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Funding Software Development Through Bonds
TwP writes "There is a rather long but very interesting paper posted on First Monday that describes a software completion bond market. The bond market would be used by programmers to generate revenue for software projects, open source or otherwise. It would also help to identify potential users of the software package - those who invest in the bonds would most likely be those to use the developed software."
This financing through bonds has little if anyone to do with the bond market as you would find on Wall Street.
A normal bond would be where I give you $1000, and every year you send me $50 interest. At the end of 10 years you send me $1050. (The orgional $1000 + $50 interest) Interest rates change of course, trust worthy companies with little dept pay less interest, while untrustworth companies with a lot of dept pay high interest. You get the idea though, basicaly a bond is a loan.
These bonds are an agreement, I put up $1000 (with a trusted third party), payable to anyone who provides certian software functionality. The third party, upon reciving a program with that functionality would pay the programers. The bonds avaibale would be known so programers could decide what to work on.
I'm not sure if it is a good or workable idea, but it is an idea.
It seems to me that there are currently at least 4.5 million (more or less) schemes designed to make Free Software development "profitable." Now, I am certainly not opposed to making money, but I fail to see how the current system of Free Software development is broken. It seems to me that when I sit down at my Debian GNU/Linux box I have plenty of good software available to me. In fact, the advance in the state of the art for Free Software has been so amazing in the last 7 or 8 years that commercial software houses are finally realizing that they have to adopt some Free Software techniques in order to remain competitive. Nearly every major commercial software vendor has sponsored some type of Free Software project. And Microsoft is clearly borrowing ideas from the Free Software community with their "Shared Source" initiative.
If you really are interested in making money writing free software here is the trick. Don't spend a big fat pile of money going to trade shows, buying fancy cars, and purchasing expensive office space in Silicon Valley. Instead start by doing contract work for small companies and make sure your contract has a provision that allows you to keep the copyrights for your work. Then turn around and use that same source in your next contract. Now take that working software and release some (or all) of it on the Internet, and start to market it. Chances are good that your source will be of interest to a fellow developer with a similar problem, and with a little marketing you might even get some patches containing new features (which you can then sell to your existing customers).
Cygnus made money like this for years. With many business type packages the service and support contract is the main revenue source anyhow. You won't make Microsoft type money, but you probably wouldn't make Microsoft type money with a closed source product either.
There are plenty of software packages that small businesses pay tens of thousands of dollars for that are literally overgrown Access Databases. Competing with these packages on price and features is not particularly difficult (considering the wide array of inexpensive useful tools and existing source code), and more importantly it isn't particularly expensive to finance this type of software. In fact, that's one of Free Software's biggest advantages. Free Software development requires substantially less working capital, and the expense can be shared among interested developers.
Wouldn't it be easier to simply hire the contractors that are actually doing the work? It seems to me that the infrastructure that would go into making these sorts of bonds possible would be a lot more expensive than simply hiring a lawyer to write up a standard contract with the developers (or their company).
Heck, if you actually hired the developers and brought them in house you could even decide which parts of the software in question became Free Software. That might be important if you had important business intelligence you were interested in coding into the application that you didn't want your competitors to have. This would be perfectly legal under the GPL. Your customer would receive a copy of the source with their copy of the modified binaries fulfilling the requirements of the GPL and then neither you or the customer would distribute binaries with the proprietary bits (guaranteeing that you needn't distribute the code you didn't want to share).
With bonds and several investors this sort of deal wouldn't be possible.
And that's not even the most obvious of its failings. The most obvious failing is that companies that don't participate in the bond will probably also receive access to the product. What exactly, then, is the incentive to pay?
Free Software developers currently share code for various reasons. One reason seen in Mozilla, OpenOffice, eSpeak, etc. is that the sponsoring company wants a product to become a standard. The company then hopes to leverage their expertise to sell hardware, support, or other goods and services. These projects generally don't need to worry about outside financing as the the organization sponsoring the project has sufficient resources to carry the bulk of development out itself.
The other reason that Free Software developers share code is because it allows small time developers with limited resources the ability to tackle large projects by pooling their talents. The fact of the matter is that if you have enough money to pay for all the coding to be done in house, and you plan on paying your bills by selling software (and not some other good or service) then you are probably better off keeping the code private.
How is this easier or more functional than simply hiring a contractor to make the changes that you would like to see made? And why should a company pay money so that it can vote when instead it can pay money and hire a contractor to add features. Especially since you can sit down with your contractor and sign a legally binding contract.
How many would invest knowing that it was likely that the software would be released as Free Software at the end of the project whether you paid or not. Why not simply let your competitors pay for development, and you could simply scoop up the project when it was finished.
You could probably even hire the original developer to install it for you (he would be looking for a new job).
This type of system would actually work much better for closed source development. But we already know how to finance those sorts of companies. Basically the whole point of Free Software development is that it requires less working capital, and allows you to spread development costs over several interested parties. If you are going to develop software in a closed source commercial type of setting (ie, cathedral style) why not simply fund your R&D in a more traditional manner.
Frankly I am not impressed. Basically he is suggesting everyone donate to a project and all the money goes into escrow, until enough money is collected to fund the project.
Then, the programmer goes to the bank and gets a loan against the money in escrow. Okay, this already works this way on cosource... Seems to me that he is just rewording what the site already does, this isn't a proposal for anything new...
I also notice that he mentions sourcexchange in the article. Since the article was published 6/4/01 and sourcexchange was shut down 4/6/01, this article was sorely out of date before it every went out. Now if we figure 90 days from submital to publishing, ie print publishing. This would have been written and submitted 3/4/01, so sourcexchange wasn't down yet, but they had already announced that they were going down...
So let me paraphase the article,
reporter: I need money, let me reword the cosource/sourcexchange business model and submit it as original work...
Lando
/* TODO: Spawn child process, interest child in technology, have child write a new sig */
Not so much as major large programs such as from Adoble or Mircosoft, but from small companies that have one programs that's in wide use in a nitch market, or companies where their major source of income is one or two major accounts.
Companies that use open source projects could buy bonds, and then direct to the path of the project to suit them. I'm a midrange copration, and I want an office suite. I buy X amount of bonds in OpenOffice, and say I want A, B and C. A, B and C are quickly added, the changes benefit all, and my company has an office suite with the exact fetures my company needs.
I COULD just as eaisly hire programs, and have it done internally. But why? If my company makes wire, why the hell do I want to go though the trouble of another department to optimize the company standard office suite. I have wire to worry about, not office suites.
So, if bond purchacers have an actual say in where they want a project they invest in go, this could be a VERY good thing for all open source projects.
Hey, everybody! Sally Struthers has been hoarding food!
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"Outlook not so good." That magic 8-ball knows everything! I'll ask about Exchange Server next.
Bonds have to be paid back with interest usually. Considering the what until now has happened in the open source world, namely many projects getting VC funding and going bust unfortunately with little to no ROI, this may not be the best idea. Many investors may regard this as "the same but different". How are the bond buyers going to get their money back is what they are going to ask. And in todays financial markets the buyers a being very picky. I hope it works but some may get burned badly, both developers and bond holders.
From where I sit, I see only two ways to generate revenue from Open Source software.
1) Sell a feature-added proprietary version of the software. Aladdin and Trolltech do this and are quite successful.
2) Sell proprietary addons to the software. The Kompany is doing this.
Conspicuously absent from this list are service/support, consulting, and reselling.
I haven't seen any profitability for service/support yet. It might be possible, but I just haven't seen it. Besides which, it's a lousy incentive for quality.
Consulting can be very profitable, and in fact, is where Cygnus made a heck of a lot of money. But consulting isn't generating revenue from the software. It's generating revenue from the consulting! The software merely acts as a glorified resume.
And of course, resellers aren't writing the software anyway.
I wish there was a way to make money directly off of Open Source without resorting to proprietary versions, extensions or addons. But I just don't see it yet. Bonds and other investments don't count, because they are not revenue. Likewise, I don't count donations to the "cause".
Instead of trying to find ways to make Open Source profitable, perhaps we should be trying to find ways to make closed source less onerous. Very few people are against paying for quality software. What they do object to are closed standards, upgrade cycles, and restrictions on personal and internal use.
A Government Is a Body of People, Usually Notably Ungoverned
The real problem with this idea is although you put up money with a trusted third party, you have NO guarantee anyone is going to develop your software. As a company, if you need a feature in a package or even a brand new package you must contract someone to do the work, not hope someone will pick up your offer.
It's basically the difference between driving across the US and hitchhiking. Hitchhiking works but you don't know how long it will take, what class of ride you will get and whether the person you hitch with is gonna shoot you with that gun under his seat.
Fear: When you see B8 00 4C CD 21 and know what it means
...as much as most other /.'ers - but as far as using it for open source and making money from the software, it seems to be a real difficult thing to do. What about this as a solution - while not GPL, it might allow the making of money from open source software:
Basically, when you bought the product, you would receive the source, with a license stating that you could only share the source and any modifications with other license holders of the software, as well as with the company - in fact, make it a necessity that the company gets the mods , so the new users/buyers of the software get the mods as well in their copy of the source. Maybe have some kind of CVS system set up for all of this.
The license would have to state that any sharing of the source or binaries outside the group would be prohibited. Finally, the license would have to state that in the event that the company goes under, is bought out, etc - that the source would be automatically transferred to GPL status.
Would this even work? Would it be appealing? I am looking at this and am thinking it isn't that appealing (I am a GPL zealot for the most part), but it would make money. I also have this nagging idea that this is already being done by a company, but I can't put my finger on it.
Comments?
Worldcom - Generation Duh!
Reason is the Path to God - Anon
Maybe, just maybe, issuing bonds will put a dent in vaporware. Talk big, get people hyped up, GET FUNDING, release date passes, second release date passes... umm, uh oh, now we're fscked. And we owe money to people. Vaporware developers spend their life savings paying off the funding that weakened their credibility... maybe people will be a little more careful next time they start writing code.
There is no reasonable defense against an idiot with an agenda
:wq
"Uncle Richard says 'Invest in world domination. buy GNU Bonds.'"
This is the only realistic option I saw. Trying to set up the bond jury would be ridiculously difficult, subjective, and prone to undue outside influence.
Option #3 is something that you can do today, and your revenue stream is entirely within your control. You can decide how much you want to market/advertise. You are in control of your profit model. You will fail or succeed on your own merits.
You could even set up a business supporting someone else's software. Examples: Cygnus, all those Perl consultants, book authors, magazine article authors, etc.
- Programmer nominates friends as bond judges, perhaps with explicit or implicit promise of a cut of the take.
- Programmer cranks out a half-baked implementation of the idea, and asks the bond judges to approve it.
- Bond judges comply, even though the product falls far short (in most users' eyes) of the promises.
- Bond judges either cash in bonds they have bought, or get money from the programmer (who has also cashed in).
- If anyone complains, bond judges have a detailed justification of their saying "yes", sufficient to convince any judge of law that the complaint may be just an honest difference of opinion between professionals, and thus not legally actionable as fraud.
And the sad thing is, this doesn't even have to be a scam. The bond judges and programmer could honestly believe they're legit. (In which case, bribing the bond judges becomes optional.) Or the bond judges could flash all kinds of credentials but be unable to honestly judge software. (Which might be solved by having reputable bond judges who are known for only approving good systems, but how does one avoid having this problem discredit the whole system until reputations can be built up?)it seems to me that the rush to make programming profitable is accually detrimental to programming itself.
let me explain:
programming was originally done to solve known problems. spreadsheets made bookkeeping a hell of a lot easier and THIS was the main reason a hobby became a neccessity. THIS is the reason companies and corporations embraced computers. (yes there were other reasons such as cost of hardware etc.)
but, in the last 20 years Microsotf has shown people how to become rich by software alone. "write once, sell forever" was a motto a friend of mine used to mutter and yes, he is wealthy because of it. but i believe this is no longer valid. there is too much competition. there is too many features that mean nothing to businesses.
i know of a company that has been trying to find software to handle the books for 2 years now. the software they search for is very sophisticated (Municipal Bonds and Securities) and the only product that matches their needs is horribly bloated and costs around $30m with an additional $20m in yearly maintanence fees. this company will NOT support this type of extortion.
they now pay me to write/find any software they want/need.
THEY ARE NOT UNIQUE!!!
i could sit at home and write code to do what i want it to do and hope someone will buy it from me or i could CONSULT for some companies and have the pleasure of solving problems that are already defined.
and i turn away 2-3 requests a month.
Microsotf got rich by creating problems to which they had solutions. that is the goal of any monopoly.
but trust me, solving problems defined by a paying customer is MUCH more rewarding then coding for the possibility to sell it later.
the danger is this:
until programmers stop worrying about how they can sell their software, make money, go public and retire, and start coding for other peoples problems, they further nothing but greed.
they will never have the joys of a happy customer and a fat bank account.
this is my post from after before.
TIME is the Aether...
it's rather philosophically similar to "The Payvote Method of Selling Intellectual Property" see http://www.payvote.com/
From a quick skim of the article, it sounds like these bonds may allow software companies to build up what was usually angel-stage money by taking funds directly from potential clients.
It's so crazy, it just might work!
(email addr is at acm, not mca)
We are Number One. All others are Number Two, or lower.
(email addr is at acm, not mca)
We are Number One. All others are Number Two, or lower.
--The Sphinx
The difference between your standard financing of R&D and this is that with these bonds, you're getting your VC from potential customers, and so they're getting something for their money at the end. It's not some random company, and the profit stream is something the investor wants. It's a win-win situation!
"Free beer tends to lead to free speech"
For just pennies a day, the cost of a cup of coffee, you can save one of thousands of OpenSource developers like these:
Camera pans down and to the left to the image of a shrunken, pale, programmer, intraveneously importing deep brown coffee into his system, working with gdb on debugging a file system.
For just Pennies a day, you can make all the difference for a programmer who has no life, no future. When you pledge your pennies, you will receive, with every quarterly report, a low quality JPEG of your programmer, and also a plaintext email from your programmer, telling you about his dreams for his software.
(Camera pans up and to the right, focusing on an image of Linus Torvalds, with a silly grin, reaching out to punch a final semicolon on his keyboard.)
Just look at what previous contributions have done for these people; As your developer grows and grows, day by day, you will feel such pride at his accomplishments.
Please, go to your PayPal account, send a $15 contribution for this month to "lion@speakeasy.org" and have the satisfaction that for the pittance of a cup of coffee a day, you've made the world a better place.
The BIGGEST problem will be the RATINGS of these bonds. Remember it will be the suits who just got hosed on tech stocks for the last few years giving any software bonds their ratings.
In this market, don't look for too many WS types to hand out many AAA ratings to coding, VC stealin' hippies.
Vary few technology companies ever debt finance (ie: through bonds) R&D because the revenue stream from such endevours is uncertain. It is far safer to equity finance such activitied (therough issuing stock) because debt financing is premised on the ability of the company to pay back the money borrowed, in that form, rather than the ability of the company (or OSS project or whatever) to produce equal value in some other form (such as high quality software) where the investor chooses that investment over others based on his perception of the value of the endevour and hid/her opinion of the ability of the company to return value to that investor in whatever investment horizon the investor has chosen for him/herself.
This is why companies like Nortel Networks, hith high debt loads are having a tougher time weathering these tough economic times than companies like Cisco Systems that has a low debt load.
This is basic economics. It's been proven over and over.
--CTH
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--Got Lists? | Top 95 Star Wars Line
Why should programmers risk their own money on the success of a product? Thats what the venture capatalists are for!
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The way to see by faith is to shut the eye of reason. --Ben Franklin
In email discussions, I always argued for issuing bonds over issuing shares of ownership in a media property because bonds are less risky for an investor, so long as they can properly assess the ability for the property to generate the promised income. A stock, as we all know, can soar and crash. There are also huge issues surrounding ownership after bankrupsy, SEC regulations, and so on. Through the bond price may fluctuate, it will continue to generate income (unless they are unable to pay) until it is due.
I think that there is definitely a future for creating bonds for intellectual property, whether a film, software, a book, or whatever. Heck, junk boonds in risky movies and software projects could also have a big impact. However, bonds will be most successfully issued by individuals or groups having a good deal of credibility. Example: a prominent oss engineer funds a new version of his product by issuing a bond based on future corporate sales.
Why would users want to purchase bonds?
If a user has enough money, he'll hire programmers. If he does not, he probably doesn't need a program so special, it needs to be developed i.e. doesn't exist. I cannot understand the logic behind this assumption.
-Shaunak.
ok, I know james bond is a cool guy, but come on, software development too?
oh, I get it... maybe he wants to put a back door in the evil villain's system so that he can escape before he gets sawed in half or something. /p?
Disconnect your television. Do your own research. Draw your own conclusions. They're probably lying. Don't be a sheep.
I'll be one of those annoying anal retentive Slashdot guys for a moment and point out that Chris Roberts left Digital Anvil a while ago.
But to focus on the crux of what you're saying, I have to agree that the game industry would be a good testbed for this kind of thing. A lot of people would've sent money hand over fist to John Romero when he started Ion Storm (and lost miserably) but a few would now be cleaning up on their investment with American McGee. Just seems like a neat idea, people would essentially be able to "bet" on their favorite game designers and companies, I think a number of gamers would go for this. While I doubt most developers could raise enough from the general public to fund the whole production, it would be a nice bonus. Interest in a certain bond could even attract additional dollars from a VC or publishing firm. Cool idea.