The Business of Software

After seeing an earlier thread on search engine source code that was sold on eBay, I decided to do the same. I developed this product while I was on sabbatical, helping my wife care for her father after his heart transplant. With two toddlers at home, I can't really assume the risk of relying on a start-up as my sole source of income. Conversely, my bussiness has grown into more than I can handle as a sideline. Consequently, I've decided to take a stable, full-time position and divest myself of my micro-ISV.

Here's a link to the auction:
http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&item=7559501075

At the end of the day, I enjoy building products far more than operating a business, so I think this is a positive move for me. I imagine that some others on this board feel the same. I'll share my experience with this process over the next week-and-a-half while the auction runs. Wish me luck.

Cheers,

Neato.  The notion of selling source code on eBay is ... interesting.

Good luck.  I hope the sale goes well.

Eric,

Thanks for the words of encouragement. It's definitely a bit nerve-wracking at this stage. This is something I've poured a tremendous amount of time and energy into over the last couple of years and putting it up for auciton was a tough decision.

The trickiest part will be to make interested parties aware of the auction. I've placed a couple of ads on 'business for sale' type web sites, but they won't be live for at least a day or two. I'll have to wait and see if they have any impact.

I've actually been consulting for a company in a related segment that has expressed interest in licensing or acquiring my product, but they've been dragging their feet a bit. I can't blame them as they, like most start-ups, have a lot on their plate, but I also can't wait for them.

On another note, I'm going to work for one of your competitors. I've joined Microsoft's Visual Studio Team System group in Durham, NC. I'll be working on work item tracking to start.

Jim,

I checked out all of the demos on your site, and all I can say is wow!  From a user experience perspective, this looks like a well designed product, and it surprises me that you are selling it.

I'm not a C++ guy, so I guess I'll have to settle for just buying a copy of it.  That way years from now I can say "I was using this software when it was still called BrilliantPhoto".

Brett,

Thanks for your comments. At the end of the day, I enjoy building products a whole lot more than I enjoy operating a business. Maybe I'll feel differently in 5 or 10 years. In the meanwhile, I'm going to work on expanding my skill set. Maybe I'll do the startup thing again someday.

I really like the interface of this product.  Great job.

But by selling the source code, you are telling me there is no market for this application.  You are telling us that you don't enjoy running the business side, but if the orders were pouring it, you would probably enjoy running the business a whole lot more.  Maybe you don't enjoy grinding it out for orders?  Hey, I don't blame you, grinding it out is not always a joy!

On your website, you quote some very impressive reviews from impressive sources, yet this hasn't seemed to generate any KA-ching.

My take:  Great piece of software, no market for it.

Is the client using MFC or did you use another framework?

What component toolsets did you use?

If you have a good sales growth history, I'd include that in the bid info.

If you don't include it, prospective bidders assume the above poster was accurate and there's no market for the product. Doesn't matter how well done it is. Matters if it solves a pain/need/want or makes your penis bigger.

Thanks for all the comments. The digital photo market is clearly exploding and it can be challenging to make a dent. I believe that BrilliantPhoto has some great differentiators, but I also believe that, if you wanted to bring some new functionality to market quickly, it could serve as a terrific platform to drastically reduce your time to market.

The application uses a home-grown framework without the bloat of MFC. I made this decision in the interest of keeping the download size down and also to be sure that I could get the user interface to do exactly what I wanted it to do. The main toolset I used was LeadTools Raster Pro toolkit for the low-level graphics functionality. I used Nulsoft's Installer and Microsoft's free layer for Unicode to support Unicode on Windows 9x.

I have provided sales information to prospective buyers that have taken the time to inquire. I have spent very little (less than $300 monthly) on marketing over the last year, so sales have fallen correspondingly. I've taken on multiple consulting engagements over the last year to supplement my income and have spent very little time on Brilliant Labs.

Tough market, especially when Google is giving away Picasa for free.

The interface looks inspired by iPhoto with the same general layout, which is a good design. Program seems solid. I would think this would provide most value to a company like Canon or Olympus to include your software bundled with their digital photos as a 'freebie' with purchase. Probably making the auction run a little bit longer and making sure all those company's have six months in advance to know its going to be sold so they can requisition the money would be a good move. As a wild guess, I would predict it will be bought by a broker who will then sell it to one of those folks for ten times what he paid at auction.

Jim,

Do you have any minimums for your auction?

God forbid if this happens but what if the maximum bid is say around 5,000-10,000$? Will you still sell off the source?

Scott,

Actually, I'd say iPhoto's interface was inspired by BrilliantPhoto. I have to say that I was flattered that they copied many of the ideas in the BrilliantPhoto Browse view. Interestingly, I was recruited by Apple to be the Director of their iLife group just before my last company was acquired by Intuit. I ended up being neck-deep in due diligence and unable to pursue the position. Looks like they kept their eye on me anyway.

JD, I didn't set a minimum on the auciton. In the worst-case scenario, I have the option to end the auction until 12 hours before it is scheduled to end.

Sorry to be a cynic. But you have zero feedback on eBay. No history at all. There is no way I would bid on your source code. How do I even know you are legit?


Joel

Joel,

You may find it hard to believe, but I've never sold a corporate asset on eBay before. Amazing I know. It's not clear to me exactly what you're questioning, perhaps you could clarify. Exactly what type of fraud are you attempting to insinuate I may be perpetrating?

Joel, you can easily do due diligance on him. The product can be downloaded and tested and the legitimacy of the rave reviews in major magazines is easy to confirm, so you know the product exists. As to whether this is the same Jim Lamb who is the owner of the source code, any serious bidder can and should email the contact on the web site and ask if they are the same ones selling it on ebay. Also, I just looked up his phone number and address. You could call him up and talk to him as well. If you are considering paying a fair price for it, say $500,000, spending the $300 on an airplane ticket to Florida to meet him for lunch would probably not be a bad idea either.

Jim, extremely interesting that your work predates iPhoto. It is completely true also that Steve Jobs makes a habit of meeting with people whose software he likes and then stealing their UI and feature set by hiring hacks to replicate it. This is how iTunes came into being, as a clone of Audion. At least he has good taste in interfaces, but he definitely does not play fair.

Seriously though, given your obvious talent in user interface design and your knack for choosing the right feature set, you should be doing something ultra cool if the world is at all fair.

Hm, your top level page rank is 5. That alone is worth a few grand to domain grabbers.

OK, this thing has much better handling of large photo sets than iPhoto does, which gags at just a few thousand photos. It also has smart searching by tags and other features that outclass iPhoto. Even Microsoft would benefit from buying this program and bundling it with Windows in order to compete with iPhoto.

Jim was also once an architect on Symantec Anti-Virus, so he is a top notch developer. (Speaking of products that the developers have a hard time keeping up with.)

Also, he has it set up so he can easily provide branded versions of the software to any companies who want it direct from the site, generating customized versions. That's gotta bring in a lot of revenue for anyone with just a little bit of ability to do some legwork.

Given the closer look, I'm revising my fair price estimate to $1.2 million.

"Exactly what type of fraud are you attempting to insinuate I may be perpetrating?"

Big-ticket items do not sell well if the seller does not have a good reputation on eBay.  People have been burned many times before, and it's hard for them to know that you aren't just another scammer.

Scott,

In the eBay world I would call you a Shill Poster.


Joel

Joel and T. Norman,

I think you're fundamental problem here is that you're equating this auction to any other auciton on eBay. As Eric Sink noted on his blog (see http://software.ericsink.com/), this type of auciton is not comparable to an auction of used celebrity chewing gum.

Anyone who is going to bid on a serious piece of intellectual property is going to do their homework. I've fielded a number of quesitons regarding revenue, expenses, size and structure of the code base, architecture, process, etc. as I would expect of anyone making a serious bid. Since this is an actual working product with real paying customers, it's pretty straightforward to research.

This product represents over 2 years of my time in design, development, maintenance, marketing, sales, etc. The transferable software licenses alone (for third-party libraries used in the development) are worth a few thousand dollars. This isn't diminished simply because I've never sold anything on eBay before.

But the point being made remains valid:

If you want to sell BrilliantPhoto on eBay, then *you* are the alien in a strange land, and the natives are going to look at you funny.

:-)

Eric, point taken. Not to put too fine a point on it, but I don't think the eBay natives will be the serious bidders on this. Looking at the jux2 auction, several of the highest bidders had no pre-existing feedback suggesting that they were relative newcomers to eBay as well. I don't find this at all surprising.

Yeah, that's what's funny here.  You AND your prospective buyers are aliens.  You both show up in your shuttlecraft and do your business, apparently because the natives on planet eBay happen to have a nice piece of real estate for the kind of business you want to do.

The natives look at you funny, and theoretically they are allowed to participate in your business.  But they won't.

When you're done, you get back in your shuttlecraft and leave.  You are probably slightly more likely to visit the planet again.

And the planet is at least a little bit different than it was before you showed up.

eBay does provide a terrific venue for buyers and sellers to find one another. I suspect there are better ways to get noticed by potential buyers, but this does create the bidding situation that anyone would hope for during a sales process.

In some ways, I suppose it's putting the cart before the horse in the sense that a bidding situation is created even before you have serious buyers involved in the process. I would expect a truly serious buyer to attempt an end-run around the bidding process and approach me with an offer directly. We'll see how things evolve.

To the OP:

- How many customers do you have?

- How many PAYING customers?

When purchasing the program, do I also get the list of customers?

Jim, your e-mail info@brilliantlabs.com doesn't work. I tried to write you, but to no avail.

Please make a working e-mail address available.

Thank you.

Dean,

There are 2,800 licensed (paid) users of BrilliantPhoto. And, yes, the sale would include the customer registraiton database as well as the 31,000 email addresses from people who have installed the trial version.

A. Dan,

Info@brilliantlabs.com should now be working. You can also contact me at jim@brilliantlabs.com.

the thing i dont understand is, why sell all your IP if you cna just leave the website running and get the orders that trickle in. if you have developed thing so far ahead, you may as well keep it.

then again if you wanted to get an idea of what the ebay market would appraise it at, then thats a good idea i guess. just be able to pull if you are not happy with the price (obviously)

good luck! you deserve it!
pablo

I have one last thing to say on this.

I have noticed that a considerable number of the bidders that have zero feedback. This can mean one of the following:

1. Jim has signed up with a separate account and is bidding on his own item to jack up the price (I doubt it after researching him and his company..but still could be true)

2. The people bidding on it do not want to have any consequences if they cannot actually pay up.

3. I am just full of it and the world is a rosy place where none of this is occurring.

Joel,

You're omitting a fourth, rather obvious, possibility:

Most people interested in acquiring a software product do not habitually buy/sell goods on eBay.

Jim, my advice is to find an ASP (Association of Shareware Professionals) member and ask him to post in the ASP private newsgroups about this sale.

The private newsgroups are quite active, and the association has over 1000 members, many of which make serious money developing and promoting shareware.

I used to be an ASP member, but haven't renewed my membership (like you I got a job @ a very interesting company and I prefer to focus all my energies on climbing the corporate ladder).

Jim,

Be careful, terminating a listing on eBay early because your not getting the price you expected is against eBay policy, you should have specified a reserve.

http://pages.ebay.com/help/sell/end_early.html

I've been communicating with Jim and he has been very forth right about his business.  I have no doubt that Jim is the "Real Deal"

---dat

Jim,

I was one of the people communicating with you about this auction.  I was very interested in restarting my own shareware business by assuming yours, but I decided to not pursue it specifically because it was on eBay.  I noticed a pattern of repeat bidders with low feedback that scared me off -- it appeared to be "eBay Fever" that I've seen numerous times before on regular hard goods (computer parts, etc.).

I noticed the auction made it up to 10k as of this morning, but right now I see it has ended (early, I believe).

What happened?  Will you disclose your final sale price?  Can you followup here to let us know how the transaction went if you did sell it via eBay?

Thanks,
-Steve

Steve,

I'm waiting on some more serious bidders who, like yourself, didn't want to go through the eBay process. I find this perfectly understandable. I didn't take any of the eBay bids seriously as I would make more money by simply holding on to BrilliantPhoto than I would by selling it at the levels people were bidding at.

Interestingly, many eBay users mistakenly looked at this as a business for sale rather than as an asset sale.

Regards,
Jim

Jim,

This is what I was trying to tell you all along. You go on to eBay without understanding how it works. If you ignore the trust system you are always going to be dissapointed. Yes, I agree that most of the people interested in buying your business will have never used eBay..that does not make this simple fact go away. If you can't trust the bidders, or the party putting up the item for auction, then the whole thing is a waste of time!

I do believe you are the real thing, and I wish you the best. I downloaded your program...and it is a great product. I would hold on to it if I were you and just keep marketing and improving it.

Joel

This is pretty disappointing.  As someone who actually was seriously interested in the sale, I'm a bit miffed about how this was handled.

To recap, Brilliant Photo has pretty much abandoned for the last year and there are numerous (very valid) complaints about the amount of support paying customers have received.  You put the product on eBay, hoping to make some unspecified amount of money off of it, which is reasonable.  However, instead of setting a reserve price (as would have been appropriate), you watch the auction go through 80% of its specified duration, then cancelled it because "the buyers weren't serious".

The problem here is that you seem to be defining "serious" as "bidding close to my own perceived value of a pet project".  So what exactly do you feel it's worth?

Honestly, at this point, I'm completely not interested in the sale any longer.  I was, and wanted to see Brilliant Photo revived, and wanted to commit to providing the support the users deserved, but it went from "important to me" to "shady" in however long it took you to cancel the auction.

Also, based on the events so far, I have a hard time not thinking that "Scott"  is really Jim.

$1.2 million?  For an application in a crowded marketspace, with numerous very free competitors that are probably "good enough" for most people.  That's insane.  Add in the relatively disgruntled users who should be providing word of mouth marketing, and it's gone from insane to... insane.

Also, I really enjoy using "quotes" around various "words".

'Also, based on the events so far, I have a hard time not thinking that "Scott"  is really Jim.'

FWIW:  Information visible only to the moderators would suggest that Scott != Jim.

Ah, thanks.

I've been in contact with Jim over the last few days and it's been interesting.

He has 2,800 paying customers and thus lifetime sales of $2800*27 and my impression is that he is looking for significantly north of that.  It seems difficult to get a valuation greater than or even near lifetime sales given the extreme recent downward trend in sales, the fact that the asset hasn't been invested in for 9+ months thus would require a lot of time & money and the risky nature of its competitive space.

My read on the situation is that he did the eBay auction after the search engine auction went at $100k, hyped it up pretty good via this blog/forum and the Eric's, saw that the market valued his software at price X and freaked out.  The 'serious bidders' who were afraid of eBay were unlikely to pay MORE than an eBay auction would; otherwise they wouldn't be afraid of eBay.  The logic there seems spurious.  And this guy "http://www.photoactions.com/awebpro/" bid on it.  One would think he was pretty serious.

The thing that I, and the people with whom I bid, were grappling with after the auction ended is whether it was even worth it to contact him; would you want to be in a position to transact tens of thousands of dollars with someone who had the lack of integrity to publically advertise a no reserve auction and then cancel it?  Would he just bait & switch you again or misrepresent himself and bids further? I pushed on because I thought there was transparency with respect to the actual product.

It was an interesting auction and hopefully Jim gets a good chunk of money as that would be good for all other microISV's.

William,

I find it interesting that someone who would disclose the substance of confidential correspondence on a public forum (including sales figures) would question the integrity of my decision to end an eBay auction. This sure sounds like "sour grapes" to me.

I am fairly new to the 'business of software' and I was pretty interested in the result of this auction.

Alas though that it has been cancelled.

But just out of curiosity can any of the more 'experienced' fellows give a sort of rough estimate of how much would a software like this actually sell for?

I think this is pretty lame - you take a risk when you try to sell something no-reserve on eBay (and you enter into a contract, as well).  Obviously ~$10,000 is not what Jim had in mind - he was probably hoping for the same outcome as the jux2 auction, if not better.

I wonder if the highest bidder at the time the auction was ended could sue BrilliantLabs for breach of contract.

Like David Torres said, there are only specific instances when you should end an auction early - and not getting the kinds of bids you want on a no reserve auction is not one of them.

http://labs.patchadvisor.com/blogs/bryan

Everything in my post was in the public domain.  Cost of your product $27.  Number of 2,800 paying customers.  Additionally, you didn't give me any info in our emails.

Good luck with your asset sale, Jim.

"But just out of curiosity can any of the more 'experienced' fellows give a sort of rough estimate of how much would a software like this actually sell for?"

Assuming you can find a customer who wants into that market in particular, a fair value would be US $50,000-$75,000 based on a couple methods of valuation. 
The first being the cost to recreate something like. Going by the number of features I'd guess it's around six man-months with testing and fixes. There doesn't seem to be any particular "domain knowledge" or proprietary algorithms (e.g. the "red eye reduction" just looks like laying over black circles or maybe with some alpha blending, and the rest obtainable in standard libraries or controls) so a competent software engineer should be all that's needed, for a direct labor cost of $40,000 - 50,000 if done in the West.

The other method of valuation is as a business. Not knowing the month-by-month breakdown and sales trends, if you just assume they'll continue at the current rate of $100,000 over two years that would be mean a net of around $45-50K a year. Typically a small business in the U.S. will sell for a little over its annual net assuming full-time owner participation (e.g. $60K for $45K net), but with only quarter- or half-time participation needed you can get more (2-4X, maybe $100-200K).

However, net-based software sales usually peak then taper  although to a steady level. You'd have to see the trends to see how much it's tapered and if it's level, but it's definitely not linear so it's highly doubtful he's netting $50K right now, so assuming $25K especially if he hasn't been advertising recently or updating the software, which would point to a $50-100K value based on the above.

So that's how I come up with $50-75K. Looking at the bid history he did have a $25K bid from someone with a history, so it's dangerous that he cancelled it because they could probably sue. Oh well!

"Typically a small business in the U.S. will sell for a little over its annual net assuming full-time owner participation (e.g. $60K for $45K net), but with only quarter- or half-time participation needed you can get more (2-4X, maybe $100-200K).

However, net-based software sales usually peak then taper  although to a steady level. You'd have to see the trends to see how much it's tapered and if it's level, but it's definitely not linear so it's highly doubtful he's netting $50K right now, so assuming $25K especially if he hasn't been advertising recently or updating the software, which would point to a $50-100K value based on the above.

So that's how I come up with $50-75K."

I believe BrilliantPhoto's "net" (I assume you mean gross profit, e.g. revenue - expenses) is a fraction of what you think it is and that isn't counting labor as an expense.  I don't know the hard number for his trailing 12 months gross profit though.  And your valuation is assuming sales are level.

Bill,
  Excellent analysis! I think if Jim Lamb had done a realistic analysis along those lines, he may not have listed it. He probably was hoping for a much higher valuation.

Sidney