Subject: Re: "incentive void" (was Re: A different patent covenant...)
From: Thomas Lord <>
Date: Tue, 05 Dec 2006 10:48:11 -0800

Stephen J. Turnbull wrote:
> But "just leave the damn volunteers out of it" begs two important
> questions.  1. How do you keep the team together if the ones who think
> they're doing all the work decide to walk?  2. How do you placate the
> infantile VCs who keep crying until you stick "patentifiers" in their
> mouths?  I think that IP has a role to play in both, though at this
> point I don't have a clear conception.  (Admittedly, if we abolished
> IP, the second role would be moot.)

I think there's a good story for all players here:

Not very long ago, the appliance business was a new possibility
and a new idea.   The HW hit the right sweet-spots around the
same time as GNU/Linux did and those user-space IP-stack
hooks in the Linux kernel just opened up a wealth of possibilities.

There was, of course, a first generation of immediate, big-stakes
applications.    You named the example of optimizing IP traffic
to cell-phones: that's a good example.   The revenue stream from
the end-customer there is humongous (that's the term, right?) compared
to the cost of developing and maintaining these filters AND the
telcom customer really wants a set-it-and-forget-it solution for which
outsourcing would be ideal.

Well, that's a great conjunction of circumstances for Big VC.
They alone can afford to spend enough to be the first ones to
work out the network appliance business model  -- they can
afford to spend lavishly on the first examples that work and
they can afford to lose a little bit making mistakes in the model.
Meanwhile, for these first few customers alone, a high product
price is just fine and, if any of these first few appliance efforts
succeed, those customers are certain to pay off nicely.

Now, a few years later, the business model is far better
understood.   As one example, 6 years ago I talked with
more than one exec who was fretting about whether they were
or were not violating the GPL this way or that.   And
setting up a base GNU/Linux platform for the appliance
was a pretty seat-of-the-pants operation.   3-5 years later
that territory is entirely mapped out and nobody needs to
think very hard about how to solve those problems:  the
legal issues are well understood;   there are many, usable
gratis GNU/Linux distributions with proved reputations
to chose from.   Even the hardware is more of a commodity.

The upshot of that is that the barriers to entry to the network
appliance business are crashing down.   The first movers who
serve big customers aren't likely to be challenged anytime
soon ("if it ain't broke...").    New entries for new markets
will face higher amounts of competition.

Meanwhile, VCs being, you know, *somewhat* efficient,
have largely already sucked up the very high end market and
the sweetest plums in the markets serving SMBs.   In
other markets, while there are certainly *scads* of new growth
markets waiting to be plumbed for network appliances,
each of these markets is substantially smaller than those that
have been exploited so far.

So:  lots of niches still to exploit, lower barriers to entry, growth
but not "upper-tier" growth:   the network appliance business
is still there, and can still thrive but it is becoming a lower
stakes game for investors.

A "lower stakes game for investors" is fantastic news
for less established people who want to start a new FSB.
Because the stakes are lower, investors may be less insistent
on strong IP protection, depending on the nature of the
niche market being pursued.   Because the business model
is well understood, low-resources entrepreneurs should
have an easier time assembling credible small firms.
Because the stakes are lower, fewer investors are needed
and less hard-to-contact investors.

A large challenge for any such FSB -- not shared by
the first generation of appliance businesses -- is a marketing
challenge.     If a telcom is shopping for appliances, they
tend to come to you -- a lot of customer relationship management
is needed but not very much broadcasting in search of customers.
A company serving a small niche has the new challenge of
making sure the potential customers in that niche know
the company's story.    That doesn't much raise the stakes,
though:  marketing of that sort, on the cheap, seems to me
a very large part of the value many SMBs contribute.