The “profit but open” model

Jul 12, 2012

I was talking to a friend recently about twitter’s new “Rules of the Road” and we were talking about how sad we felt about the change of direction and why it was that way.While talking to him I realized something interesting: Today’s”biggest” internet companies out there all started in a similar way. No business model, free core services, very open, very disruptive, very empowering and promoting the creation of an ecosystem. Is the case of Google, Facebook, Twitter and so on (altough facebook isn’t open).

As these companies mature and grow (mostly BECAUSE of their ecosystems) they’re forced to maintain the free core services and run for a Advertising business model since is the easiest, most profitable way to grow on.

But then the company stops being some guys providing a disruptive service and becomes an Ad company and that my friends, ruins the whole thing.

It shoots them to become incredibly profitable and on their way to become “internet giants” but in the process the company usually loses it soul, its values, its core differentianting culture. They’re no longer startups, they’re yet-another-big-corporate-bullcrap-suits-company.

In consequence they start a process of lockdown that kills and rips off the ecosystem they built when they were a startup. Think ads in gmail or in facebook, think privacy problems in google or facebook, think abandoning their open-sourceness (Android) or limiting the ecosystem as it is about to happen on Twitter. They also betray their first fans in the process.

Usually what happens next is that the company becomes slow, start delivering crappy profit-oriented products and it all goes downhill from there. Suddenly a new hot startup rises up and we’re on the same loop all over again.

But there’s a different path. A better path. And that path has proven to be more sucessful than anything I’ve ever seen. I’m defining sucess not by becoming the largest company, but by the ability to staying true to your founder’s values and make a profit from it.

This path has several ramifications.

The profit from day one model

Think Basecamp from 37signals and how they sell a service that is great, make a profit from it and remain true to their values over the years. They’re huge, but still a small company focused on creating a great product.

Think Treehouse from Ryan Carson and how they’re changing the way people learn by making a great product and sell it for a profit. They’re growing really fast without the need for VC’s or advertising models. They can remain true to themselves.

Think Dropbox and how they changed the way we handle our personal data. I pay for Dropbox happily and will continue to do so as long as they remain true to themselves. They have an open API and they’re not affraid of their own ecosystem, they also don’t need Ads.

And finally Think Apple. Altough they’re the opposite of openess they’re a company who sells great products for a profit, and remained true to their values for over 30 years. And now they’re the biggest company on Earth, or almost.

The profit but open model

Here I have only one example but I believe this model is actually the best one.

Automattic and WordPress. They have 1 big product. That product is free and open-source, and yet they manage to make millions of dollars a year. How? They have a fork of their own product that is easier to use, easier to setup and that has a network of added-value paid services that pay for the whole thing.

It’s a company that has remained true to its values, that has managed to make a profit from it and that powers a big chunk of the web. They’re bigger than Twitter for that matter. Is just that they don’t lock you down in their own domain, they let you use their ecosystem in your own service.

Twitter might be killing itself locking down his API, they might end up being a niche app in a few years when the Ad model and the corporate bullcrap eats them whole. Same will probably happen with Google and Facebook as new, disruptive services come out and they started becoming too large to hold to their original values and keep vision for the future.

But WordPress will probably remain, as the web itself remained and as every “open standard” remained. the profit but open model is, to me, a reference to follow in the years to come.