Providing hosting services for a fee (dedicated or shared) is a loss leader (i.e. not sustainable on its own) that helps sell services (which makes it a profitable combination) and that is what GitHub & GitLab are doing. Hostea was initially set to only provide hosting (dedicated & shared) and no services but it would have to host a very large number of customers to be sustainable (thousands of not tenths of thousands), it could take years and create centralization problems. Fundraising such a bootstrap by organizations that expect to make profit out of their monetary investment is unlikely (and has undesirable side effects) because the profitability is low, years away and unlikely to be attractive.
About a month ago discussions led to the idea that Hostea could provide services in addition to hosting, thus mimicking the GitHub & GitLab business model (without any proprietary software or user lock in whatsoever, it goes without saying but it is better said). The fact that both do that based on proprietary software does not significantly change the equation. In all cases (proprietary software or not) the hosting part of the operation is a loss leader and the service part is profitable. Free Software based service companies have been profitable and it is a well established business model since the early 2000. There is however one condition for selling services: potential customers have to know the software already, it has to be a recognized brand. Which Gitea is not. But GitLab is which led to the proposal that Hostea supports both GitLab and Gitea.
Today it occurred to me that Hostea could also be a loss leader for the benefit of the Free Software service companies supporting it. Here is the value proposition:
- Hostea provides dedicated & shared forge hosting based on Gitea and GItLab
- Free Software service companies providing services based on Gitea and GitLab support Hostea financially or in kind
- Hostea notoriety helps Free Software service companies with their sales as they can claim to run Hostea
Here is an example:
- Easter-eggs provides a libvirt hypervisor to Hostea, part of the yearly annual bonus is pledged to Hostea, @rlaguerre and @natct spend time working on Hostea
- Easter-eggs is displayed in the About | Hostea: Managed Gitea Hosting page as running Hostea in the same way About - meet.coop does
- When negotiating a service contract based on GitLab, Easter-eggs can claim they run Hostea
Realistically Free Software service companies are unlikely to be convinced to contribute financially, at least not in the first few years, because Hostea is not an established brand and it won’t help much with selling services. But they may be persuaded to contribute in kind (resources or work) if they get funding to do so via governmental research grants in the short term.
Free Software service companies cannot obtain R&D grants for providing services because it does not qualify. But the highly experimental nature of federation and Hostea being in its bootstrapping phase makes it possible. As Hostea matures and becomes more widely known this will no longer be possible but that will also mean that Hostea notoriety can effectively help with selling services. The incentive shifts and Free Software service companies can keep supporting Hostea.
The Hostea timeline could look like this:
- Year 0 to year N: Hostea is not known and Free Software companies contribute “in kind” because they can get R&D grants
- Year N+: Hostea is known and Free Software companies contribute financially and “in kind” because it helps them sell services
In other words that business model bridges the gap years and allows Hostea to grow to a threshold where it becomes sustainable and able to hire staff even though it is a loss leader. In the first years most of the day to day work to run Hostea is contributed in kind by Free Software service companies (which is currently the case) and in the end it will become a mix of:
- Hostea paid staff funded by
- Hostea paying customers and,
- financial donations from Free Software service companies
- Resources and staff provided “in kind” to Hostea
Interestingly such a setup is well aligned with the current revenue sharing model. It also does not require centralization: any number of organizations duplicating the Hostea business model can exist at the same time. Very much in a post growth spirit, the growth phase is before the organization gains a notoriety. Once this threshold is reached, it should stop growing and thrive, aiming for excellence rather than size.
What do you think?