The Market

THE MARKET….Matt Mullenweg, the creator of WordPress, a popular blog authoring tool, decided last month to help fund his development costs by parlaying his site’s high Google PageRank score into a source of advertising revenue. Long story short, he did it by helping advertisers game the Google AdSense program. Full details are here if you’re interested.

What drew my attention, though, was not the question of whether Mullenweg’s actions were moral or ethical or within the spirit of the open source community. Others can fight that fight. What drew my attention was the fact that this was apparently the best way he could find to raise money for his business. Via Brad DeLong, this inspired the following reaction from Suw Charman:

There are a lot of people with very good ideas which fulfil the needs of a given community who have the skills to bring those ideas to fruition. What they are missing is a business model to allow them to earn enough money to make development of their idea financially viable. But because there seems to be a fundamental disconnect in many people (not everyone, I hasten to add) between creativity and business acumen, and becuase there is no existing business model to follow, we now have a creative class who are chock full of bright ideas but who just don’t know how to scrape a living from them.

….If you’re in a niche…your work may well be addressing a fundamental need within a clearly defined community, but if that community is not willing or able to donate, or even buy merchandise, then your business plan, all those pretty numbers you invented for your bank manager, is oh so much toilet paper.

No kidding. This kind of grumbling ? which is peculiarly common in the software world ? is something I found perplexing back when I worked in the software industry in the 90s, and I find it perplexing that it still exists today. The problem here is simple: there are lots of cool ideas that don’t have a very big market. This is not a problem of “business models,” it is not a problem confined to the high tech market, and it is not a problem that has cropped up only recently. In fact, it’s not really a problem at all.

If you are competing against free products, you will have a hard time in the market. If you have a product aimed at a tiny niche, you will have a hard time in the market. If you are competing against Microsoft, you will have a hard time in the market. If you are a lousy businessperson, you will have a hard time in the market. If you have a mediocre product in a crowded field, you will have a hard time in the market. This is why 19 out of 20 startups across all industries fail.

I’m not sure why smart, tech savvy people continue to think it’s some kind of cosmic injustice that smart, tech savvy people often fail in their business ventures. This is not a failure of the market. It is the market.

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