Subject: Re: "I've got more programmers than you"
From: Peter Wayner <pcw2@flyzone.com>
Date: Thu, 4 Oct 2001 07:35:06 -0400

>
>
>My point is not that FSBs can't do well.  Not even that they can't
>develop world-beating technology.  It's that they have inherent
>financial weaknesses that tend to restrict them to the "commodity
>infrastructure" end of the market, and thus are going to suffer from
>low margins---unless they target their market segment accurately.


I'm going to agree with you about the commodity nature of FSBs, but 
suggest that it has mainly to do with the fact that everyone gets a 
free copy of things. It's hard to mark things up. Technically, MS 
Windows is very close to a commodity. Any manufacturer that adds 
anything different loses their license. What you're really saying is 
that the FSB is low margin, no price setting power and the GNU 
license guarantees that.

But is that horrible? The grain business, the oil business, 
McDonalds, the Gap and many other businesses deal in items that are 
close to commodities. They're doing okay. It's the fancy pants, 
dot-commers driven by VC biz models that are crashing and burning.

Plus,  I don't necessarily think that this is bad for society. FSB 
may not generate the kind of cash flow that makes wealthy businesses 
like MS or Oracle, but that doesn't mean that society suffers. I'm 
quite happy that my servers run Linux/Apache instead of the Code Red 
worm eaten MS IIS. Do you realize that one of the high margin, 
MS-only hosting shops went out of business after that worm came along?

Perhaps what is really happening is that software is moving back into 
the commonweal. Central Park in NYC isn't as fancy as the Plaza, but 
people love it too. Shared public code may not bring all of the 
privatized wealth, but it can still make the world a wonderful place 
to live.

The important thing to remember is that software is not a physical 
good. Sharing a mansion, a plot of real estate, a diamond or a chunk 
of bread diminishes its value. But I lose nothing by sharing the 
software on my machine. In fact, if I share the source code I may 
make my software better if someone enhances it. This is the basic 
truth of the free software world. Building a business on top of it is 
another challenge.




>
>I don't see any reason why successful small to medium-size businesses
>cannot be built on FSB principles.  I do find the optimism of Tom,
>Willem, and Peter worrying.  FSBs have few or no inherent advantages
>over mixed-mode strategies, and a large potential financial
>disadvantage.  This strongly suggests to me that FSBs are inherently
>going to be niche businesses.  And that they are going to have adopt
>strategies that don't expose them to large demands for cash flow.

FSBs do have advantages. Marketing is practically free. If you've got 
a good product, people will cling to it and maybe even pay you 
occasionally for support. MS, Oracle, and IBM spend a fortune on 
marketing. There's nothing like letting people try the product before 
buying.

Of course, I'm not disagreeing with your list of problems. I just 
think they demand a different kind of company and a leaner structure. 
Yes, VA Linux and Red Hat aren't minting money, but many of the 
proprietary dot coms are minting even less.

-Peter



>
>I also think that many of the segments proposed for entry, such as the
>desktop, office suites in particular, multipurpose databases, web
>browsers etc have characteristics that make them ill-suited for
>development by FSBs.  There are OSS strategies for these, probably
>even FSB strategies, but _developing_ them is not going to pay
>anyone's rent.  The problem is not that the "engines" won't be good
>enough, it's the "layering around", the myriads of details that you
>actually can deal with with an army of coders.  This incompleteness of
>the whole solution makes it harder to get funded, which makes it
>harder to get to market early with an engine, which makes the engine
>less economically valuable.  (Thanks to Keith Bostic for the engine/
>layering terminology.)
>
>It worries me that people on this list talk about (ultimately) getting
>rid of proprietary software, or developing office suites or RDBMSes,
>in the context of business strategies.  I think that has to be based
>on an unrealistic view of what FSBs are capable of achieving.  Not on
>the technical side, but on the business side.  People regularly
>explain why the technical logic is fine.  That's not what worries me.
>I know there are a lot of fine OSS programmers, designers, architects
>out there.
>
>What worries me is the lack of _business_ logic.  They don't teach FSB
>management at any biz school I know of.  It's got to be home grown.
>(Yeah, there are a couple of Harvard cases now.  But Harvard cases are
>like Pokemon---fad driven.  Or at least they're based on current
>events, and can't really support mature analysis.  After a few years,
>many of them just go into the archives, never to be seen again.)  I
>wouldn't be surprised if I'm wrong about what can be done.  But I
>don't think it'll be disproven by the kinds of logic the optimists
>post.
>
>
>--
>University of Tsukuba                Tennodai 1-1-1 Tsukuba 305-8573 JAPAN
>Institute of Policy and Planning Sciences       Tel/fax: +81 (298) 53-5091
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