Subject: Re: Open Source Developer Exchange (Economics)
From: Ian Lance Taylor <ian@airs.com>
Date: 29 Apr 2003 22:44:21 -0700

 29 Apr 2003 22:44:21 -0700
"Julius Steyn" <julius@solutionstap.com> writes:

> We developed an Operating Model and business strategy based on the feedback,
> research and challenges discussed in the summary essay that followed. Many
> existing and past business models were investigated each have their own
> unique characteristics, benefits and advantages. Some of the 13 business
> models that we investigated included; Sourceforge, SourceXchange, Collabnet,
> Elance, sologig, rent-a-coder, experts exchange, free agent, asynchrony,
> etc. Although we are confident about our strategies and the proposed
> business model we are at a stage that we respectfully seek your advice and
> input. I have summarised the basics of the Operating Model at the location
> below and will provide a detail strategy and business solution during the
> latter part of this week, your feedback is critical to finalise some of the
> key aspects of the business solution.
> http://www.devcity.org/opsmodel/
> I look forward to your constructive response, criticism, comments and
> discussion about some/all of the initiatives mentioned in the above essay.

It's an interesting presentation.  I only read it quickly, but here
are my initial thoughts.

Basically, from the point of view of the customer, NewCo is a software
engineering consulting company.  But who are the engineers?  You say
that they are ``members of NewCo,'' but you also say that they can bid
against each other and that those bids are exposed to the customer.
So members doesn't seem to mean employees.  But what does it mean?
What are the requirements on NewCo members?  Can anybody become a
NewCo member?

Your plan doesn't really say where NewCo's revenue comes from.  The
only real possibility is that you mark up the contracts.  That exposes
you to a major risk which is that the engineers will use NewCo to get
leads, and then go around NewCo to deal directly with the customer,
thus cutting out the middleman.

Even if you squelch that, your presentation needs to discuss your
markup.  I once did some work as a consultant for the U.S. government.
The government finds it hard to hire consultants directly, so I was
actually a consultant for a company which was in the business of
hiring consultants for the government.  Although at least in my case
that company basically did nothing but accept checks from the
government and write checks to me, their markup was 100%.  I charged
$50/hour (I was young and na´ve) and they charged the government
$100/hour.  NewCo is going to need a similar level of markup.

That in turn leads to the converse risk: companies will use NewCo to
find engineers, and then the company will go around NewCo to deal
directly with the engineers, thus saving money.

I worked for an open source consulting company, Cygnus.  Cygnus got a
few contracts by sitting around and reading e-mail.  However, most
contracts, and I suspect all of the big ones, came through traditional
sales calls.  Salespeople researched companies which could use our
services, called them up, and sold them.  Salespeople are paid on
commission.  Where are they in your presentation?

Also, all but the very best salespeople need something to sell.  They
need some menu of offerings which they can discuss with prospects.
Creating such a menu is traditionally a strategic marketing function.
Where is marketing in your presentation?

In fact, that's the biggest gap in your presentation.  Who are your
customers?  How will your customers find you?  Why will your customers
choose you?  Who is your competition?  In general, I don't think you
will be able to build a business on the ``if we build it, they will
come'' model.

Having no competition is bad.  It means either 1) people don't know
that they need your services, or 2) people don't need your services.
In case 2, you fail.  In case 1, you need to educate them, which is
time consuming and/or expensive.  How will you do this?

Now I see your web page is called an ``operating model.''  It's not
yet a business plan.

Why do you want to expose the bids to the customer?  If I were going
to hire a consulting company, I would not want to see several bids
come back.  I hired a consulting company to solve a problem for me.
If they give me several bids, I have to ask why I wouldn't simply
choose the lowest one.  Different bids would only be interesting if
they were different in relevant and substantial ways, in which case
they would be better presented as different options.  I think that in
most cases you should hide the bidding from the customer.

Project management is indeed a significant weakness when dealing with
consultants, and outsourcing that is a good idea.  I happen to know of
a company which does this right now, specializing in technical
documentation: Sakson & Taylor (no relation), http://www.sakson.com/.
I'm sure there are other such companies.

I've been mostly critical, but I see that you've put a lot of thought
into this, and you have a lot of good ideas.  I certainly wish you the
best of luck.

Hope this helps.

Ian