Send As SMS

Wednesday, July 26, 2006

"Three Constituencies" touched by a business

Brad Feld wrote a piece a couple of weeks ago that I've just gotten around to reading. In it he suggests that many businesses, at least several that he's worked with in the last few years, have relationships with three constituencies:
  • Subscribers
  • Publishers
  • Advertisers
He also points out that successful businesses frequently serve one constituency while getting paid by another.

This is a generalisation of a model I've been aware of for years (and that's been around for decades, at least) in which the audience of an advertiser-funded medium ("subscribers") is served and the advertisers pay. This is also the particular case where audience members, e.g. readers of a paid-for or free newspaper/cable-channel which includes advertising, are frequently confused by a belief that they are customers when, in reality, they are (or, more accurately, the audience as a whole is) the product that is manufactured for sale to the advertisers. This reframe helps to make clear, for example, what news distribution organisations are doing when they dumb down, depite the possible genuine interest of their audience; they're avoiding conflict with their [real] customers.

Brad's generalisation of this model provides some interesting insights to aid business model evaluation and partner selection. What piqued my interest, though, was one of his comments about some of the ... less viable business models that he has seen:
I’ve run into people that think they are serving all three but getting paid by none
Clearly not a great recipe for success. What strikes me about this is the assumption that several people schooled in developing software in order to generate licensing revenue (whether from users or developers) make about open-source software; roughly that if you're spending money to develop software whose source you then freely publish then (a) you cannot recoup licensing revenue and therefore (b) you're shooting yourself in the foot. (Obvious counter-examples that spring to mind include MySQL AB with its database server and IBM with, amongst others, material contributions to Linux and Apache. There are thousands more.) What's Brad's generalisation brings to this for me is a realisation that users (or, as their proxies, developers (ISVs)) are not the only possible constituency for a software developer (individual or corporation) to get paid by.

It may even be true that most of the low-hanging fruit in the "develop software to get licensing revenue" space is already gone, but that there is still plenty of it in the "develop software to get revenue from other constituencies" space. Indeed, Brad's "I’m finding most successful companies serve one constituency and get paid by another" suggests that this may be so.

Oh, that reminds me; there's a fourth, and critically important, constituency for anyone who provides software or online services:
  • [Software] Developers
In once sense developers are simply a proxy for users, but:
  • as they have radically different needs they are likely to be worth addressing seperately; see Scoble's coming GYMAe wars for example, and,
  • the "users" that developers may be considered proxies for are exactly those users that a business is not [already] seeking to serve, so again, a different treatment may well be called for.
UPDATE: s/Fred Wilson/Brad Feld/ and apologies to both!