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Open Source

Microsoft and the future of software pricing–when free isn’t quite free

By | Business models, Open Source | 2 Comments

The excellent, but paywalled, Lex column in the FT has an interesting article today which speculates on how Microsoft will price its forthcoming releases of Windows 8 (tablet edition) and Microsoft Office. Software prices are dropping and the importance of local operating systems and having locally installed productivity software is declining which makes the future for Microsoft’s consumers software a challenging one. The interesting question is how challenging.

The biggest competitor in mobile, Google’s Android is free, and Google docs is getting better every year (although in my opinion still not up to the standards of Office for anything complicated or difficult). To keep their burn low many startups I know eschew Microsoft entirely and run on Google’s free software. For these reasons I’ve long thought that Microsoft will lose their monopoly positions in OS and productivity software and is in for a tough time.

I still think that is true but they may be able to hold pricing better than I had previously assumed.

The interesting new news, as reported in the FT, is that Bernstein Research have analysed the hidden costs of working with Android (software integration, support costs and royalties for the parts of Android that are based on Microsoft’s intellectual property) and estimate that if Windows 8 is priced at $40 per tablet it could actually be cheaper for tablet makers who ship fewer than 9m units a year, rising to $50 if Office is bundled in. Apparently that is broadly comparable with what Microsoft charges PC makers now.

If Microsoft can maintain profitability whilst their market share declines then they still have an interesting paid for software business.

The centrepiece of the ‘free’ argument is that the price of everything drops to its marginal cost of distribution. In theory software delivered over or downloaded from the web has a marginal cost that is very close to $0 and a lot of people believe that software companies of the future will derive their revenues more from support, services and hosting than licenses.

The Microsoft analysis highlights that in practice their are other costs (software integration, royalties) which can keep the marginal cost significantly above $0 hence allows for successful license based business models – this is a rehash of the total cost of ownership argument that software companies like Oracle and Microsoft have been making against open source for some time now. $40-50 isn’t that much though, and software companies with license business models will need to keep their costs low and find efficient routes to market if they are to make good profits and become very valuable.

The history of Apple doesn’t bode well for its future

By | Business models, Mobile, Open Source | 16 Comments

Let me start with an admission – I have never been an Apple fan.  My issues stem from my time working at my dad’s computer rentals business – we used to rent computers for as little as one day and were constantly moving them around the country, changing memory configurations, swapping out hard drives and installing and un-installing software – and the Macs used to break all the time.  The build quality was horrible.

At the same time I also started to take offence to their insistence on sticking with MacOS as a proprietary operating system when the rest of the computer industry was converging on DOS/Windows.  It was around this time that IBM effectively gave up on OS/2.

Being a Mac owner wasn’t enough to change my mind – the first computer I had when I went to Uni was an SE/30 (a device that I’m pleased to see was iconic enough to get it’s own Wikipedia page).

So, ten years or so later, I disliked the idea of being forced to use iTunes and have struggled along with generic MP3 players instead of buying iPods (although I’m happy now with my music on an SD card inside my Blackberry).

The arrival of the iPhone and before that the latest generation of Apple Laptops started to change the equation though.  On the laptop side the build quality problems were history and the reliability of the software is now what puts them ahead of the PC, and on the iPhone side here was a beautiful device that finally delivered on the promise of the mobile web.

It is worth dwelling a little on the astonishing success the iPhone has had since it’s launch in June 2007.  First there is unit sales, in the 21 months since then Apple has come from ground zero in the mobile phone market to the third largest player by revenues (behind Nokia and Samsung), having sold 13m units by October last year.

Then there is the app store – since the firmware update of July 2008 which effectively opened the App Store for business, third party developers have written 25,000 officially available applications with 800m accumulated downloads, as per wikipedia.  (It took Windows Mobile nine years to get to this number of applications.)

Yet despite all this I believe their current dominance of the Smartphone market (at least as defined by momentum and mindshare) will be fleeting.

History has taught us time and time again that open wins, and Apple just doesn’t get that.  It cost them dear before and I think it will do so again.  Worse, I doubt that Jobs will rescue them a second time.

The reasons for Microsoft’s success against IBM’s OS/2 are instructive here.  The following is from Wikipedia:

Much of its success was because Windows 3.0 (along with MS-DOS) was bundled with most new computers …. Microsoft favored the open hardware system approach that contributed to its success on the PC; IBM sought to use OS/2 to drive sales of its own hardware.

There were of course a number of other factors, but these are the most important.

In the phone market, as with PCs, the hardware over time will become commoditised and it will be the software that makes the difference (as noted above one of Apple’s USPs on the PC side is now the superiority of it’s software).  Right now the number of apps available in the App Store puts the iPhone way out in front on this measure but I doubt that will last.  Rather I think that Google’s Android will soon become more attractive to developers because of a) the number of devices they can reach and b) Apple’s track record in abusing it’s developer partners.

It is in fact this last point that prompted this post.  As you may have seen Apple yesterday announced a refund policy that is to say the least developer unfriendly.  From Techcrunch:

We reported yesterday about Apple’s alleged delay in payments to iPhone app developers, but there is more alarming news from iPhone developers about Apple’s refund policies. Apparently, if iPhone users decide that they want a refund for an app (users can get a refund within 90 days, according to Apple  policy), Apple requires that developers give back the money they received from the sale. But here’s the kicker—Apple will refund the full amount to the user and says that it has the right to keep its commission. So the developer not only has to return the money for the sale, but also has to reimburse Apple for its commission. Apple charges a 30% commission on all paid apps sold through the App Store.

And this comes on top of Apple blocking apps offer functionality they regard as their’s to deliver like  email or music, or which they determine to not be of requisite quality, and of having a track record of treating their developers like dirt.

Once other smartphones start to get close to the iPhone in terms of gadget appeal it is my contention they will start to win out in the market place because there will be more and better software available.

Further, I think the ‘closed’ mentality is so strong within Apple that they won’t respond well, instead clinging to the belief that by more fully controlling the user experience they will ultimately deliver a better service.  AOL anyone?

To finish it is worth noting that despite their great start, and being the third largest player in the mobile phone market by revenues they are still only a small part of the mobile market by devices sold – 1% of worldwide cellphone sales and 17% of smartphone sales.

These positions are not exactly unassailable.

Firefox’s billionth add-on download shows the power of extensible platforms

By | Blogging, Business models, Innovation, Open Source | 4 Comments

I’m a big fan of open and extensible platforms (ideally open-source extensible platforms) – with WordPress.org for blogging and Mozilla/Firefox for browsing being my two favourites.

So I was pleased today to read Mozilla’s announcement that they had crossed the one billion mark for add-on downloads since they started counting in 2005.  See chart below.

Note also that this graph and the headline 1 billion figure are understatements, probably significant understatements, as add-on downloads from sites other than Mozilla aren’t included in the total.

This milestone shows both the popularity and the power of the model.  What I like about it most is the whirlwind of creativity it unleashes.  The vast number and variety of Firefox add-ons is testament that.  This post from ReadWriteWeb shows this very clearly.

For the record my favourite Firefox add-ons are:

  • Scribefire for blogging – I use this every day and it keeps getting better and better
  • Alexa toolbar (and been planning to add Compete for sometime)
  • Delicious
  • Tumblr
  • TinyURL Creator

Taking stock on cloud

By | Google, Innovation, Linux, Open Source | 8 Comments

There is a lot of hype around cloud at the moment – so much so that a couple of industry bigwigs have recently felt the need to take the heat out (and if ever there was a time for bursting bubbles, this is it….).

As reported in the Guardian Larry Ellison has criticised the recent rash of cloud announcements as “fashion-driven” and “complete gibberish” – and as if that wasn’t enough, he then just started to get funny (again from the Guardian):

“The interesting thing about cloud computing is that we’ve redefined cloud computing to include everything that we already do,” he said. “The computer industry is the only industry that is more fashion-driven than women’s fashion. Maybe I’m an idiot, but I have no idea what anyone is talking about. What is it? It’s complete gibberish. It’s insane. When is this idiocy going to stop?”

Open source guru Richard Stallman is more structured in his criticism of cloud.  He said (again as reported in the Guardian):

cloud computing was simply a trap aimed at forcing more people to buy into locked, proprietary systems that would cost them more and more over time.

Somebody is saying this is inevitable – and whenever you hear somebody saying that, it’s very likely to be a set of businesses campaigning to make it true.

What should make of all this?

For me, whilst there is undoubtedly a lot of hype around cloud right now, that is because it offers something genuinely new, and something better than we’ve had before.  I will come back to this another time, but in essence it is a much more flexible and cost effective way of managing infrastructure for certain classes of application.

Turning to the points of Ellison and Stallman, they are right in the sense that cloud isn’t yet right for everything and probably never will be.  But in the case of Ellison you have to note he has his own axe to grind – Oracle is at heart an enterprise software business – and Stallman is using a privacy argument in what is really an infrastructure debate.  It is perfectly possible to have cloud based apps which allow users to retain ownership and control of their own data – true Gmail doesn’t do this – but many other web apps do.

Chrome – wondering why we need a new browser?

By | Google, Microsoft, Open Source | 12 Comments

When I saw Google’s announcement of their new browser, via the neat marketing trick of a comic book, I wondered what the point of it was. I was struggling to think of what it is that they could offer than Firefox 3 doesn’t have already.

The answer – to run applications. From Nick Carr on RoughType:

Chrome – if we can trust the comic book – promises a similar leap in the capacity of the cloud to run applications speedily, securely, and simultaneously. Indeed, it is the first browser built from the ground up with the idea of running applications rather than displaying pages. It takes the browser’s file-tab metaphor, a metaphor reflecting the old idea of the web as a collection of pages, and repurposes it for application multitasking. Chrome is the first cloud browser.

As Nick also points out this ultimately is a threat to the position of the operating system.

Note also that this is an open source initiative from Google. This is not principally about trying to lock in value by controlling the platform on which applications run – it is more concerned with making the apps themselves better, and by product other people’s apps as well. Umair would have this as the new strategic orthodoxy.

The FLIRT model of crowdsourcing – an analytical approach

By | Business models, Innovation, Open Source, Social networks, Social software | 10 Comments

I write from time to time here about mass collaboration – and it is something I have been thinking about more recently as I read Clay Shirky’s Here Comes Everybody. In a nutshell I’m excited about this space because the way the internet lowers the cost and barriers to collaboration has the potential to unleash all manner of new group activities.

Crowdsourcing, and more specifically social shopping is one such activity, and one that I see as the natural next evolution for the tired comparison shopping space.

So when I came across the Sami Viitamaki’s FLIRT model of crowdsourcing I had to share it.

(Thanks to Taneli Tika for the pointer – for those that don’t know Taneli is one of Finland’s most talented web entrepreneurs and has been involved with a host of great web businesses including Dopplr and Sulake.)

The FLIRT model does two things:

  1. it describes the roles of different players in a crowdsourcing ecosystem – taking the analysis beyond the usual 1% create, 9% contribute, 90% consume – see the diagram above
  2. it also offers guidance on strategy for crowdsourcing companies

The guidance on strategy comes from the five elements that constitute FLIRT:

If you are an entrepreneur or investor in this area you really should read the original introductory post and the detail behind the five links above.

To whet your appetite (and finish) I will give a taster of what you will find.

From the discussion of focus:

Crowdsourcing efforts at present can be extended to various fieldsof doing business, including, but not limited to (some example companies in parentheses):

  • innovation (innocentive)
  • new product development, product design (threadless)
  • existing product feature enhancement (P&G’s vocalpoint)
  • production
  • evaluation of ideas, products, services, features, content, etc. (sellaband)
  • marketing
  • distribution (Fon)
  • customer support (many tech companies)

Clearly, crowdsourcing is not ideal for every field of business (Considering crowdsourcing your accounting? Think again.) and suitability varies across organizations. However, with developing
channels and tools, their innovative applications and resulting business models, the possibilities grow more diverse each day.

And from the discussion on incentives:

What’s in it for me? That’s a question everybody makes – implicitly or explicitly – when faced with a proposal to co-operate and co-create. Quite naturally, monetary incentives are widely used in crowdsourcing efforts (a few cents per HIT at amazon’s mturk; $2000 in cash and benefits for each design taken into production at threadless; up to $1,000,000 for a winning solution at innocentive) and are usually required, if only for justifying the intellectual property transfers that take place between the company and the customer. However, there is a plethora of other, often implicit incentives that many times have even more influence on the participation rates and intensity of community members. It is important ot note that people, at least in the developed world, do not participate in crowdsourcing efforts to support their living, but instead for e.g. fun, recreation and intellectual or creative challenge.

Will VRM be commercial?

By | Advertising, Open Source, Venture Capital | 22 Comments

I attended an NMK seminar on vendor relationship management (VRM) last night (thanks to Ian Delaney for organising a great event).  This is an area I have been getting excited about recently, and I posted some early thoughts here (the comments are also worth a read).

Unfortunately I had to leave the seminar early so I’m not sure how the debate finished, but for me the striking thing about the first part of the discussion was the motivations of the key proponents of VRM.  Their agenda was mostly about consumers taking control of their data – i.e. taking it back for themselves away from the silo CRM systems of their suppliers.

I have been thinking of VRM slightly differently – as a more efficient way of managing the information flow between suppliers and (potential) customers.  For me the beauty of VRM is that it eliminates the waste on both sides of the advertising equation – most adverts that suppliers pay for hit people outside their target market, and as consumers most of the ads we watch are not interesting to us.  With VRM suppliers get to focus their communications 100% on people who are interested in their message (a key enabler of conversations).  Similarly as a consumer I can be more engaged with vendors messages as I know they will be relevant for me (admittedly this part feels further out).

In the vision of Adriana Lukas at least the promise of VRM lies more in having our personal data in a single place and being able to mine it ourselves.

That sounds great as well, but from an investment perspective it doesn’t feel like the same scale of opportunity as the VRM vision I described above.  In a related point there are strong ties between the open source and VRM movements which lends a further non-commercial air.

Nothing wrong with that of course, it just means that VRM might fall outside of what I’m paid to focus on.

It is early days, but it feels to me like there is a lot of potential in this concept, but big new companies are only going to come out of the VRM movement in the next three to five years if the agenda is more avowedly commercial than I heard last night.

The interesting question for me is whether that is on the agenda.

Speakers at the event last night were:
Adriana Lukas, Alan Patrick and Jeremy Ruston.

Musings on open-ness, extensibility and the writeable web

By | Blogging, Consumer Internet, MySpace, Open Source, Social networks | 3 Comments

For me, it is increasingly the case that a lot of the best software is open and extensible, at least to an extent. The inspiration for this post came when I was playing with the photo sharing software and service from Jalbum last week, but it is true for a wide range of companies, from blogging platforms through social networks to enterprise plays like Salesforce.

Blogging/CMS software from WordPress.org (not WordPress.com) is for me perhaps the best example out there at the moment – the code is open source, which is about as open as it can get, but more significantly the architecture enables themes, plugins, and widgets which radically alter the look, feel and functionality of sites built with WordPress.

Plugins and themes are built by anyone with CSS skills who wants to add something to the WordPress community or customise their own site.  Then people like me find them either via the wordpress site (a very important search and discovery mechanism) or via the open web.

We upload them to our blogs and can alter the code ourselves to further customise/extend the functionality.

For example I have been building a site this week dedicated to promoting the cause of European venture capital (of which more later) and I chose from themes – determining the colour, the number of columns, the use of images and many other elements in the site.  I looked closely at probably 15 different options of the hundreds available before I made my choice.

Next I will customise the site via plugins which control the way comments are handled and the site can be updated, among other things.  Then finally I will get my hands a (little bit) dirty by adding some code to customise the appearance a little bit further – e.g. by adding some logos.

Many of you, and certainly any hackers out there, will be wondering what is new about this, and maybe noting that the open-source community has been operating in this fashion for a long time now.  Well, the new thing is how easy this is becoming.  I would say it is approaching mass market easy.  In the refresh I did of this blog last week I was able to accomplish twice as much in half the time as when I last did an update around nine months ago.

Indeed the way people customise their Myspace profiles is arguably a mass market version of what I have been doing on my blog.

Which brings me to the writeable web.  As software all software comes to be delivered online open-ness and extensibility leads us naturally in this direction.  So much so that I am starting to think of the writeable web as the sort of meta-trend I would like to get some money behind.

Brand, new media and big exits

By | Consumer Internet, Facebook, Google, MySpace, Open Source | No Comments

Big exit

Fred Wilson wrote this yesterday in a post lamenting Murdoch’s announcement at Davos that he plans to expand the subscription area of the Wall Street Journal (WSJ):

Here’s the deal. Digital media is not about scarcity and never will be. That’s the old media game. Online it’s about ubiquity, about being part of the conversation, about links, authority, page rank, and if you are a news organization like the WSJ – its about anchoring the discussion

Too right.

This post is not about whether the WSJ has the right fremium strategy or not, but about what it takes to have an awesome brand these days.

Since Sun’s $1bn acquisition of MySQL last week I have been reflecting on what it takes to drive that sort of massive valuation (and congratulations to the entrepreneurs and VCs involved – it is great to have another $1bn deal in Europe – I wish it could have been me, but heh….).

And it was a massive valuation. Revenues were around $70m.

I think it was MySQL’s brand that made Sun want to pay $1bn. Sure there are lots of other great things about MySQL that would have helped get them there, including it’s strong and disruptive position it the database market, but the x-factor around their brand will have been a big help. MySQL is cool, it is a movement, people want to be a part of it, and are proud to be associated with it. It is what Hugh would call a social marker.

This is what Fred is talking about for the WSJ. They will become a social marker by doing the things he describes – by focusing on links, authority, page rank and anchoring the discussion.

A lot of the most successful web companies have captured this x-factor for their sectors and it has done wonderful things for their valuation. Just look at Google, Facebook, Myspace and YouTube in the US and LastFM, Skype, and FriendsReunited here in Europe. All these businesses became social markers. People were asserting their identity by associating with these brands.

Powerful stuff, and as Sun has shown, something that big companies are willing to pay up to acquire.

Mobile internet – when will it take off?

By | Facebook, Mobile, Open Source | 5 Comments

I have blogged a couple of times on the one internet versus two question, and it seems the debate is still raging – Alan Patrick wrote a great post on the subject last Sunday over on Broadstuff.

There are a couple of things I want to pull out from that post.  Firstly his concise statement of the one web or two arguments deserves repeating:

there are currently 2 main schools of thought – (i) define a unique “mobile web” [aka the two web argument], and (ii) make devices better at coping with existing web content [aka the one web argument]. The problem with the mobile web option is the expenditure given the low pull through (plus the soiled reputation of WAP, the first attempt at this). The problem with the One Web option is the ergonomics of a small screen and limited key functions.

Like Alan, my sympathies are with the one web crew.

The second passage I want to pull out gives the reasons why the mobile internet has never really taken off:

(i) There is limited collaboration across the value chain (content standards, distribution standards on Mobile TV, handset standards etc) which makes the “friction” in the supply chain high compared to alternative (IP based) plays.

(ii) This means that the user audience finds mobile multimedia hard to use, they tend to try it out and then (apart from a small subset) by and large give up on it.

(iii) In addition, the economics of “pay as you go” drives people to minimise service / content usage – and there is still a lot of fear of “sticker shock” from big data transfer charges for content usage. [The emerging all-you-can-eat data packages are not making much of an impact yet.]

(iv) This small audience means that the economics of new content and service creation are less enticing than they should be. Exacerbating this is the small share of these small revenues that the upstream players typically get in most schemes.

The good news is that I am starting to feel in my water that things are not too far off changing – i.e. that the long awaited breakthrough on mobile might not be too far away.  To be fair, I’ve felt this before, and it hasn’t happened, but hopefully I’m a bit older and wiser now.  It’s got to happen sometime after all.

That said, I ran into Fred Destin on the street about an hour ago and he was a bit more pessimistic.  I mention that because he is a guy who knows a thing or two about this space.

The reasons to be optimistic are the number of services that are starting to get traction.  As well as the whole ring tones and games story that has been running for a while there is good news starting to come out of more internet-like services.  For example I have heard positive things about Flirtomatic, Mobango and Zed in the last week, and I am also encouraged by things like Facebook’s mobile app, Google maps on the mobile, Google Android, the progress of mobile linux and even the iPhone (although I don’t think this is revolutionary).

A lack of standards has clearly held back the mobile internet – and common standards are an essential pre-cursor to things really taking off.  That is the lesson of DoCoMo.

As I see it, we could get common standards in one of three ways:

  1. Everybody agrees at the W3C
  2. A single company is able to dictate standards
  3. A service takes off and standards coalesce around it

The mobile value chain is such that I don’t think 1 or 2 will come to pass any time soon (not even with the arrival of Apple on the scene).  Which leaves me with 3 – and even that may be fanciful to hope for given the huge number of obstacles in the way of building a compelling mobile service.

But for now at least my antenna are up.  For the reasons cited above we may not be too far from a tipping point in this market.