Other Ways to Slice Revenue Pies

A large company with a distribution network, and a little guy with something nifty to distribute walk into a bar…

Step 18 / Rex Roof / CC BY 2.0

[NB: Nothing here is legal advice; just business advice. I do not represent either the GNOME Foundation or Canonical, and have not talked to either one of them about this, though I have had a brief email exchange with the Banshee guys.]

There are a lot of ways to figure out how to slice revenue pies, but you wouldn’t know it from watching people talk about Banshee and Canonical. The options discussed seem to be all, nothing, or some percentage in between. This post will discuss one alternative, and hopefully provide food for thought when people are making their own revenue arrangements.

We can start by taking a step back and looking at factors besides labor and power, which seems to be what lots of folks have tried to boil this particular situation down to. Each situation has unique issues, but two which I’ll talk about here are what the money involved means to the various parties, and where else value is being created.

On “what the money means”: sometimes money is just money. But more frequently money has different meanings to different groups, depending on how big they are, where they are in life (as a person or organization), etc. So $10K may mean very little to a big company, but it might mean the difference between college and no college for an individual coder, or between an event and no event for a small non-profit. On the flipside, the difference between $1M and $2M might not mean much to an individual (diminishing marginal utility ahoy!) but it might mean the difference between growth and layoffs for a small-to-medium company. I can’t speak with any certainty here, but my guess is that $10K can easily be a big deal (like a hackfest) for GNOME, and … well, I really hope for their sake that $10K doesn’t make much difference to Canonical :) On the flip side, $1M might be more money than GNOME is ready to handle, while $1M would likely be a significant help to Canonical as it seeks to become a stable, sustainable business.

On “where the value is being created”: This is not a simple question. But when you’re talking about people who distribute a good, it is usually fair to consider not just what they are doing to distribute the good (which might be minimal, particularly if the good is digital) but what they’ve done to build their distribution network and make it popular with consumers (which might represent a lot of work.) At the same time, creators haven’t just created something- they’ve also passed up other opportunities and taken risks to do whatever it is they do. By that token, it is safe to say that without the Banshee team there would be no Banshee to distribute. No one has anything if they didn’t do that work. At the same time, Ubuntu multiplies the value they did create by working to increase the number of people who use desktop Linux- and therefore who can use Banshee. So both of them have created some value here- maybe that balance isn’t 75-25, but it isn’t 100-0 like some folks seem to be suggesting either.1

So how do these factors affect the deal itself? The critical point to take away from the examples above is that one number doesn’t fit all- what might be the right percentage for the first dollar might not be the right percentage  of the millionth dollar. A sliding scale for revenue sharing can address this by giving one party a lot of the early, smaller revenue, and the other party a lot of the later, larger revenue. In this example, you could set it up so that of the first ____ dollars, Banshee/GNOME gets the (vast?) majority; they split the next ____,  and then anything past that- the big bucks that result at least in part from Ubuntu’s big audience- Canonical gets the lion’s share.

Take your pick for the exact numbers, of course- the point being that this more flexible framework, instead of a straight 25-75 split, might leave all parties with a better chance of meeting their goals. While the money is small, GNOME gets what to it is important revenue, while Canonical loses out, but only on (probably) pocket change. If the money involved ends up being really large, GNOME still benefits a lot (having gotten a large share of the early money), but Canonical gets a revenue stream that will help it build a sustainable business. This kind of split also better reflects where value is being created- the Banshee guys get lots of immediate revenue for having created great software, and (if a huge number of people use it to buy music) then Ubuntu gets value for having done the hard work to make the platform as a whole accessible to those huge numbers of people.

Again, I haven’t really talked to the parties involved, so take this with a grain of salt- it might not fit this example, and it almost certainly won’t fit your situation without more thinking, tweaking, and perhaps use of a different tool for splitting revenue. But as more FOSS projects and the companies that deal with them start to have these sorts of revenue streams, it will be increasingly important to get creative about how to distribute that money. I hope this post can help remind people to think beyond a simplistic X/Y split, because being creative about this sort of thing can help everyone build sustainable models that help finance good software for more people.

  1. If you don’t like this, I suggest channeling your energy into writing a true cross-distro Linux build and installation process. []

11 thoughts on “Other Ways to Slice Revenue Pies”

  1. This is an interesting debate. I certainly think both parties would have benefited from a more reasoned analysis instead of the “all or nothing” dichotomy they’ve set up. Canonical seems a bit greedy for trying to grab 75% of the revenue here, especially since it was earmarked for GNOME and not just the Banshee developers.

  2. Thanks for a different take on the situation.

    I also heard someone else make and interesting argument:

    Banshee is about to ship on Windows. There the team will have control of the Amazon revenue. And a much larger audience than Ubuntu.

    So they get more money from Windows, will they be more motivated to put more effort there than the pittance thrown to them by the Cannonical / Linux world?

  3. I think a lot of the debate concerned more the conduct of the process than the nitty-gritty details. I think some people are more concerned with the way Canonical went about this than exactly what it is they’re doing; by implementing the change with no initial notice to Banshee, then backpedalling and offering the Banshee team some choices, then changing their minds again and deciding that they would not respect the choice the Banshee team made. It was not a well-managed process.

  4. A progressive revenue split system is the best solution to this problem I’ve heard so far. Elsewhere I wrote that Canonical has the right to take part of the money, but that the share should be adjusted to the value it adds, based on evidence from usage statistics. However, that is a bit of a vague method. Canonical could publish the usage statistics of the plugin a few months after the 11.04 release, but how could one determine what ratio would be justifiable?

    The system you propose seems to be the fairest and best system to divide the revenue, considering that Ubuntu does contribute value, but that indeed, like you said so well, Banshee deserves the immediate large slice of the first money, as the software developers.

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