What do you pay for?
centernetworks.com
centernetworks.com
But I'm puzzled at 37signals: their products were developed quickly (as they boast), but there are no well-known competitors. What's going on here?
1. 37signals is an effective geek PR company - or, thought-leaders for agile, rails, etc. They blog, they keynote, they give. They teach a lot of useful and interesting stuff (and I like it). They are cool. As a result, who knows about their competitors?
2. Pricing - starting at $24 per month ($288 pa) for basecamp. For a business, the monthly charge may be attractive for cashflow and tax (deductible), but neither are an advantage over copy-cat SaaS competitors. They host it, which justifies a higher price for you - provided that the hosting is a valuable benefit for you. They maintain it, and add features, so this is like a maintenance charge, which a business would pay anyway.
However - if they retain "simplicity" (key to their philosophy) and not add features, what's to stop competitors from catching up?
3. They add features in the form of new products (which they have done), and the older ones get cheaper and cheaper til it's "normal".
4. They have passed (or will) a special threshold of economies of scale, such that competitors cannot catch them. With so many customers, their profit margin per customer can be too low for competitors to enter. Their competitors, offering a comparable price but with fewer customers, would not be able to break-even. They'd need to grow their customer base much bigger. But how long would that take? How much would it cost? What's the chance of success (risk)? (37signals has other strengths, to make it harder) What's the prize worth (reward)? 37signals isn't a madly profitable company, so why go after them?
These arguments apply to a for-profit competitor - but what about a non-profit competitor? i.e. open source? I'm really interested to hear other's opinions.
I'm not the first to wonder this: http://www.techcrunch.com/2006/07/06/bascamp-faces-competiti...
http://wisdump.com/business/being-37signals-for-free/
EDIT "By Jonathan Barket on April 7, 2006 5:24 am" makes some good points (search for him - sorry, no permalink)
An open-source competitor would likely find lots of potential contributors for what's fun to do and none for what's boring.
2. The problem is not catching up, it everything else which is hard to explain. The layout, the features to provide or to leave out, finding the right mix is harder then the programming itself.
3. Their new products are not very well integrated and have overlaps in features so that is a weak point.
4. A generic offering is not where the money is. You develop the generic components and then you put them to work in a way that is specific for a particular vertical market. You sign people up free to a generic version, then once you have the vertical version done you offer them that at a higher price point. You do offer a generic "pro" version and some buying of additional useful "modules" for those you don't have a vertical version for.