Subject: gross margins, R&D, S&M, G&A, and all that
From: Tom Lord <lord@regexps.com>
Date: Sun, 7 Oct 2001 00:15:45 -0700 (PDT)



       Any discussion of free software businesses has to happen around
       the business model.  What gross margin are people willing to
       pay?  What are the costs in R&D, S&M, and G&A associated with
       running that business?  Is the bottom line return large enough
       that people will invest in that business?  Answer those
       questions about any proposed free software business and we'll
       be a lot closer to understanding how to build one.

Having to answer those particular questions about a proposed FSB model
creates a bootstrapping problem, if you expect the answers to be given
with precision, rather than on the back of an envelope.

Let's say you can identify a general class of business models.  Most
particular examples you can imagine within this class have good
numbers.

Let's say you have some proposed technology -- the cost of building
that technology is low compared to the numbers that seem to be typical
of the class of models you've identified, and the technology itself
seems to be well suited as a basis for the class of models.

However -- there is a time delay between when you start developing the
technology and when it becomes time to implement a specific business
on it.  There are some uncertainties about exactly what path your
technology construction project will take.  For those reasons, you
can't honestly say in advance what specific model you'll implement --
you can only defend the idea that building the technology has a high
probability of leading to some suitably rewarding future businesses.

The only questions that can be addressed with any precision are how
much you can afford to pay up front towards the proposed technology,
and how that amount relates to the projected probability that the
technology construction project will succeed.

How does one solve that bootstrapping problem?

-t