SoftwareShift

Twitter and Valuations

Twitter started looking for a third round of funding last month. The rumor around the blogosphere is that the valuation that they're looking for is $75+ million. I was stunned by this because Twitter has yet to develop a solid business model. Twitter is supposed to be doing ok in Japan but it's still not anywhere near profitable.

Flickr, on the other hand, is doing quite well. The author of the posted article even believes it's under-monetized. It's good to have a business model.

Twitter seeks $60 million valuation first, business model later - valleywag.com
How much is twitter worth? - techcrunch.com
End Of Speculation: The Real Twitter Usage Numbers - techcrunch.com
Is Twitter worth $75 million? $150 million? How about none of the above? - thestandard.com
Twitter Raising Money: How Much Is It Worth? - alleyinsider.com

The Ultimate Twitter Revenue Model - readwriteweb.com

Is Flickr worth 4-Billion? - markevanstech.com

Apple

I've come across quite a few articles/posts about Apple lately. The reason for the media activity is because of the new venture in the world of Windows with the Safari web browser and, of course, the iPhone. So, I've been pondering about Apple and how the company fits into the software industry landscape.

Apple is actually an interesting company. They have a open source operating system, but you can only run it on Apple branded hardware. So Apple seems to be positioned somewhere between Microsoft (closed but any hardware) and Sun (open and any hardware). However, the Apple strategy seems to be very different from both. It's very controlled (via hardware) and consumer end-user centric (ex: ipod).

That position and strategy leads to two questions: who are Apple's competitor's? and how long can they sustain a controlled model?

The answer to the first question is: anyone who has in interest in the home desktop user. So that's Microsoft and the Linux camp. However, the threat is limited because Mac OS only runs on Apple hardware. If a person can buy a desktop from Dell for $450 and put Linux (for free) or Windows (for whatever Vista costs) on it, why buy Apple? The only potential attraction is belief that the MacOS is better, on some level, than both of the alternatives. 

The answer to the second question is: indefinitely, as long as they have major successes outside of the traditional OS space like the iPod and iPhone. The strategy appears to be attacking the end points first to create an interest in the central PC component. Once an Apple branded device is in a user hands it's easier to upsell them to an Apple branded PC.

The strategy has its advantages. Potentially, Apple can be the "everything" company by selling the entire experience: hardware (laptops, desktops), software (Mac OS, iTunes) and consumer devices (iPod, iPhone). The downside is that personalization and choice are getting popular again so vendor lock-in is a tough sell. Growth will be slow.

It would be interesting to see a strategy shift from Apple. With all of their recent successes they could definitely shake things up. For example, what if a user could install the OS on any brand of hardware?

Apple Open Source - http://www.apple.com/opensource/

OSI Approved Licenses - http://www.opensource.org/licenses/alphabetical

Apple patches Safari beta browser a second time - computerworld.com

Apple Product Evolution - http://tofslie.com/work/apple_evolution.html

Apple picks a fight it can't win - computerworld.com

Quote of the Day

"Spending too much time thinking about trends and "spaces" is a great way for an entrepreneurial team to go right off the rails and bring another derivative product to market, which the market then promptly ignores." - Marc Andreessen

Why there's no such thing as Web 2.0 - blog.pmarca.com

Web Applications and Startups

Here are a few posts for those interested in technology startups. The first is from one of my favorite blogs: How to change the world. It's Guy Kawasaki's blog. For those that don't know who he is, Mr. Kawasaki is a managing director at the Garage Technology Ventures, a VC firm in San Francisco. The post discusses ways to hinder market adoption of a web application. Some points are good and some I'm not too sure about, but it's worth reading.

The Top Ten Stupid Ways to Hinder Market Adoption - blog.guykawasaki.com

The next one is for a new book from 37Signals about their take on successful web applications. 37Signals developed the Ruby on Rails framework. I haven't read the book yet, but it's definitely the next one on the list.

Getting Real is the business, design, programming, and marketing philosophies of 37signals - gettingreal.37signals.com

The last is a good article on web startups. Lots of good points.

6 Startup Lessons For The Year 2007 - readwriteweb.com

A Better Way to Value Startups?

I've always wondered how VC's value small startups. It must be extremely difficult because at the startup phase everything is really flexible and this even applies to the business model itself. The posted Red Herring article briefly discusses that a Wharton Prof. has come up with a more reliable way to measure the value of a startup. Interesting stuff. I may pick up his text from Amazon...

A Better Way to Value Startups? - redherring.com

Open Source Business

I find it oddly surprising that more businesses haven't gone the open source route. The benefits(reaching more potential customers, leveraging community development), far outweigh the costs(loss of revenue by selling license keys). The only argument against giving away your product for free is if your customer base is primarily the individual user and so there isn't a way get a small scale customer to pay for service and support. But that argument is weak at best. In that situation you have several business models to choose from: pay for premium features(client functionality), pay for rapid updates, pay for access to services(integration with online web services) and the like. If Microsoft gave away a basic MS-Office, Open Office would never have been developed. If Sun gave away Solaris, Linux never would have been developed. Both of these companies now have to compete with the OSS offerings and have permanently lost the customers who have switched or have never used the proprietary products due to the cost.

Anyway, JDJ has an brief article on why Terracotta went to Open Source. I think that it is only a matter of time before the majority of software companies go this route or die off.

Building a Sustainable Open Source Business - java.sys-con.com

The 18 Mistakes That Kill Startups and Other Essays

Paul Graham is someone I hear about every now and then. I wasn't entirely sure why, so I finally decided to google him. I found his website and discovered that he was written several several books on LISP and is partner in a VC firm.

Anyway, he has written quite a few essays and a few of ones regarding startups caught my attention. I haven't read all of them yet, but the ones I have read so far were worth reading.

The 18 Mistakes That Kill Startups - paulgraham.com

Hiring is Obsolete - paulgraham.com

Business Shorts...

In an attempt to cleanup my Firefox bookmarks, now 450 and counting, I found these two articles. The first is about funding and startups. The second is a blog post discussing the Google myth and how it's over (signaled by the Youtube acquisition). It's an interesting commentary. The author makes the claim that Google produces great products but none are great businesses. Because of this Google had to seek an outside source to bolster its online video offering. Now, I'm not entirely sure that it means that Google was incapable of producing a good business like Youtube (Is Youtube a good business??). I think it means that Google is beginning to realize that it no longer has to build from scratch and, in this particular case, the build vs. buy equation indicated that buying was the better course of action. Google now has the resources to make large acquisitions. Microsoft and IBM have been doing this for years.

How funding works: So startups are abandoning venture capital. Why? - valleywag.com

The Google Myth goes "pop" - venturebeat.com

Selling Free Software

The concept of selling "free" software has always made me a little uneasy in the sense of how is a company to do it and survive in the current marketplace. I'm not disagreeing with Stallman and the Free Software Foundation. I typically agree with Stallman's (www.fsf.org) idealisitic view on the subject and I'm even a member of the Free Software Foundation. My concern is how would this work in practice.

However, there is a fundamental problem in selling "free" software as a stand-alone concept. The problem is that to remain competitive, pricing must inline with the market. This means a software product that performs a similar function to something that is already being sold, "free" or not, must be priced similarly to the one that is already in the marketplace. Though, I do realize a user may opt to pay a extra premium for a "free" product (I would), but there is a threshold for that premium. A typical user probably would not pay double the price of the non-free product.

So, say we have two companies that enter the market simutaneously, one free and one proprietary, both selling software that performs a similar function to typical users (typical means little to no interest in the underlying code). There are two possible options: (1) the company selling proprietary software sells more since the users of the "free" product are redistributing to each other or (2) the proprietary company goes out of business or is forced to go "free" since all of the customers flocked to the other company because of the "free" offering. Very importantly, in both cases, the "free" company sells less than what is possible under the proprietary model due to redistribution.

To compensate for the loss of potential revenue due to redistribution, a "free" company needs to charge more. But by selling at higher cost, interest is pushed back to the proprietary company. So how does a free company compete? Stallman doesn't appear to address this. And I believe this is why companies have been very reluctant to go "free."

The solution for the "free" company is that business model required is different. The primary difference in models for the proprietary and "free" company is the role of the software product relative to the business model. For the proprietary company, the source of revenue is selling copies of the product. In the case of the "free" company, the software is not a product to be sold, but a marketing tool to get customers interested in another part of the business. The other part of the business could be services (RedHat) or hardware (Sun). What's interesting here is idea of a software company is evolving. As more and more companies go free and open-source, there will be time in the future that a software company will not be able to just sell software.

Selling Free Software - fsf.org