Economics of Information Communication and Computation Systems
          Experimental Economics, Microeconomic Theory, Game Theory