I’ve known for a long time that I’d start a software company. What it means to be a software company has changed dramatically in that time, however. Back in B-school, I had one of those epiphany moments during a conversation with a health-care software entrepreneur. He pointed out that the parts of his business that sold information vastly outperformed, profit-wise, those selling the underlying software. He drew the first three lines on the following chart and it was clear where my value would be added. Since then, I have assumed that my company would really be selling information, when I figured out what that information was. I prefer to use this model as a simplified version of Peter Rip’s Business Models post. I like to boil a business model down to one question – What do you sell?
So it was when we started Altos Research. I assumed I was in the information business. I was certainly please to be no longer schlepping CDs to enterprise customers for the first time in year. But we ran into a problem. The phrase “information wants to be free” has moved from axiom to cliche in only a few years. It turns out, though, that it’s fundamentally true. So we realized that when free information is everywhere, garbage is plentiful and analysis is scarce. People crave expertise, guidance. People see information, they need analysis. So we’ve had to extend the model to include the fourth (rightmost) line.
In the Tim ORielly sense, this chart can be viewed as a history of the software business with the x-axis origin at 1970 or so. For me it simply shines through the mist of uncertainty. The questions the entrepreneur ponders at 2am, wondering, worrying where he’ll take his business.
In the Web 2.0 world, where mashups fundamentally require free information as a business input, where open-source software has removed any impetus for actually purchasing the software, and god forbid you actually hire people to consult, analysis is all that’s left. You know what? It’s a great place to be.