I had great fun writing my last article “What Kind of Software Would People Actually Pay For?” because it helped me flesh out a lot of the ideas that had been swimming around in my head recently (actually for the last few years). And it actually made my Masters Degree in Urban Planning useful!

[Hold on kids, Uncle Pete is reminiscing]

Urban history is just economic history viewed from a different angle. Farming and agriculture was the dominant form of life for thousands of years because it was the best economic option – access to soil and water was more important than access to other people. Even if you couldn’t sell the food you grew, at least you could eat it and not starve.

With the economies of scale gained during the Industrial Revolution, congregating in cities became a better economic option for many (and eventually most) people. [Warning: US-centric view of history ahead] Despite the horror stories of Victorian London of the Chicago stockyards, life in cities was a better choice, especially for people who didn’t own their own land. The technological developments of the era (steel mills, railroads, electricity, heavy manufacturing, etc) made those who developed and invested in them rich, and the cities that accommodated them prospered. Cleveland in 1900 had all the optimism and glitter that cities like Seattle do now. Starting around the 1970s, the US economy shifted from primarily manufacturing to services like finance, insurance, accounting, advertising, marketing, law, high tech, research, software, etc. This if referred to the “white collar” or “service economy” and is what we have now.

Some people claim there is another economic shift underway, from providing services to providing experiences. This idea was first developed in the book “The Experience Economy” by B. Joseph Pine and James Gilmore. Examples of this are how a regular amusement park may offer fun rides, but Disney provides a complete immersion in their (surreal, creepily clean) world. Dunkin Donuts sells you coffee, but Starbucks provides a cozy place with hip music. Nike doesn’t sell shoes, it sells athleticism. You get the point.

[Reader interrupts]

Reader: Peter, why are you giving me a history lesson? That’s not why I read your stuff!

[Peter shakes the glimmer out of his eyes and gets back on track]

[Read more…]

[UPDATE: See two update posts: “The Value in in the Experience” and “Music Operates Directly on Your Abstract Syntax Tree“]

The “Free” Firestorm

Hank Williams, my recent blogging buddy, lit the internet on fire recently with a series of posts where he accuses venture capitalists of collapsing the market for software entrepreneurship by funding so many companies that give products away for free. He says:

In today\’s “free” world, in most online business categories, it is inherently impossible to start a small self-sustaining business and to grow it. This is because in the digital world, advertising, the only real revenue stream, cannot support a small digital business. If businesses were based on the idea that people paid for services then small companies could succeed at a small scale and grow. But it is very hard to charge when your competition is free.

…Venture capital has totally distorted the market. VCs are investing billions of dollars in companies with instructions to get big fast and to worry about advertising revenue later. As a result the competition is for users and not paying customers.

Then at Startup School 2008, DHH took Hank’s fire and poured a 500,000 DWT oil tanker on it with his talk “The Secret to Making Money Online“. And what was the secret? Charge people for your product! Breathtaking, isn’t it? We’re living a world where feathers get seriously ruffled when you insinuate that people should have to pay money for stuff.

This recent “free” debate needed to happen, and some good points were raised. Anything that can be digitized can be copied and distributed for (essentially) free on the Internet, so anyone whose business is digital or digitizable needs to understand free. It can either be an advantage (if you’re starting from nothing and building up) or a disadvantage (if you used to rely on high copying costs to protect your profits – I’m looking at you, music and movie industries).

Breaking Free From Free

What does this mean for software entrepreneurs? Right now the market for people wanting to make money off the Internet (supply of entrepreneurs) is growing, the demand for free software is growing, but what about the demand for non-free software?. Reg Braithwaite aka Raganwald asked a great question:

What does this mean for startups and business models? Is this effect stronger in some niches (programmer tools, for example) but weaker in others (enterprise integration applications)? Does SAAS change the game? Does pricing a product so that it is credit-card-ware change things?

Rather than answer those specific questions (which I don’t have any particular insight or experience into), let’s look at some guidelines for anyone trying to grow a profitable, Ben and Jerry-style software company. Hank gave his advice on the subject in “Seven Dos and Three Dont’s for Creating New Web Products” post (definitely go read the whole post for details and examples). Here’s my list of 5 principles to evaluate an idea to see if people will pay for a product that:

1. Supports serious, expensive hobbies
2. Is so outstanding it redefines its category
3. Helps businesses spend less money
4. Helps businesses make more money
5. Can be bought easily and instinctively

[Read more…]

I’m a cheap guy who doesn’t like to spend money on software. I’m not totally against it, but I have awesomer stuff to spend my money on like diapers, mortgage payments, and $4 gas. I enjoy using free tools or trials offered by the software entrepreneurs I know, but no matter how much I like them, I could live without most of them.

Not DropBox.

DropBox solves a pain I’ve had for years, a pain that never relented or could be relinquished – keeping data consistent across multiple computers. I usually have 2 computers at work (a desktop and a laptop), plus my laptop at home and 2 more desktops. I tried to keep a folder that would sync across all of those machines but I never found a process or product that could do it for me, so I just decided to live without access the files I wanted. I’m not even talking about a 100 gigabyte media library, just things like notes, drafts, some pictures, etc.

I’ve been using DropBox since it came out in beta, and it solved my problem so completely that I had to consciously think to remember what life was like without it (kind of like trying to remember what it was like to install a device driver on Win 3.1). There’s a client app you install that watches your DropBox directory. It then syncs all the files in that directory tree with a copy on their server, and pushes the changes out to other machines where you’ve installed the client app. So far, It’s fast and flawless.

But wait, there’s more! Since it syncs by sending changes to your file instead of the entire file, it also keeps a backup and revision history so you can restore older versions (again, across all machines), like source control for dummies. They also encrypt the files, both in transit and on their servers, so your stuff is safe.

Still not sold? Since copies of all your files are on their servers, you can access them (including revisions) over the web! So if you’re on a computer that doesn’t have the client installed and you just want a couple files, you can just grab them off the web.

It’s sort of funny, but despite absolutely loving the product, I hadn’t written about it yet because I didn’t know what to write. It worked so well that I didn’t even notice it 99% of the time. Have you heard of the book Don’t Make Me Think, one of the great books on designing for usability? (If not, GO READ IT!) If you need to see an example of those principles in practice, try DropBox. I didn’t have anything to write because I hadn’t really used the program – it just quietly served me like a good butler.

They’re still in beta. Once beta is over, there will be small free accounts and paid accounts with more storage. Beta testers will retain a free account that’s bigger than the standard free. I have some beta invites left, so if you’d like to try DropBox (and if you don’t, why the heck are you still reading?), email me and I’ll send you one.