business models which suck (part II)

Posted by Ian Holsman Sun, 30 Apr 2006 13:48:00 GMT

Recently in Victoria the state government has banned the sale of soft drinks in public schools in a effort to curb obesity.

I only now found out that the sale of soft drinks was actually a major income stream for the state schools who used it help supplement their grants they get from the government (for things like playground and sports equipment sadly enough).

The prinicpals association are now saying that their canteens/food shops will have to close down because of this.

Of course, the government isn’t going to subsidise this lack of income to them. But it makes me wonder.. what other ways state schools try to supplement their income.

you have:
  • mandatory donations, which are supposed to be voluntary but the stigma attached to not paying it is large. (and it does leak out who does and doesn’t pay)
  • lamington drives
  • chocolate fundraisers
  • school fete’s
  • working bee’s

Most of these impose the cost of the childs education on the community surronding them, which is fine if you have wealthy neighbours who are obese themselves. (anyone heard of a tofu drive?) so basically you are shifting the obesity problem to the a larger audience (as schools increase the amount of drives and fete’s to compensate)

and of course it isn’t going to stop children drinking soft drinks either.. they will just buy them elsewhere/ or bring them from home.

So I’m thinking the state schools should look for other revenue streams:

  • Product placement. We use ‘Parker’ pencils here, and little johnny will be ridiculed if he brings in others. of course we are the exclusive distributor of ‘Parker’ pencils.
  • Apparence Fees/Bidding for teachers. You want little johnny to be taught in the A-Grade or F-Grade teacher’s class? Well how much is it worth to you? a dutch/vickrey auction would do wonders here.
  • Merchandising. (they do his in private schools already with the school uniforms). but you could expand this a bit down to the type of exercise books are the ‘norm’.
  • Advertising. put some billboards up around the parent pickup spot and at busy intersections.

remember .. it’s for the good of the children.

Or the government could just acknowledge the education system needs more money to run, and spend it.

I say take some money out of old-age homes ;-)

But seriously has anyone considered introducing a HECS style user pays system like we do for universities where once you earn over $30k they take a percentage of your wage until you pay it all back.

Disclaimer I have 3 children in/about to enter the school system.

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Coal Mining

Posted by Ian Holsman Wed, 22 Feb 2006 21:42:00 GMT

Marc Fleury’s last posting posits that the IBM’s strategy of rebranding a open source product is bad for the customer.

I’m not so sure.

and I’d like to discuss some of the points he raises.

A perfect example is IBM WebSphere Community Edition. It is based on the Apache Geronimo open source project and is “Bluewashed” whereby Geronimo is strip-mined for whatever is useful, then combined with other ingredients ….

First, I come from the position that there are different consumers out there with different needs. Some are quite happy with the levels of features and support they get from a open source project. Others want the open source project, and a throat to choke, while others need more ‘enterprise’ features and integration with their other systems.

The BSD model (and therefore the Apache Model) can serve the first 2 needs fantastically.

we enable a marketplace where multiple vendors can compete for service contracts, and by doing so you can get a competitive offering. With a single vendors (open source or commercial) product, you are stuck with whatever support they offer, and because all the leading developers work for one company you are S.O.L. going to a competitor.. they wouldn’t have the level of expertise required, or be able to contribute these changes back to the main source base.

Which leaves the 3rd need, the company whoose needs don’t match what the product offers, be it scalability, performance, or integration. IBM (and anyone else who wants to) has offered them a upgrade path to their enterprise product range. Marc calls this ‘Bluewashing’ I call it a upgrade path. It makes both the open source product, and the enterprise product more valueable to a customer. They can start with the free, or support only option of the open source product, and when their company expands, or hits the wall they can upgrade to a commerical offering with minimal disruption and effort.

What Marc also neglected to write is that it also provides funding and patches back to the community. IBM (and other support vendors) have a vested interest in having people choose that product in the first place, whats the point of having a useless open source offering if your entire strategy is to get people to upgrade from it to your commercial version. If it isn’t any good then people won’t bother.

Now does this mean crippleware? well.. yes for the enterprise customers with extreme needs it might, but there is nothing stopping those enterprise customers developing the feature themselves or banding together and contributing the feature back. (they won’t because a IBM offers much more in their value proposition than a feature list).

Because most Apache groups are not comprised of a single vendor they could get the feature in if it is useful enough.

It enables this “stealing” from the community, or in marketing-speak “leveraging”.

By stealing I belive that Marc is talking about firms or people not giving back their resources or money back to the community. but IBM does give back, as does a lot of other vendors who on-sell the Apache products. I belive the correct way to talk about this ‘market speak’ wise is called ROIC. Return on Invested capital. IBM and others have figured out that by having staff contributing back to the product is better for them than doing it by themselves. Personally I think ‘stealing’ in this sense are the people who use the product and don’t contribute their changes back, the people or corporates who just download it and use it, and keep their fixes/patches to themselves.

as for ‘waste dumping’:

Another commercial software “strategy” is proprietary software “Waste Dumping”. Think BEA with Beehive. This is the opposite of strip-mining in that it entails the commercial vendors “donating” some technology to open source. Eager to be part of the open source wave, the vendor identifies some technology that is inferior or of limited value to them, and they dump (oops…sorry…they “donate”) it into open source.

one person’s garbage is another persons banquet.

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Another Silly Idea: Fullfil the spammers dreams

Posted by Ian Holsman Sat, 11 Feb 2006 13:19:00 GMT

This is one of those ideas which I’d love to see implemented, but would only work if implemented on a mass scale.

That is for every spam you get you click through the link and through each link on the referring page. (not you .. a bot which looks like you)... we could even hook up some free VOIP services which would call the 1-800 numbers advertised on them as well.

Why?

Well spammers usually get paid on a pay per click/pay per referral model. They get something everytime someone visits their page.

While in the (very) short term you would think it would make the spammer rich, it will actually destroy his business in the long run, as his clients don’t get the return (as you have raised to cost of acquiring the customer), and will force them to lower their rates.

This is similar to what is happening with Blue Nile where it is seeing the price it is paying for search terms is too high, and is therefore leaving the market.

Is it click fraud when you do it to a spammer(s)?

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Do People upgrade?

Posted by Ian Holsman Thu, 09 Feb 2006 15:09:00 GMT

A lot of opensource companies are based on a business model where they release a ‘open’ version which has the basic functionality, and a ‘enterprise’ version that people pay for.

I’m just wondering how many people actually make the switch. Do people actually start using the open one, only to find it doesn’t meet their needs in 3-6 months time? or do they just use the open one for a pilot project to make sure it isn’t a dud before they actually shell out the dollars for the enterprise one.

If they are only using it for a pilot, wouldn’t it make more sense to just offer a time-limited version of the enterprise one?

and if this is the case, why do large companies with ‘enterprise’ software even think of buying/supporting the smaller open source product in the hopes their users will pay $$$ at a later time.

My basic thought is that users of open source ‘basic’ products have already shown their price sensitivity and have zero interest upgrading. The only way to capture these users is to lock them into your ‘basic’ product, and remove it from the market at a later stage forcing them to upgrade then.

This is what I dislike about this business model the most, in order to sell the enterprise version of the software, you need to control the basic one.

And one method of controlling it is to not let the design, direction, or the IP of the product be ‘opensourced’, making it so only your companies people are responsible.

For me, a true ‘opensource’ product is where multiple vendors co-operate together to build a full-featured product.

Is there money to be made? sure.. in the complements. Tools, Support, Training, Books, and Consulting.

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How high do you lift your skirt?

Posted by Ian Holsman Sun, 18 Dec 2005 00:35:00 GMT

So, as some of you might remember, I’ve thinking of startups, and think I have got a pretty good idea.

But in order to fulfill my vision, it would involve writing a bit of infrastructure which isn’t there. Now my plan isn’t to use this to enable my site, not to sell or to make money directly off.

So.. here’s the dilemma, should I make the infrastructure an open source project in the hope of sharing the R&D effort with some other developers and then run the risk of a potential competitor using it, or do I assume that the pie is large enough for multiple players?

Right now I have chosen the middle road, and am going to opensource the components which are ‘commodity’ stuff. for example the user registration, captcha, and auditing to name a few, and It’s been evaluated/used by at least 2 people. I think I’ll leave it at that for a while.

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Communities and open source

Posted by Ian Holsman Sat, 10 Dec 2005 19:35:00 GMT

In Matt Asay’s blog he mentions how he shared a flight with Clint Oram of SugarCRM, where clint quotes..

Of the top 50 contributors to SugarCRM’s development community, 95% of them are SugarCRM partners

And goes on to say that this is a good thing.

Well.. count me in the ignorant pile, because I’m not so sure. For me the signs of a vibrant community is more that the USERS of the product are contributing patches back to it, not the people getting paid to install it.

This might be because we have a different definition of what a community is, or maybe the client base of sugarcrm aren’t technically sophisiticated enough to contribute back to it..

why is this important?

Well there are two major benefits I’ve heard that a ‘open source’ product has.

The improved sales:revenue ratio, with JBoss’s Marc Fluery saying recently :

An optimally functioning FOSS business model needs 20 cents of sales and marketing to acquire 1 dollar of maintenance, where a traditional software company will have to spend around 2 1/2 dollars.

and a decreased R&D:sales ratio (can’t find a quote..sorry). SugarCRM needs to find a way to get it’s users to contribute back into the development. only then will it get the full benefit of being a open source company.

There are 2 other important reasons why you want the users to contribute back as well. Product Innovation, and ownership. the Users are the ones who know what their business needs, not the ‘partners’ who install it, they don’t use the product day in and day out.

The second reason is ownership, if you have put your own sweat and tears into making something work, it will be much harder to give it up for some other product later on. If you can get your users to feel that they play a bigger part than the person signing the check they won’t leave as easily.

of course.. this is all a moot point if they call their ‘users’ ‘partners’ isn’t it ;-)

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you don't need to be a committer to make money from Open source

Posted by Ian Holsman Tue, 29 Nov 2005 03:26:00 GMT

I think Dana Blankenhorn has got it slightly wrong when he says in his recent article, ”How to make money from open source Apache”:

    This is how you make money in open source. You become vital. You become a big open source company by becoming vital to big projects.

I don’t think this is exactly correct. you don’t need to be vital (or even a direct contributor) to make money off open source.

Take a support model, the ‘throat to choke’ so to speak. what you need to make this work is a call centre, some trainers, and some competent engineers who know how to maintain a patch set. none of these people need to be in the ‘core’. In fact I would go as far as saying that putting a lead developer in a support role is not the best use of their resources, and you might get more bang for your buck hiring a regular SW engineer and getting him to learn the code.

You have to remember that these core developers are usually not just knowledgable about their product the contribute to. Through the years of participating in OSS, they have knowledge of other open source projects, and more importantly they understand what is possible to do with open source products and tools.

That is, they should be thought of more as architects and EAI experts than code jockeys.

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finally someone is monetizing IM

Posted by Ian Holsman Thu, 17 Nov 2005 04:40:00 GMT

AOL has just added 2 ‘buddies’ to my default group. a ‘shopping’ buddy, and a ‘movie’ buddy.

I can now type in the name of a movie (or a product like a printer) and AOL will give me some details about them.

Great Idea. I’d love to find out how many leads they generate by doing this.

Let’s hope the IM providers don’t get too excited/spammy and fill my buddy list with 100’s of bots.

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