
Bug tracking isn't a network-effect business - aditya
http://37signals.com/svn/posts/2002-bug-tracking-isnt-a-network-effect-business
======
spolsky
It doesn't have to be a network-effect business for customers to prefer the
popular product as a "safe" choice.

~~~
btilly
Network effects tend to be substantially overestimated. For instance
Metcalfe's law is widely cited, but more careful analysis of actual behavior
suggests that n*log(n) tends to be a better scaling estimate than n^2.

Moving on, be careful about moving to a sales force driven strategy. When
you're selling with a sales force you have to cover the overhead of an
expensive sales process. This is one of the big reasons why a lot of software
is priced low enough that someone can pay for it with a credit card, and lots
of software priced over $50,000 but very little between those two numbers.
Also once you go down the enterprise software route the quality of your sales
process matters more than the quality of your software. A good read on that is
[http://lists.canonical.org/pipermail/kragen-
tol/2005-April/0...](http://lists.canonical.org/pipermail/kragen-
tol/2005-April/000772.html).

I'm not saying that this is a bad strategic move or the wrong strategy for
your company. But you should be aware of the consequences.

~~~
alexgartrell
I did an internship at a largely sales-driven company (Everyone gets an email
when someone closes a big sale), and it suuucked. Especially when everyone was
really anxious and uneasy because Customer X wanted his bug fixes _Right Now_.

Unfortunately, you attract top sales talent with big money, and they get
lethargic if the big money doesn't come from commissions, and they tend to
over-promise to make the sale. This can piss off the developers and makes it
not "a place developers want to work". You definitely have to maintain a
balance.

The idea that comes immediately to mind is profit sharing. When Joe closes the
big deal, everyone gets commission. Even if it's not a significant amount,
it'll let your developers continue to feel valued.

At least that'd make me happier (Edit: Assuming I were in that situation).

------
joshu
I'm always amazed at 37signals' ability to snipe other people in their
industry, and find it more than a little repellent.

Also, of COURSE products have a network effect! Haystack attempts to be a
marketplace for design work; if they cannot draw traffic to it then it fails.

Edit: changed Highrise to Haystack

~~~
tptacek
I don't think 37s lives or dies on Haystack. It's not even listed on their
front page as one of their products. You picked a poor example.

~~~
joshu
I didn't say that. I said the product dies if it cannot get traffic.

~~~
tptacek
And you're right. Haystack is, in fact, a network-effect business. But
Haystack is an insignificant part of 37signals business, and trying to
characterize them by the way Haystack works is not a lot different then trying
to characterize them by how the 37signals Job Board works.

~~~
joshu
You know what? I read and wrote in a hurry, and my point is nonsensical and
irrelevant. Forgive me.

------
petercooper
Just because their _product_ doesn't have a strong effect, it doesn't mean
their customer base doesn't.

If ten times the number of people are raving over their competitor eventually,
that'll have a big effect against them (or, at least, put them on the back
foot).

------
GavinB
There's an enormous network effect with bug tracking software. If you learned
a software as a junior worker at one company, you're likely to choose the same
one when you're in a more senior position at the next one.

Developers move from company to company, and take their knowledge and
preferences with them. When you're setting up a new company or department,
you're going to pick the program that your team knows.

My employer bought an instance of a certain bug tracker because one of our
vendors was using it and we needed to keep their data when we changed vendors.
A year later, the whole division uses it.

------
zaphar
Actually I would argue that 37signals thrives on the network effect. A network
of anti-enterprisey, web-savvy, tech trendy folks but still the network
effect. I think maybe joel was wondering is if they were in danger of falling
behind in their particular network.

~~~
ctrager
This reminds me of something I heard about Motorola, and their decline after
the Razor phone peaked. They learned that the phone business is more like the
fashion business than the electronics business.

With software related to the dev process, look how fast Subversion went from
cool to uncool. It took just one viral Linus video.

I think there _IS_ a bit of a network effect and Joel is correct to have
concerns.

------
nzmsv
He says he doesn't have to know who used Trac in order to use it. Well, I
disagree, and I'm with Joel on this one. Whether or not a project has users is
one of the things I look for when picking software. More users often (but not
always) means more developers, and some sort of guarantee that the product
won't be abandoned.

This isn't as critical with open-source software (I can install a bunch of
bug-tracking tools, use them for a few days, and keep one I like), but if I
have to pay to try these products, the popularity factor gets more important.
Even if there's a no-risk trial (still have bad memories of trying to cancel
that AOL subscription way back in the day).

------
pchristensen
The difference is that there are fewer companies buying bug tracking so
there’s a lot more money per customer. 37s makes $1800/yr tops off of a
Basecamp customer, but Atlassian or FogBugz can make several times that. If
you’re fighting for fewer, more profitable customers, you need to be able to
win. It’s different markets - you wouldn’t suggest to Boeing to give an all-
you-can-eat deal to any airline for a fixed price.

Fog Creek could try to shrink the industry by getting rid of the per-seat
licensing, but if they have a similar price structures and features as their
competitors, they’d better be able to win deals.

------
staunch
My feeling is that Joel is really just getting tired of his comfortable, but
small, operation. If he keeps doing what he's been doing he'll probably be
relatively small forever.

37 signals is in a similar situation. They're really small relative to what's
possible. As far as I can tell they're on course to be small forever, in terms
of revenue.

You already have a good product. You know there's a market. You know people
are willing to buy it. Now what do you do if you decide you want to accelerate
your growth _a lot_?

~~~
tptacek
I doubt you have any idea how much 37s (or Fog Creek, for that matter) makes
in top line revenue.

~~~
staunch
You're implying there's a chance they make enough to put them outside the
realm of "relatively small". Are you suggesting either of them make many 10s
or 100s of millions per year?

~~~
tptacek
37s made 1.5MM on a job board, and 6 digits on an ebook ("getting real").
Would I be surprised if they had an 8-digit top line? No.

What's "relatively small"? Plenty of 100-person VC-funded companies _never_
get that kind of revenue.

~~~
staunch
So, that's where we differ. I consider low 8 digit revenue to be "relatively
small".

I made it a point not to base size on headcount, since I agree that's
meaningless. I'm talking strictly about revenue.

~~~
DannoHung
Low 10's of millions ain't bad when you've only got a handful of people
working for you.

------
tedunangst
Sounds a lot like what the Ingres guys must have said. "It doesn't matter if
Oracle has a bigger network, there'll always be a market for us."

Of course there's a network effect. Oracle gets market share, third parties
build stuff that relies on Oracle, Oracle gets more market share. Your bug
tracker gets market share, people build source control and build system
integration around it, it gets more market share.

Swapping out bug trackers is both theoretically and practically as easy as
swapping out databases.

~~~
smiler
Especially if a third-party or a competitor provides a relatively easy
conversion tool to take your data from one product to another

------
adw
Everything which has a hinterland and ecosystem around it benefits from
network effects. If you're going to throw up walls at the web-browser edge,
sure, but...

Highrise, in particular, benefits from form processors, iPhone apps, analytics
tools all outside of highrisehq.com. Nothing exists in isolation -
_everything_ in software services is a network-effects business. You can argue
over how strong network effects are, but they're always present.

------
netcan
The main point I heard in Joel's article was not his desire for network
effects, it was his proposed move into an enterprise model.

In the comments here for the Inc. article he said something about being good
at marketing but terrible at sales. Being reliant on one or the other of these
seems like a fundamental quality for a company.

------
aditya
To be fair, I don't think Joel was going for "become sales-force driven",
growing a salesforce is not the same as letting them run the show. As long as
they have great engineering which Fogcreek seems to have.

Unfortunately, it is hard to say if these fears are unfounded or not.

------
RyanMcGreal
An application with lots of users seems likely to get better faster than an
application with few users, if only because a larger user base means a) bugs
will turn up faster, and b) patterns of use will suggest feature improvements
faster.

------
qeorge
Basecamp's recent switch to global logins is evidence that their products
benefit from the network effect.

------
lucifer
Sorry David. Selling bug tracking software can be a network-effect business if
your product is a _platform_ :
[http://confluence.atlassian.com/display/JIRA/JIRA+Plugin+Dev...](http://confluence.atlassian.com/display/JIRA/JIRA+Plugin+Development+Kit)

[edit: <http://confluence.atlassian.com/display/JIRAEXT/JIRA+Plugins>]

~~~
teej
An application platform does not make a business network-effect driven. Having
plugins doesn't make your product create entertaining, compelling, or useful
content to "suck in" non-users. Facebook and eBay have this because it's baked
in to their DNA.

------
pibefision
Basecamp either

~~~
suvike
That's one of his points. At the risk of sounding non-HN-esque, rtfa.

------
bjclark
You can say what you want about DHH, but he's 100% correct here.

