The SixApart solution: Divest TypePad
: Been thinking about what led to the firestorm over the new licensing scheme for Movable Type and I believe the problem is an inherent conflict of interest in the company that I’ve seen before online: You can’t be a software company and a service company under one roof, for you will inevitably end up competing with your customers. And that will not work.
So I suggest that SixApart, the software company, divest TypePad, the service company, so that each can serve its customers optimally and so that each can become as profitable as possible.
Any generous and capitalistic soul should expect SixApart to be paid fairly its damned good product. I paid $75 for the “free” version. My day-job company paid the commercial license fee. I expect to pay more for an unlimited version (and I wish they’d make that pricing clear on their site: What will About.com pay for its 450-blog installation?).
But what has irked — to say the least — many until-now-loyal MT users are the rather extreme limits on the number of users and blogs for each license. I wondered why MT would be so cheap about something that would cost them nothing incremental and would not greatly affect the volume of licenses sold (in fact, with reasonable limits, I’d say that most users would end up buying a version more than big enough, just to be safe and give themselves flexibility… instead, SixApart greatly limits that flexibility). Sure, any software company has to have ways to charge for volume usage but these limits are driving present and potential customers beserk, which means that they got something way wrong.
And then it occurred to me: Of course, it must be about TypePad. SixApart has never wanted others to become major-league hosts of Movable Type software because the founders have long planned to make a business from paid hosting. And that’s fine… except now that they are charging for their software, the conflict of interest immediately comes to the surface: SixApart is not selling generous licenses to MovableType because it does not want to affect TypePad’s business; it does not want to enable competitors (even small ones) to TypePad and it still wants to motivate people to move to TypePad (and pay a monthly fee instead of just a one-time fee: an annuity, we call it in the biz). But that, in turn, is clearly hurting the software business. They are in inherent conflict.
I’ve seen other companies go through this and the answer is either to drop one line of business or to divest. I suggest divesting. Then SixApart, the software business, will come up with licenses that serve its customers well and will sell as many as possible. Rather then having your entire customer base scream in protest — as they are now — they would beat a path to your door to pay for your mousetrap (whenever your customers are screaming in protest, you know you are doing something very wrong). Meanwhile, TypePad — a licensee of Movable Type software — would offer no-hassle and reasonably priced hosting and would compete with other licensees. Competition would lead to more business for the two companies and happier customers and probably market dominance for Movable Type and its standards (e.g., TypeKey and Trackbacks). Instead, what we’re seeing now is that SixApart is driving present and potential customers to competitors.
Bottom line: If I do not believe a company has my best interests as a customer at heart, then I would be a fool to stay with that company. That is the net net of this conflict of interest.
There is another advantage to divesting: The management of each company will not be distracted as the management of this one company is. I’m not a VC, but I have seen this in many companies as a corporate investor, board member, and corporate customer: Startups always try to do too many things and that means they will end up doing nothing extremely well. SixApart started by developing a damned fine product in Movable Type but it has neglected that product (as I’ve whined) as it built its hosting business at TypePad; now it is handicapping the software company to advantage the hosting company; and when the protests get loud enough, it will surely neglect the hosting company in turn. The company is small with extremely limited resources and management focus and trying to run these two very different businesses is difficult unto impossible.
So it is with nothing but respect for SixApart and its founders, staff, investors, talents, and products — and a strong desire to stay a customer — that I suggest: Divest.
Yikes…kinda makes you want to switch to Blogger:-)
I don’t plan to do anything at the moment. My blog has been modified and scripted and plug-ined to a point of customization that I’m not sure I could even begin to replicate it somewhere else. Not to mention how to deal with 13,000 posts and 35,000 comments.
Looks as if I’ll be sticking with 2.61 for a good while to come.
You rise a good point. You should read the book “The Business of Software” by Michael Cusumano, if you have not already.
Besides being a very good book in all aspects, it proposes the hybrid products/services solution as a possible, and sometimes inevitable one.
I second the comment about about Michael Cusumano’s book The Business of Software. Michael puts together an extremely cogent set of arguments about how great software companies inevitably morph into hybrids – both software and services businesses (think IBM, SAP, Siebel, Peoplesoft – all are software businesses with major (and in some cases greater) services revenues). In addition – the Six Apart issue is really a “deployment model” issue (license vs. hosted (or ASP)). Many software companies have successfully addressed this by offering both modes.
Excellent analysis. I worked for a dot-com that initially started out as a hosted services company and then through acquisition also became a seller of software. It was, for many reasons, a huge clusterf***, but the inherent conflict betwen the two lines of business did not help matters at all.
I suspect one of SixApart’s main reasons for their actions is that they are currently making more money off hosting than they do off software licenses. If I am right, their instinct is going to be to protect that critical revenue stream, even if it hurts their licensing business.
However, if they get the licensing right, they will be able to add a second revenue stream that will lessen their dependence on hosted services income and allow them to be more generous with the licensing.
It’s a big risk for a small company to take, and I can understand exactly why they did what they did. But as you point out, that doesn’t make it the right decision.
TypePad, however, is NOT just hosted Movable Type. In order for an MT blog to approach the same level of functionality that TypePad has, the user has to do some serious tinkering in the background. At the same time, if you host with TypePad, even if you map a domain name to it, you don’t get a lot of the flexibility that you get with MT- a lot of plugins and scripts can’t be used in the TP environment. Besides all that, you don’t get nearly the same kinds of hosting features with TP that you’d get from hosting MT- TypePad doesn’t handle email, for example. So if you want email at your domain, you still need yet another solution.
They’re pretty distinct products, actually. MT has been more for the tinkerer who likes to play with advanced features than TypePad for a long time.
Before spitting lies about 6A I would suggest you to take a closer look at the announcement. They clearly say this is a developer edition, so why don’t you wait to see what will the be licensing scheme for the real full release?
Also Six Apart never said their software will stay free, and Trotts let you use their software for free for 2 years. You should be thankful to them.
Jay: Before YOU start spitting, why don’t you calm down and read what all the users have been saying? I NEVER said I expected their product to be free; I’ve paid the personal contribution and the commercial license. And if you’re so sure the licensing scheme will be different (and better?) then why don’t you suggest to your friends that they reveal that now and put out the fires. Jeesh. Chill pill, mate.
Note… The prior comment from “Jay Allen” is not from the real Jay Allen, who just sent me a note warning of a troll. Shoulda figured. Real fans of 6a are more civilzed than this guy.
Here’s more on the troll.
Hey Jeff, it’s a shame I’m just now getting around to reading the actual entry that this comment was posted on. Very interesting thoughts.
I, like Lux, have also worked for a company which started life as a hosted service and move to the platform software business. As a director in the company, I heard all of the options and arguments you present. It’s quite like deja vu, except in reverse.
You’re absolutely right that having both a software product and a hosted platform for that software product cannibalizes business and detracts from the focus on each respective part.
However, I do know that one of the earliest rationales behind starting TypePad was that by having a hosted service running on a centralized version of the software, they could more easily and quickly develop the software and roll it out to a live environment without having to burden users with upgrades.
TypePad provides them with an instant feedback loop of what works for the customer and what doesn’t which they could never have with the scattered personally-controlled MT installations. This may very well explain why TypePad has many features that MT does and may be responsble for the significant under-the-hood changes in MT 3.0 Developers’ Edition. I’m guessing that many of these changes were already implemented in TypePad’s core code.
I also wonder if perhaps they see TypePad as a vehicle for understanding what a commercial hosting service would want and need. Remember, they all started off as bloggers, so they intimately understood what was lacking in the blogging software available at the time. However, they have had no experience with Movable Type in a hosted situation. TypePad gives them that.
It will be interesting to see. Perhaps TypePad is a grand learning experiment for them and one that will eventually be divested as you suggest. We shall see.
(Oh and by the way, this is the real me. The one who actually makes constructive and useful comments. I apologize again for the disturbance caused by the doppelganger/troll. Immaturity at its best…)
I don’t see a conflict with offering hosted versions of a software package and deployed solutions – the conflict comes from competing with web hosting providers, not on the software side…so it’s a bit of a different animal. For instance, my old company offered a hosted version and a licensed version for companies that wanted to own the management of the software. But given that we had such a vertical application, we didn’t have any general hosting companies looking to provide the solution that we might compete with. What we did have to come up with was rational pricing and similar feature sets that made sense on both sides of the equation that did not cause one side to eat the other. I agree, however, that imposing irrational limits on the licensed software is the wrong approach – that will drive people away from using your software and not to the hosted version – especially when the feature set is so different between the two.
I also suspect there isn’t that great a market for blog software customization software as the software is mainly designed to be used out of the box, and most of the people using it don’t have a lot of money to spend on customization – so they tend to either use it “as is”, learn how to customize it themselves, or maybe spend a small amount of money on a single consultant to make the modifications they require (and I’m sure there are a number of exceptions to this with people spending a lot of money on customization). As such, MovableType may have a hard time moving to a combination service/software model.
I’m also not sure about the license side of their business long term. It’s pretty clear to me that the barriers to entry in blog software space are very low. I’m not saying that MovableType isn’t a great product – but if the open-source community can make an operating system, then I think putting together a decent web-based CMS/database tool wouldn’t be much of a problem. WordPress demonstrates this perfectly – and we’ll see people move to it who blog for a hobby (look at http://www.gigaom.com). And they’ll create tools to port MovableType blogs to it (actually they already have them). So the people that will continue to pay for MovableType will be the installed based of users (particularly non-technical ones) and growing the installed base will become difficult (as competing with free always is). We’ll also see services that compete with TypePad rise because they can now use free software. Afterall, a hosting provider can easily add Typepad functionality because they’ve already made the investment in a hosting environment – so it’s just a small add-on to their business – similar to making MySQL or Perl available on a server.
I suspect, having worked for a couple small software providers, that the problem is something like this: your old business model (selling the licenses) provides most of your revenue and is in danger of becoming a commodity. Your new business model/add-on (hosting the service) might be the future of your business. Now you’ve sold the VCs on being able to do both models, but maybe only one will work – so you have to choose the short term pain of cutting off a big source of revenue while it is not yet known if you can make enough revenue from the new model to make the company work longer term. These are pretty difficult choices to make.
It does strike me that Typepad might be the better business longer term – you’re dealing with less technical people (no insult to any techie who uses Typepad!) who will probably be less likely to move given a better software package. You also get fairly predictable recuring revenue on a monthly basis. Typepad might actually be the better way to go on a longer term basis. Comments and critiques welcome!
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