Re: [unrev-II] Lifestreams

From: Jack Park (
Date: Mon Apr 03 2000 - 17:16:08 PDT

  • Next message: Jack Park: "Re: [unrev-II] Lifestreams"

    Re: [unrev-II] LifestreamsWhat's happening on Wednesday?
      ----- Original Message -----
      From: Sandy Klausner
      Sent: Monday, April 03, 2000 4:39 PM
      Subject: Re: [unrev-II] Lifestreams

      Nice thoughts. This is an area that we need to discuss on Wednesday.
      From: Eric Armstrong <>
      Subject: Re: [unrev-II] Lifestreams
      Date: Mon, Apr 3, 2000, 4:32 PM

      Jack Park wrote:
    > Once question: how does one build an industry when one is putting out
    > the key product as an open source (read: free) product? We're talking
    > business models here, I think.
      Actually, you are asking two separate questions, both of which are
      equally valid.
      The first question is: How does one build an industry?
      The answer, as Lee Iverson stated so succinctly, is "simple standards
      and free software". The HTML standard, coupled with the Mosaic browser,
      did indeed create a new industry, defining a new defacto standard upon
      which communications have become increasingly based. Yahoo did it, as
      The second question: How does one create a self-sustaining *company*?
      (In particular, one that operates within that industry.) As you say,
      this is fundamentally a question of business models. What business model
      makes sense? What it is the value proposition that produces revenue?
      I have to confess to being almost totally mystified on this point. I
      *still* do not understand the Netscape/Yahoo/RedHat business models.
      It's not clear to me how they go about making any money at all, much
      less enough to support a large organization. There is manifestly *some*
      model that makes sense, though.
      I started investigating question at the after-colloquium party. Since VC
      folk have a great nose for sniffing out business propositions, I decided
      to ask "what open source business models are fundable?" (This may not be
      the best way to express the question, since both Yahoo and Netscape
      started with college kids giving away their software & services. But I'm
      thinking that somebody had to invest something, at some point, before
      they were able to form a company. Eugene may have better information,
      These are the models I've seen so far:
      1) The Education and Services model
      The software is the key product. You give it away, and
      make your money providing education and services (such
      as prioritized development).
      That's the Red Hat model. I'm not sure it's a huge
      winner, but so far it seems to be at least reasonably
      2) The Derivative Service model
      The software is something you use to provide a valuable
      service. You have some other value-add with respect to
      that services that makes it a viable business proposition.
      VC loves open source in that model, because you get a
      whole world of developers helping you to refine the
      software you use to make money. For example, you might
      provide payroll services to small companies. The payroll
      software would be free, and large companies might decide
      to use it. But most small companies will still pay to
      outsource the operation, for lack of inhouse manpower to
      take over the job, so your fundamental business
      proposition is unaffected.
      To this, I add one theoretical possibility that I have never seen occur
      in practice, but which might be feasible:
      3) The Horse Race model
      In this model, a bunch of VC types get together to have
      a horse race. They each back their own "pony"
      (individual company). But they pool their resources to
      create the "race track" (base of open source software
      they can build on).
      The horse race model has interesting parallels in the area of standards.
      Companies agree to standards (with a minimal investment -- time on the
      part of some employess and possibly a membership fee to the organization
      to cover adminstrative cost). The standards that result produce the race
      track, and the company products are the ponies.
      In the client/server domain, life gets really interesting. The best
      situation to be in, by far, is to be producting the server (the
      platform) and let lots of other companies compete to build the clients
      (applications). That was the ground Microsoft took so successfully. Then
      they migrated into applications, as well, which burned a host of
      application providers.
      If you can get to that point, that is ideal. Another alternative is to
      give away a server (the racetrack) and a minimal client (a seed pony),
      and let client producers compete with better and faster ponies.
      On the other hand, client software is notoriously a low-margin business.
      (The ideal price is free.) So maybe the race is around producing better
      servers. You provide a minimal server for a seed pony, as well as a
      minimal client. The race is then to provide the best possible server,
      where better/faster clients help to increase the winner's prize (i.e.
      the market size).
      In this model, a open source versions of both server and client software
      "builds the racetrack". The risk is that no one comes. But if they do,
      the "gate" (winners prize) becomes the market estimate -- what customers
      will pay for software that runs on that track. People then place their
      bets on different ponies (buy stock). That rewards the folks who have
      The folks who built the racetrack, therefore, are only rewarded if they
      also have a pony in the race. When pioneering a new
      industry, the risks are greater -- you need to develop freely available
      versions and hope they catch on at the same time that you need to
      develop a proprietary version. So your investment costs are higher. Plus
      the risk increases because if *either* project fails, you lose. Finally,
      unlike investment in a new potato peeler (which you know people use)
      investing in a new industry runs the real risk that it never gets
      accepted. (If no one goes to the racetrack, having the best pony in the
      race produces no reward.)
      The risks are real. If there were some way to create a consortium of VC
      folk to build the open source pilot, the risks could be minimized for
      any one participant. But there are still two major reasons for investing
      in such a project, even if it must be a solo venture:
      1) The rewards are huge.
      IBM made out like a bandit because it created the
      computer industry, and then proceeded to dominate the
      hell out of it. When you succeed in such a venture, the
      rewards are massive.
      2) We can't afford not to.
      If our planet and our very survival as a species depends
      on solving the critical, complex problems that confront
      us, then we cannot afford to ignore technology that
      promises to augment our collective intelligence. Win or
      lose, it is an attempt we must make.

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