Where is the beef ?
The question of monetization, of what value a company is creating and how it gets compensated and by who is central to every business plan discussion, and board argument. The short safari tour from Steve Bayle recent post is a good speed-overview on what the software industry has try in the course of the last 30 years. David Hornik recent note on where is the money in the long tail looks at the same issue but from a media/content perspective
....The computer industry has had a number of interesting business models. In the early days of the mainframe, software and services were bundled into one big package from IBM and the seven dwarfs. With the advent of the minicomputer that very tight vertical integration began to dissolve with the appearance of 3rd party software for DEC’s PDP line. With the loosening of vendor integration came a new market opportunity and a new business model system integration: where you got paid for putting Humpty Dumpy back together again. The PC dissolved the hardware/software/services monolith completely, ushering in the heyday of horizontal integration – a marketplace where customers could choose different hardware, software and peripherals from literally hundreds of vendors. Microsoft pioneered the concept of packaged software sold through retail outlets and for many years this model dominated the PC industry. But Microsoft, from its extensive experience as a supplier of first programming languages, such as BASIC, to companies like Altair and then Apple, developed the OEM model. … …One of the next interesting business models was the packaging of applications into suites. For a time the industry was divided between the concept of buying software that was “best of breed”, such as Lotus 1-2-3, Wordstar, and dBase II, versus buying a suite of software …... As PCs grew more and more common in the enterprise with the advent of the IBM PC and the IBM compatible standard, IT managers started rebelling against having to buy an expensive software package at retail for hundreds of computers. Thus the traditional business model of the volume discount got applied to packaged software… ... Vendors then responded with a new business model: the site license… … The network license was a business model variation on the site license, where the customer might pay only for simultaneous users, instead of having to pay a fixed amount for every machine, whether or not the software was ever installed. …Netscape invented a new and much emulated business model: giving away the client in order to sell the server. Up til then, companies paid for both a server and for every client connected to the server via the network. …This model looked great and it was until Microsoft counterattacked with one of their most potent business models: the bundling of applications and utilities with the operating system. This back to the future vertical bundling of system and applications software had already crushed several small companies that sold utilities that Microsoft decided to give away with the OS. … ….The rise of open source software engendered yet another business model: add value to the software through packaging a distribution and providing tech support services. Red Hat, with its packaged Linux distribution was one of the first companies to make money from free software…. …..Another new business model was pioneered by the developers of Hot Mail. They gave away their Internet email application and generated revenue from ads embedded in email messages.The ad supported software model was emulated by Yahoo with Yahoo mail.... In parallel with the development of many of these new software business models, enterprise IT managers were getting increasingly frustrated by the upgrade cycle for their hundreds or thousands of PCs ...From this problem came a proposed solution: the application service provider or ASP. While initially many hailed this model as “utility computing” it wasn’t until Salesforce.com pioneered its hosted CRM model that this ideal began to take off. ...Today software as a service (SaaS) is the culmination of these business models. The business model – give away your software and make money from advertisers – is a threat to the old volume and network licensing model that is Microsoft’s bread and butter….