Sunday, January 21, 2007

The Business of Blogging Software

I started in 2007 resolute in my vow to never become a blogger. All that changed last week in my SJSU course on entrepreneurship, when the topic was business models.

Since my own research is about open source business models, I thought I'd offer students an example of a current startup pursuing a business model that includes open source. For my technology strategy class, I've explicitly taught my current research on open source business models, but that's more detail on open source than appropriate for this class.

For Saturday's class, my idea was to look at the wiki or blogging software companies that release their software as open source. By Friday, I'd signed up for 5 free services — 2 for wikis and 3 for blogs. I also created 3 blogs on 2 services. I thought trying the software would be a good way to learn about the business (or at least that was my rationalization).

[Wikipedia]My original interest was piqued by Wikia, the company co-founded by Jimbo Wales using the MediaWiki technology developed for Wikipedia. As a speaker at the Wikimania conference last August, I heard Wales talk about his company and its 2006 relaunch.

The problem is, does Wikia have a business model? I study this sort of thing for a living, and right now I just don’t get it. Of course I like open business models, but if you don't capture value somehow, how do you pay the bills? (And are banner ads alone enough?)

So I spent a day checking out various wiki and blogging startups, including the two (JotSpot and Pyra Labs) purchased by Google. As a teaching case, I decided to use Socialtext, because at least their revenue model is pretty clear.

What did we conclude? The exit strategy here is tricky; 5 years from now there isn't going to be a stand-alone blogging software market and probably not one for wikis either. This is all an economies of scope play (as defined by Panzar & Willig back in the 1970s).

Now that Google has one of each, are they done buying? And once MSN and Yahoo have dance partners, what will happen to the remaining belles of the ball? It doesn't sound like a Cinderella ending.

3 comments:

Michael Ashley said...

Relying on advertising revenue alone is a sketchy profit model, especially for internet businesses. I remember, in 2000, when the economy took a dive and advertising spending went down the tubes, Internet companies like surfline.com and surfmaps.com stopped giving away free information and implemented subscription models and database publishing models to generate revenues.

Today advertising spending has been inscreasing tremendously and internet companies are starting to forget that dependence on ad revenue alone can be a wild ride.

Joel West said...

Michael,

Thanks for elaborating on a point that I implied but did not explain. I agree 110% about the risks of an advertising-only model. Many companies wiped out when the street price of banner ads came crashing down. :-)

For a company trying a new and unproven market, a diversification of revenue models (product vs. service, commercial vs. consumer etc.) is an important way of making sure there are not resources to live to fight another day.

Ram's said...
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