People, Ideas & Objects - Revenue Model

The ways and means of how People, Ideas & Objects and its communities are sustained for the long term.

People, Ideas & Objects - Value PropositionWhy we are building these systems.The innovative oil and gas producers competitive advantage.The flow of funds.People, Ideas & Objects funding and capitalization.Blind sleep-walking agents of who ever will feed us.

Providing a software development capability to the oil and gas industry.
When looking for the revenues for People, Ideas & Objects and its associated user communities, all paths lead to the oil and gas producers. This is the logical choice as they are also the primary benefactor from the use of the applications and communities development. Oil and gas is a primary industry that generates over $3 trillion in annual revenues. It is the source of value generation for itself and a variety of industries that provide producers with products and services. It is therefore logical and appropriate that we focus on producers to generate the revenues for these communities. So how is it that People, Ideas & Objects and these communities raise the funds for these software products and associated services. The answer to this and other questions is what will be defined as our “Revenue Model” in this article.  

People, Ideas & Objects - Value Proposition

With these points in mind it is important to restate our value proposition. People, Ideas & Objects provides the oil and gas producer with a user-focused software development capability. The costs incurred in developing and hosting the software application are charged to the industry once. Providing a value proposition that is substantially more competitive then any other ERP vendor. To cover the development and associated user community costs, use of the software by the producer requires payment of all of the fees retroactively to January 1, 2010. For 2010 these fees were determined to be $1 per barrel of oil equivalent production per day. Based on these factors, a producer that producing 50,000 barrels of oil per day ($1.4 billion in annual revenues.) would be assessed $50,000.00 for the 2010 calendar year. Motivation to participate in a timely fashion is provided by assessing 300% penalties for any payments that remain outstanding after March 31 of the billing year. All fees and penalties from 2010 forward are to be paid prior to the producers use of the software. These revenues will be used to offset the costs of developing the software. Users are not charged for their use of the software.

For the purpose of People, Ideas & Objects "free riders" is a serious problem that we have chosen to deal with in our Revenue Model. Simply our free rider problem is that many producer firms would feel their best approach to supporting People, Ideas & Objects would be to abstain from actively participating, particularly financially, and leave the burden to other producers to carry the weight of building the application without their direct participation. Applications such as People, Ideas & Objects can not be built with that strategic method of participation. 

The manner in which we solve this free rider problem is by assessing a late fee of 300% on top of our annual subscription fee. The annual subscription fees are due and payable on January 1 of the current year and need to be paid in full prior to the participation or prospective use of any software. Late fees are assessed on any outstanding annual subscription fees as of March 31, of the calendar year in which the fees were assessed. 2010 subscription fees were assessed at $1.00. 2011 and 2012 subscription fees will also be assessed at $1.00. All fees, subscription and late, for all years, 2010, 2011 and 2012 fees and penalties are to be paid before participation in the communities can commence or prospectively use any software.

The participation bonus is related to the late fee in that as firms that may have chosen to wait or hold back their participation in developing People, Ideas & Objects application. That may have subsequently decided to join the developments or begin using the applications. Are then required to pay the subscription and late fees back to 2010 to the current date. As these lump sum payments are received by People, Ideas & Objects they offset the current years budgetary revenue requirements of the firm. Therefore reducing the current years budget subscription fee value and therefore reducing those subscribing producers annual subscription fees for the subsequent subscription year. That's the participation bonus. 

The $1.00 fee that is assessed on each barrel of oil equivalent could theoretically generate $120 million during 2010 for People, Ideas & Objects. Our motivation is to expand the volume of energy that the fee is assessed upon. Raising the rate assessed per barrel would also increase our revenue, however, increasing the volume of energy production represented in our assessment base provides a stronger value proposition for all concerned. It is critical to recall that the costs associated with the second copy of the software is zero. Therefore the costs of development are potentially allocated over the entire subscribing producer base. The producer firm receives, just in the first year, a potentially $120 million software application for a small portion of the actual costs.  

At an average price of $77.00 per barrel of oil. The percentage costs of the People, Ideas & Objects fee for 2010 equals 1 / 28,105 = 0.0035%. Determination of the annual fee is based on the projected costs of the software development and communities plus an element of profit for People, Ideas & Objects. Inherent in this pricing is the belief that the applications are never considered static, but are in perpetual development, therefore the firm remains profitable and motivated to continuously improve the applications.

Why we are building these systems.

We apply and extend Professor Jurgen Habermas’ 1960’s theory of different knowledge interests. Building on our discussion of People, Ideas & Objects value proposition, and targeting the oil and gas producers as the sole source of revenue, this post will delve into the difficult question regarding what we need these systems for.

Are we developing systems that manage the commercial operations of an oil and gas producer? Of course we are, but that does not address the societal and individual needs of these systems. If we continue to look at just the needs of the producers, then we are leaving many needs unaddressed. Society and individuals are critical elements of a successful oil and gas industry. For example society benefits by having producers and the service industries efficiently interact and develop profitable operations, and individuals create innovative solutions to the demand they see for their services. Overall organizations, individuals and society benefit by an increased and expanding division of labor and specialization.  In today’s globalized, high technology workplace, an expanded division of labor and specialization can be more efficiently created through a software development capability like that described by People, Ideas & Objects in its Draft Specification.

When we concern ourselves with the economic strategies output of the oil and gas industry. To expand that output requires that we organize based on greater levels of specialization and a further division of labor. The responsibility for increasing output does not fall to society, individuals or organizations in isolation but to all three. Therefore it is reasonable to state that what we need these systems to address society, individuals and organizations needs. I do not foresee the further development of the division of labor occurring without the active involvement of systems development. In a somewhat deliberate manner where all groups are represented.

If we look critically at the division of labor, and eliminate some of the constraints to expanding it further. Constraints like the limitations of working within one firm or one Joint Operating Committee (JOC). If an individual has the capacity to apply their skills to a task for a geographical region that includes 100 producers and 200 JOC’s, the efficiencies could be substantial. The ability to manage a task in this fashion doesn’t exist within our current organizational context.

Following on the logic of the previous section, where the producer firms are the sole source of the revenue for People, Ideas & Objects and associated communities. Sharing the input of these systems development across society, individuals and the organizations might appear to be inconsistent with the reality that 100% of the funds are coming from the producers.

That’s why the People, Ideas & Objects revenue model shares the one time development costs across the subscribing producers. Just because the producer firms receive 100% of the proceeds of oil and gas sales, doesn't mean that they earn 100% of the revenues of the oil and gas sales. Individuals and society have a role and responsibility in these systems and therefore, these need to be considered irrespective of the desires of the producer firms. We’re not going to develop systems that address the needs of society, individuals and organizations when producers have a disproportionate influence due to their control of the revenue stream.

To sustain this software development requires that we cease being subjected to the individual decisions of one or more producers. A company that chooses not to proceed with the development or implementation of these technologies can not hold up the greater benefit of all concerned. Essentially I am stating that the decision to support these communities needs to be made where appropriate representation considers the needs of all concerned. Looking at the cost benefit analysis of supporting this software from the point of view of only one producer, misses the benefits to society and individuals.

Habermas theories deal with the issues of power, influence and most importantly emancipation. But when it comes to using science or computers to change the relations of power in our society, when emancipation is put forth as a knowledge or development interest, then the question of values becomes more controversial. Who is to be emancipated, and from whom? Who is to loose power, and who is to gain? And how can it be the business of scientists or computer professionals to take part in a political strategies struggle for power?

The innovative oil and gas producers competitive advantage.

Continuing on with our discussion of People, Ideas & Objects revenue model, we discuss the impact of the revenue model, and the Draft Specification, has on the competitive advantages of the producer firm.

We start off with recognition that China is now the world’s number one consumer of energy. The demand for energy in the next several decades will be insatiable. The somewhat fixed number of earth scientists and engineers will have substantial business opportunities addressing this world demand. It is through a reorganization of these fixed human resources, by having People, Ideas & Objects software applications define and support enhanced divisions of labor and specialization, that this demand for energy will be satisfied.

Building systems that deal with the commercial interactions between the producer, society and the individuals that work in oil and gas, and the service industries, is beyond the direct concern of the producer. Yet, are a necessity of basic operations. If we agree that the competitive advantages of the producer firm are based on it’s unique composition of oil and gas leases, physical assets of the firm, and application of the firms earth science and engineering capabilities. The producer will remain involved and focused on the development of efficient software systems to identify and support those competitive advantages. Much in the same manner as society and individuals will work to develop those same systems to meet their needs.

Therefore, the producers decision to financially support these developments affect society and individuals. The producer firm receives 100% of the direct revenues from oil and gas sales. Allocation of a portion of these oil and gas revenues towards an initiative like People, Ideas & Objects can not be evaluated based on its competitive return at the producer level. Everyone is familiar with one or more software development or implementation projects that were terminated as the result of a lack of long term funding. These failures have little to do with the quality of the project or the people that were behind it. Over time the sense of urgency that the project may have put forward fades as does the financial support. Approaching a project with the scope of People, Ideas & Objects, without having an answer to a fading sense of urgency would be a failure.

The question therefore becomes, how does the revenue model of People, Ideas & Objects 1) sustain these communities throughout the development cycle and 2) provide these communities with the software tools they need to expand economic strategies output? We provide this by way of the inherent promise or guarantee of this project. That being, this software development, and associated communities, provide the innovative oil and gas producer with the most profitable means of oil and gas operations. The profitable nature arising as a result of the expanded oil and gas output, based on the enhanced division of labor enabled with the People, Ideas & Objects application, and, the value proposition we have put forward.

The flow of funds. 

This post seeks to clarify People, Ideas & Objects revenue model and provide an understanding of the flow of funds within the associated communities. Needless to say all the funds flow from the Producers, however that is where the money is. I’ll break down the general flow to show how each of the different groups are sustained over the long term.

People, Ideas & Objects assesses an annual rental on all producers for access to the software applications, cloud computing infrastructure and the communities involved in the development. These funds are assessed based on an annual rental for each barrel of oil equivalent of the producer. This rental has been set at $1.00 per barrel of oil equivalent for both the 2010 and 2011 calendar years ($2.00 total). In addition, assessments are due and payable by March 31, of each year. Producers are subject to a 300% penalty for any late payments. All producers are required to pay the rental from 2010 forward. 
The second group that receives producer funds are the users themselves. These users are the producers employees or consultants that they hire to do the work within their organizations and Joint Operating Committees. These funds are incurred indirectly as a result of the individuals doing their jobs and are not necessarily a direct cash payout. These costs are incurred by the users on behalf of the producers in working with the Community of Independent Service Providers and the People, Ideas & Objects developers. The work the users are compensated for is in defining and designing the systems they and the producers want and need. 

The third group that receives direct funding from the producers is the Community of Independent Service Providers. This community is engaged by the producers to handle many of their specific systems related needs. Accounting integration and systems development are the two areas where the CISP will be used most often.

What happens to these funds is also important to note.

People, Ideas & Objects incurs the costs associated with the hosting of the infrastructure for running the application and software development environment. We also have the developers on staff who are working with the Community of Independent Service Providers and user groups to define and enhance the systems they need and want. Lastly we directly compensate the CISP for the work that is done concerning the applications development.

Users are direct recipients of the funds they earn in their positions with the producer firms. 

The Community of Independent Service Providers are independent in that they are not affiliated with one specific producer or Joint Operating Committee. They are service providers to the oil and gas industry. Their services to People, Ideas & Objects and subscribing producers are provided as independent organizations. 

People, Ideas & Objects funding and capitalization.

Another element of our Revenue Model is the means in which People, Ideas & Objects is capitalized. Traditionally software developers are stand-alone organizations with their own banking, regulatory and venture capital influences. People, Ideas & Objects is taking a project management strategiesperspective in providing this software solution to the marketplace. The differences in our capital structure are significant, with our Revenue Model being a critical element in defining and supporting these differences.

The fact of the matter is, by having user based developments defined and supported by various communities. To then have various venture capitalists, or other groups involved in a traditional capital structure, influence whether or not the software was built to specification is too large of a compromise to be viable. Therefore People, Ideas & Objects is funded by its Revenue Model and focused on its users.

To be clear the scope of People, Ideas & Objects is beyond what venture capital groups would be willing to fund. That is to say if the producers are unwilling to invest in this software development, based on the value proposition put forward, no venture capital groups would touch this type of venture. Amortizing the costs of this development over the production profile of the industry is our value proposition. Complicating our capital structure only complicates and compromises the deliver-ability of the software.

To suggest that People, Ideas & Objects can be structured without the traditional involvement of investment capital might be naive for me to consider. However I do know, that it would be naive to suggest that the systems as described in the Draft Specification could be built with the influences of a traditional capital structure. Therefore, it is with that in mind, and to ensure that the Preliminary Specification captures the full scope of the technical and geographical concerns of each subscribing producer. That producers would be wise to support these developments to ensure their concerns remain the appropriate priority of this software development.

One area where our capital structure is not a concern is in the hosting of the application on the cloud computing infrastructure. I have addressed these needs by separating these business concerns from the software development activities. As I have documented in our Hardware Policies & Procedures, the hardware infrastructure is directly managed by the producers themselves. The purpose in structuring the hardware in this fashion is to eliminate the producers regulatory concerns in running their ERP systems, and to ensure that all parties have a vested interest in the infrastructure. In the process of meeting those concerns the business of the firm that hosts the application will have its own capital structure that will not in any way affect or influence the software developments or communities of People, Ideas & Objects.

Blind sleep-walking agents of who ever will feed us. 

Throughout the past few months we have talked about the risks of becoming blind sleep-walking agents of whomever will feed us. An issue when we are discussing systems development. People, Ideas & Objects Revenue Model shows these risks are real and require a new strategies approach to funding these software developments. It serves no ones interests, People, Ideas & Objects, the Community of Independent Service Providers, Users or Producers to proceed without dealing with this issue. It is best to identify these conflicts and compromising situations now, while the influences are manageable.

Producers are expected to fund the software developments on the basis of their production profile. Rental fees are assessed on all producers starting January 2010. This eliminates the possibility that some producers will pay disproportionate shares of the development costs. All producers will be required to have their rental fees, and penalties, paid in full from January 2010 to the current year in order to access the applications. These methods and penalties eliminate all incentive to delay and avoid financial participation by producer firms.

Financial participation is how the communities are supported and hence able to avoid the trap of becoming blind sleep-walking agents of whoever feeds them. People, Ideas & Objects are user focused developments. The choices that a software development project can prioritize are many. Users are one, technical efficiency another and there are many other possibilities. For users to support the producers focus on its competitive advantages of their asset base, oil and gas leases and earth science and engineering capabilities. Users need to have the software tools and means of production, (the financial resources to build those tools) within their control.

This discussion does not preclude the producers participation in these communities. Producers, on the contrary, are critical elements of the user community. These developments will need their full participation and contribution. What is necessary to proceed is the appropriate “political strategies environment” in which users are able to define, build and use the software tools they need to do their jobs.

Providing a software development capability to the oil and gas industry.

People, Ideas & Objects focus is on its users and the business issues that they face. We are not providing “new” technology for technologies sake. With respect to our revenue model, technology has a substantial impact on our product delivery.

Past systems development and integration projects have led to time and monetary black holes. Users have frequently had to adapt to poor, or technology focused, perspectives of their jobs. These are the issues that users face in the marketplace today.

A key area of People, Ideas & Objects competitive offering is that our software development capabilities are based on the “Agile” development principles. In addition to being user focused, these capabilities provide iterative developments that are substantially more productive then past methodologies. More productive due to the focus on working with the user to solve their systems development needs. Getting the users needs satisfied, not chasing blind bunny trails.

Agile developments affect our revenue model by budgeting for the current years activities. Although our total costs remain high, taken from an annual perspective helps to break down the ominous nature of these developments. A release early and release often schedule also benefits the entire community, leading to further focused iterative developments in the short term. I anticipate the only time users will be working without the assistance of developers is in the development of the Preliminary Specification. While the Preliminary Specification is being developed, our development team will be forming, installing the infrastructure and working with Oracle to become familiar with their Fusion Middleware product offerings. Then the two communities will begin to use and develop the systems based on users priorities.

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