Its the users, stupid

Last night, when I was at this event, I met a couple of people who are involved in helping start-ups turn ideas into reality. These were quite senior people, working for a large software vendor, one that makes it’s revenue mainly from licences.

One comment from a particular individual struck me. He was saying that he sees a lot of start-ups who have no IP, nothing at all they can protect. Nothing, in fact, that makes their idea valuable. “They are interesting ideas for a websites”, I think he said.

Never have I heard a more telling statement from the old school. The ones who think that building new technology – technology that can be protected with patents and then licensed – is the only way to build successful businesses.

Actually, you see this all the time in lots of industries. Banking went through this phase (and some banks are still doing it) of trying to protect their processes and products with patents some time ago. It didn’t really result in much.

Anyway, the point was, he said, a good idea has to be supported by something you can put a moat around. Otherwise, it’s not a good idea.

Apparently, he hasn’t noticed Facebook or LinkedIn. Neither have much defensible intellectual property in them. They’re just good websites.

Or Twitter. If that had any IP in it at all, I’d be surprised. Its a service that lets you record 140 characters! What do you need for that? A web server and a database?

What about Threadless? They make t-Shirts, with designs open-sourced from users. Apparently, quite successful thank you very much. OR MoonPig, who make greeting cards?

Or Mint? Just sold to Intuit for millions, and all they have is a user interface on top of the bank website scraping software from Yodlee. I suppose there could be some defensible IP in Yodlee, but how on earth does that justify the valuation of Mint?

These sites are all quite easily replicable. I think I could build myself a Twitter-thing in about 2 days using MS Access if I wanted. They are replicable, yet they are valuable.

In the end, a new idea doesn’t need a lot of patentable IP to be successful, it just needs users. Why is this fact not inherently obvious to everyone?

I kept my mouth shut, because when you are confronted with “licence thinking”, there’s really nothing you can do to convince anyone they’re wrong. With several decades of success behind them, its hard to argue with history.

So we then we went on to discussions of “business models”. The argument here, from the same individual, was that so many “nice web sites” didn’t have any clue how to monetise themselves. Apparently, this is a cardinal sin.

Firstly, I’d suggest that anyone that’s worked for a large corporate has no clue how to monetise anything. Big successful corporations got that way because of clever people at the start. Once the model is in place, the product developed, and the users recruited, what’s left? Yes, operations. Doing the same thing, day after day, following a template that someone else has defined. Most big software companies, populated with licence-thinkers, work that way.

I know, because I used to work for Microsoft. I loved working there, but everything is a template you just fill in within very narrow parameters of accountability.

But it seems to me the sin of failing to have a monetisation strategy is much less terrible when you have millions of users who like your “nice website” and use it regularly. Having millions of users is a high quality problem with lots of monetisation solutions available to it. 

Having a website with no users, but a great monetisation strategy, on the other hand, is only nice for licence-thinkers who need to see the money before they can see the money.

The upshot of all this was I had an interesting conversation. But it illuminated the growing divide between those who were successful yesterday, and those likely to be so tomorrow.

Comments

[Henry law]

Not having a monetization strategy isn't a sin: true. But Mr Micawber understood what the real sin was: having less money coming in than is going out. Unless your wonderful web site generates enough money to pay for your hosting bills, and whatever you yourself need for food and shelter while you're developing it, then sooner or later it will fail, and all the user popularity in the world won't help. So sooner or later you have to have some way of using your mindshare and popularity to make money, even if it's just selling the whole boiling to someone else who fancies it (as with Mint).

What your senior-person licence jockey failed to recognise was the intrinsic value of being out there. Sure, you could replicate the technology behind Twitter, but the costs of stealing Twitter's users with a simple me-too would be enormous, and at best there would be a serious lag in revenue to offset your costs against. So their IP may not be defensible but their market position certainly is. Your licence jockey had perceived something but failed to see it clearly: a successful business must be able to defend its position, but that defence doesn't necessarily consist of patents and licences.

[Thomas Barker]

It's ironic that people from large vendors would think that way. Take Cisco as an example, pound-for-pound much of their line up is less functional than a $250 PC-miniboard with a Linux firewall distro on a Flash card. The reason Cisco can get that licence revenue is the whole ecosystem they've build around them. There are Cisco certified admins, architects, suppliers, training programs - right down to the corp. sales guy with a bundle of Premier League tickets. Cisco even train prisoners to install their products.

Henry's comment on the value of 'being out there' is interesting, because the value must vary enormously between sites. Everyone hates eBay without moving away from it, but if someone makes a better search engine than Google they could expect to succeed eventually. (I remember AltaVista...)

There a big difference between having users using your site, and having them interacting as a group through your site. In the second, you at least own a Schelling point.

[Jon Ayre (The Enterprising Architect)]

One thing that business tells us time and again is that the way people are making money right now, is not the way people will make money tomorrow. If you know about it it's probably too late to get on the bandwagon. Another thing that business tells us is that there are a myriad of different ways to be successful, and the "latest" thing usually stands out because it is new and interesting and "out there".

Those who think that there way is the only way are not the ones to watch for the future. As you point out, James, they are simply the monkeys. Find me the organ grinder and then I'll be interested.

Good post. Made me think again about the monetisation question. Just goes to show - you can learn just as much from listening to two people at an event talking rubbish as you can from the wise.

Regards
Jon H Ayre
The Enterprising Architect