My guess at Canonical's business model

Posted Aug 20, 2008 4:56 UTC (Wed) by robla (subscriber, #424)
In reply to: Canonical's business model? by gmaxwell
Parent article: In defense of Ubuntu

I'm going to guess that what Canonical is doing is similar to Google or Pets.com.  They are
building a strong brand first, making sure to stay true to the brand before getting completely
wrapped around an axle about making money right away.

My chosen examples are two extremes of this strategy at work.  With Pets.com, pretty much
everybody is now convinced (including former investors) that a brand that means "get your mail
order dog food here" doesn't have a lot of value.  However, with the right brand (e.g.
Google), it's possible to monetize a winning brand.

For Canonical, I wouldn't be entirely surprised if their model depends on Linux becoming a
mainstream desktop operating system (e.g. >10% marketshare) before they try for profitability.
If/when Linux does go mainstream, there are a lot of ways to monetize having the leading
distribution.  It's obviously a very risky strategy, but a potentially large payoff on the
other end.  It's also a risk that Shuttleworth can afford to make, because even if he's not
successful, he at least has a full-time staff working to make sure Linux works on his laptop.
;-)

My guess at Canonical's business model

Posted Aug 20, 2008 5:59 UTC (Wed) by rgmoore (✭ supporter ✭, #75) [Link] (1 responses)

With Pets.com, pretty much everybody is now convinced (including former investors) that a brand that means "get your mail order dog food here" doesn't have a lot of value. However, with the right brand (e.g. Google), it's possible to monetize a winning brand.

I think that you've missed a key difference between the two. Pets.com had a brand and thought that they just needed to figure out how to turn that brand into profits*. Unfortunately, they were wrong, because brands aren't worth very much unless they're backed up by a distinctive and worthwhile value. Google had a brand, but that isn't what has turned out to be their big source of value. What they really have is great technology. They weren't profitable at first because they hadn't yet figured out how to convert their great technology into money. Once they figured out where the value proposition was, they were almost instantly profitable. Since their key profit center is serving ads, not search, they could probably be profitable even without a strong public brand.

*People who I know and trust about this kind of thing assure me that this is fundamentally wrong. They claim that the dotcoms were really legal con games. The VCs never really expected the companies to become profitable. Their real product was stock, and the goal was to make the venture capital plus profit back by selling it to greater fools in the IPO. If the companies turned out to be profitable that was great, but it wasn't necessary for the con men to make their money.

My guess at Canonical's business model

Posted Aug 24, 2008 0:01 UTC (Sun) by salimma (subscriber, #34460) [Link]

Since their key profit center is serving ads, not search, they could probably be profitable even without a strong public brand.

Not quite; without the brand, people would not use Google by default (Yahoo and MS Live are arguably as good as Google), and so they would not reap so much ads revenue. Google leveraged its technological lead at the time to create its brand; once the brand is secured, it does not matter if the competition catches up technologically; barring a major mishap, in most people's mind, Internet search == Google

My guess at Canonical's business model

Posted Aug 20, 2008 7:25 UTC (Wed) by gmaxwell (guest, #30048) [Link]

For Canonical, I wouldn't be entirely surprised if their model depends on Linux becoming a mainstream desktop operating system (e.g. >10% marketshare) before they try for profitability. If/when Linux does go mainstream, there are a lot of ways to monetize having the leading distribution.

I understand how someone can convert having a leading server distribution into decent income in an ethical, free software compatible way. If nothing else RedHat is pretty much an existence proof of that.

I don't see how that same support driven business model translates to the desktop market that Ubuntu has been so successful in. No doubt that greater minds than I are considering these issues, but Canonical isn't talking.

Of course, there are a lot of ways to monetize having a wide-spread desktop: After all, Apple and Microsoft are doing it just fine. ... But if you apply Apple and Microsoft's approaches directly you get lock-ins, resold captive audiences, proprietary widgets, patent FUD, and a lot of stuff that the majority of today's Linux communities would consider wrong wrong wrong.

Ubuntu has not demonstrated the kind of fairly strong philosophical commitment to free software that Fedora has, so an eventual monetization through proprietary-enhancements wouldn't necessarily be an illogical progression from where we are today, ... yet if this were a stated goal I think the negative reaction would be far stronger. I'm not claiming that this is likely, just that all things are possible in a way which isn't true for something like RedHat (which has a successful free software compatible business model, and a community structure and commitment which would inhibit even the first steps towards many kinds of baddness)

I'm sure we can imagine some ways which don't reduce to being naughty or simply levering the desktop to grab the server and beating RedHat. ... Collecting speculation on the answer wasn't really what I was trying to accomplish, I was hoping that Canonical had explained there plans somewhere in public that I missed. Seems like if they did the LWN readers have missed it too.

Of course, the concerns that Canonical might someday 'be evil' is paranoia and unjustified by their current behavior. But there is some risk and a lot of unanswered questions which don't exist for other major players (Novell and RHAT's SEC filings increase business transparency a lot), and so I think the business plan questions are meaningful in a way that fretting over lacking contributions are not ... It's arguable that the GNU, Linux, Debian developers, and the Ubuntu community are owed a response: After all, as uncompensated contributors to Canonical's products we are effectively investors in their venture.