Subject: Re: Free *Network* Software Business?
From: "Stephen J. Turnbull" <>
Date: Wed, 03 Dec 2008 15:51:20 +0900

Michael R. Bernstein writes:
 > On Tue, 2008-12-02 at 18:15 -0800, Ben Tilly wrote:
 > > On Tue, Dec 2, 2008 at 5:52 PM, Michael R. Bernstein 

 > >         Am I being *too* coy?


 > > My reason for not responding is that I don't see how you'd monetize a
 > > free data format.

This is the critical question, as posed by the OP.

 > Generally speaking, I expect the free availability of the format, and
 > the availability of free/open data (or content) in that format, to
 > actually create a market for proprietary/licensed data in the free
 > format, as well as services related to aggregating demand and supply
 > (free fonts and clip art help create demand for higher quality
 > offerings).

That's how you monetize the data, by providing a format in which it
can flow.  How do you monetize the format?

 > I don't expect that market to be winner-take-all, but I do expect to get
 > a healthy slice of the new ecosystem by virtue of having helped created
 > it.

That's a path to poverty.  Search the FSB archives for posts by Tom
bellyaching about how he created the distributed VCS industry but got
no money or respect for his contribution.  The facts are as he states
them; it's his expectation of being rewarded for his contribution that
was faulty.

IOW, "by virtue of" is meaningless here.  You need to point to
concrete first mover advantages that you can argue will accrue to the
innovator of a data format suitable for this genus of content.

 > I've had some more time to think about this, and I believe that
 > operating a free consumer service where users can use free content as
 > well as purchase access to premium content for use *with* the service,
 > may be the way to go.

Why would a premium content provider pay you, rather than use your own
free format as a threat to support charging you a franchise fee as a
distributor for their content?  More fearsome yet, do you think you
can beat Amazon, iTunes, and Rhapsody at this game if the format is
free for them to use?

 > > Depending on what you're doing, other models may work.  For instance
 > > Sleepycat built a pretty good business around offering a free product
 > > which you had to pay to incorporate into proprietary products.  And
 > > for many years Aladdin made money from Ghostscript by having a
 > > proprietary product that they would open source old versions of.  Both
 > > of those models require that you maintain ownership of the copyright
 > > though.

Er, what copyright?  Once you allow people to access the interface
freely, you're dead.  You'd have to proprietize the interface itself
here, as I understand it.  I think you really need a patent to get any
mileage from the data format itself.

 > Part of why I'm being coy is that it actually won't be particularly
 > difficult to devise a format for this new purpose

Ah, so it's not about the format after all.  It's about the content.

 > While the marketplace created by this format could be pretty darn big, I
 > don't have *any* illusions about being able to corner it. Initial
 > success will probably be marked by sustainable revenues that support
 > 5-10 employees. How far the company could grow beyond that is anybody's
 > guess depending on whether I'm right about the format leading to an
 > explosion of creativity *and* demand for content, both consumer and
 > corporate.
 > For example, royalty-free clip-art is a pretty big business (though not
 > as big as digital fonts) with both high end and low end offerings, but
 > could you have actually *predicted* that with any certainty at the very
 > beginning of the desktop-publishing revolution? Or the current market
 > for cell phone ringtones as recently as a decade ago?
 > On the other hand, desktop themes and backgrounds are a niche that few
 > consumers have ever paid for, or pay very much, though some artists are
 > able to make a living at it, and some aggregators have built successful
 > businesses.
 > And yet on a third hand, screen-savers were quite popular and profitable
 > for a while, and then that market mostly dried up.

I think it's pretty easy to see the difference in hindsight, and you
should take advantage of that hindsight to refine your estimates.

Desktop themes are *background*.  They should not be obtrusive, and
once you've got a pleasant one, there's little reason for most users
to change.  They're also easy to create on the hobbyist level.
Finally, distribution takes place in the open source context, openly
over the internet.

Screen savers are even more so.

Ring tones, on the other hand, are part of the way you present
yourself to the world.  They're heavily tied to your self-image, and
to fashion.  Many (most?) popular ring-tones are currently popular
music themes, which are backed up by heavy handed titans like RIAA,
and they have a natural proprietary distribution channel.

That last contrast (distribution) should worry you.  The others will
help you gauge opportunity.