Business models in Web 2.0:

"Jason does a great job describing some of the models we're currently contemplating in response to the growing interest in a hosted version of Basecamp. It gives a good deal of insight into how serious we take the whole No Human Scaling aspect of Basecamp.

We don't want to grow a company of 25 people around Basecamp even if that looks like a very possible road forward. Instead, we're sticking to our design of constraints and are thinking about how to leverage those best.

I particularly like the ideas of auctioning off just a handful of installable versions. We have quite a few large and very interesting companies on the notification list for an installable version. Just how much could a program like Basecamp be worth to have inside the firewall?

At the other end, I'm attracted to solution for dealing with upgrade cycles: Don't do them. Sell a v1.0 with all the bugs and inefficiencies that it might very well have. And then give people another chance at v2.0 — but no in-betweens. I wonder if it would work, though. Even with everyone as consenting adults. Would having the source available and being able to do internal improvements help assure people of the viability?

Business models for open source

While we're contemplating what to do in the commercial world of Basecamp, I'm at the same time seeing a number of opportunities arise for Rails. Just recently, I signed on to help Combustion Labs in Vancouver explore Ruby on Rails for a week.

That's the traditional open-source service model. Give away source and software, sell services. But there are many new models popping up. One of them is doing hosting, which of course is exactly what I announced earlier today.

Partner with a hosting company and make sure that they Just Work with your software. A lot of the pain in open sourcing is getting the stuff up and running. If you can pay something reasonable to have that all taken care and support the project, then what's to think about?

On top of that, there's of course taken either commercial sponsorships for feature improvements (I was talking to a guy at RubyConf about adding integrated Web Services support to Rails on that model) or raise funds directly from the community. A few of the guys from #rubyonrails talked about how they'd like to raise funds to allow me a month off to improve the documentation.

It's a brave new world for funding of great software and ideas outside of the traditional channels."

(Via Loud Thinking.)

Brainstorming new business models for small software companies:

"While this post has Basecamp-related content, it's not really about Basecamp. It's about considering alternate business models for small software companies looking to capitalize on a success without imploding or losing the spirit of what made them able to produce the success in the first place. I believe that as more small teams start producing the killer Web 2.0 apps this is an issue they are going to run into. So let's be proactive about it. Here goes...

I've been spending a lot of time thinking about how to open up new markets for Basecamp, and I wanted to share a few things and also ask for some feedback. I believe there's an interesting discussion to be had here.

We've had a fair number of requests for an installed version of Basecamp (Basecamp is currently only available in an ASP-model hosted environment). A version that people can run on their own servers, behind their own firewall. Some people just aren't comfortable with hosted software. We can appreciate that.

Now, there's a lot of money to be made selling installable enterprise-ish software like Basecamp. Similar products like Socialtext or eProject can sell for thousands of dollars a year once you buy a license for just a few employees, and over ten thousand a year for medium sized companies. The problem for us is that even though the revenue is there, we don't have the manpower to service a wide and varying installed base. And -- even more fundamentally -- we don't want to. I'm afraid that a large installed base will divert our focus away from progress and more towards management. We want to create and build, not manage. We're trying to avoid unproductive human scaling at all costs."

(Via SIGNAL VS. NOISE.)