Related link: http://news.com.com/Small+is+beautiful+for+Web+2.0+start-ups/2100-1012_3-6035062…
Recently I posted about the Fallacy Of Composition (which says that an advantage shared by everyone is not an advantage) and how it applies to digital music: If everyone can make and distribute music cheaply, the price they can charge goes down and they all make less money. It should apply to open source as well. Is there an escape route?
The very interesting discussion that followed my earlier post suggest there may be, and I sure hope there is. Does anyone have real numbers yet though, i.e. for a model that generates enough money to build a significant business?
An article at news.com.com called Small Is Beautiful For Web 2.0 Startups offers hope in the example of (among others) open source ASP 37signals, makers of the excellent document collaboration tool Writeboard, the project manager Basecamp and others:
In the two years since launching its first service, the self-funded company has signed on hundreds of thousands of customers and it has no debt, said [37signals president Jason] Fried. It has also founded a successful open-source Web development project, Ruby on Rails."You can build a great business on a niche product because with the Internet, you can reach a million or a half-million people," said Fried.
The article suggests the old monolithic model of enterprise software development is ending in favor of small, nimble, lightly funded startups that rely on net-based word of mouth (word of net?) rather than huge marketing budgets.
But it seems to me that this is where the Fallacy Of Composition comes in. As the article notes:
Many Web 2.0 online applications can be put together with just a few people and relatively little upfront money and time. But by the same token, those services can be easily replicated, according to investors...
"We're seeing a proliferation of start-ups, many of which may be nice little businesses that will be beneficial to the founders, but few that have the fundamental ingredients for creating lasting, meaningful businesses," said Onset Ventures' [Mark] Hildenbrand.
Is the future then in millions of Mom & Pop shops? Will a free, shared network take over the platform role played until now by big corporate structures?
The red flag here is that it implies a Whole New Way Of Doing Business, and we've heard that one before. It reminds me of the Simpson's episode where Homer thinks he can prophesy the apocalypse. Lisa warns him that people have been predicting the apocalypse throughout history, and they're always wrong. "I know, honey," says Homer, "but I've got something they didn't have--a really good feeling about this."
On the other hand, one of these days there inevitably will be a Whole New Way Of Doing Business, just as one of these days the world really will end. Hurry up, Whole New Way Of Doing Business!
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Re: but small business are MOST business by teejay
I think we'll probably need both big and small companies in the future. Small companies will continue to be the source of most employment and a lot of innovation, and we'll probably continue to need big companies to take big risks on making things like cars, airliners or drugs.
Re: What is the Point? by dielli | February 10, 2006 10:20 AM
I think you're right that I was a bit sloppy in referring to Web 2.0 & open source as if they're necessarily linked. I think they share qualities in common and sometimes depend on each other, e.g. in being community & collaboration oriented.
The point I'm trying to make is that the very qualities that lower barriers to entry, creating new business opportunities for many, also increase competition and lower prices, traditionally at least. I think that's inherent in the technology being applied here, not just in the ideas being emulated. E.g. if I want to open a pizza shop I have to spend quite a lot of money researching a location, renting or buying it, and equipping & staffing it. But I can start an open source or a Web 2.0 business for next to nothing in many cases, using freely or cheaply available technology & infrastructure. The Fallacy Of Composition says that this is not an advantage, because an advantage is by definition not an advantage when it's accessible to everyone.
I don't know if this is a fatal problem for the new models, but I think it's worth exploring.
but small business are MOST business
You've fallen for the old journalists and stockbrokers belief that Big Business is the only business.
Most of the world's (regardless of whether developed, developing or third world) businesses are small. This is a good thing - small businesses work harder, self employed people work more hours and generate a great deal more for the economy than an equivilent director of a top corporation.
Having more small businesses may not be so nice for finance hacks and the industries that take a cut on every corporate merger, aquisition, pr stunt, share deals, investment, etc, but it's better for the economy, suppliers and customers. Suppliers get better prices, customers get better value and service, and the economy is less vulnerable to the blundering giants and dinosaurs that rule the stock markets.
Also having cash rich businesses means that they are capable of investing more in research and development - compare how much innovation you see from huge companies who spend less on R&D than on the legal paperwork involved in fiddling with a handful of directors share options - like Microsoft, Cisco, etc. Also as these companies aren't in debt like many 'blue chip' companies the economy is less fragile with less chance of 000s of people being laid off.
So less debt, more innovation, more competition, less mass layoffs, better products, more value, more economic growth and higher productivity. Man, that would *really* suck if it continued.
What is the Point?
"But it seems to me that this is where the Fallacy Of Composition comes in... But by the same token, those services can be easily replicated, according to investors..."
The author never makes clear the connection between F/OSS and the fallacy of compostion. The piece wants to address the latter as it applies (or does not) to F/OSS, and this example appears to be the case in point. But it fails as such.
There's nothing inherently or necessarily F/OSS about "Web 2.0" applications. As in any other class of application, a "Web 2.0" one may or may not provide source code and rights to that code.
And the ability of a competitor to replicate a product or service is about the emulation of an idea, not source-code rights. I too can open a pizza joint to compete with the one down the street that's doing so well. I can even try to make my pies as much like the other joint's as possible. But that doesn't imply that joint #1 is showing me their recipes.
I have to ask, what does this article say?
Link problem
Thanks!
"excellent document collaboration tool"
You're right. I should have said "fast, easy document collaboration tool". I like about its clear, simple packaging - non-technical users don't have to know what a wiki is to use it, and they can get going fast.
"excellent document collaboration tool"
It's just a wiki page with a password. What makes this in any way special?
Link problem
Just a note: there's a bad charater in the link for 37signals.