BASECAMP – 37Signals & RoR one of Web 2.0’s Best Start-up Businesses
On average, about half of my client projects in web development over the last year have used Basecamp® for remote-hosted project management of globally distributed teams. Relatively simple in scope and application, Basecamp® provides a secure web environment for centrally managing the communication, task scheduling, and document sharing requirements of IT development projects online.
For a look at the site, interface, features, etc. of Basecamp®, visit BaseCampHQ.com
If you work with CMS software, you will quickly be deconstructing the site and thinking how you could easily rebuild it with a forum, comment section, calendar, etc. That in itself is the main part of the story of Basecamp®. The web design firm who built the site, 37 Signals, launched it in 2004 – right at the time when a huge turnover and change in web development was occurring. In a sense, they capitalized upon the CMS and the outsourcing trends at a time of perfect conjunction with Web 2.0 economic expansion – and Basecamp® became one of the web’s biggest success stories and hottest properties. But Basecamp® also influenced the development of other CMS platforms, helping them evolve into the form we know now. In the process, they also gave birth to the open source web framework Ruby on Rails.
Thus, if tracing the evolutionary lineages of CMS software backwards to the “game changing” and decisive moments of industry beginnings, the launch & expansion of Basecamp® and Ruby on Rails are really important. Even more so is the huge client and user base that 37 Signals generated with the site. Taking a look at their “buzz” page, you can see a long list of corporate clients (http://www.basecamphq.com/buzz) and featured articles in almost every mainstream media business publication.
The traffic statistics for Basecamp® are less important than the amount of market share they have in the outsourcing and corporate project management sectors. According to Alexa, the site only ranks at around 33,000 for total internet traffic on average over the last 3 months, but spiked this week to rank around 8,000 globally. Nearly 46% of the users are from the USA and 12% from India, confirming the outsourcing trend. But considering over 90% of Basecamp users are likely developers and programmers, clients and managers, and that demographic represents less than 5% of all web users, the company has massive saturation in an essential market.
In fact, Basecamp® is becoming so ubiquitous that its name has become like Gmail, mySpace, or Facebook – widely recognized and understood, pointing to and referencing its own services. Combined with its directorship of the Ruby on Rails project, the privately held 37 Signals is looking at a huge valuation and possible takeover bid. For example, in this blog post from 2006 voodoo ventures (http://www.voodooventures.com/2006/11/27/basecamp-vs-dropsend-valuation-smackdown/) estimates the value of the company at $48 million. More recently, altgate predicts Microsoft will buy 37Signals this year at a price between $80 million (10x projected income of $8 million annually) and $300 million (hot web real estate price).
“37signals has several other products, but Basecamp accounts for about 60% of their projected $8 million in 2008 revenue. By the way, my friend Jed Christensen has a killer blog post on 37signal’s financials where he walks you through how he reverse engineered their numbers. If Jed’s numbers are right, 37signals is a cash machine (with only 12 employees and annual costs of $2 million before taxes and $6 million of EBITDA). A company that produces those kinds of numbers is certainly going to attract M&A attention even in a depressed market.”
“37signals also has a great business model. They’re considered the ‘gold standard’ for the freemium model where you give away basic service and charge for enhanced features. Their free trial and $24 per month basic service level make it very enticing to try out. This is exactly what’s killing Microsoft Project specifically and Microsoft’s application business generally. The low price also keeps them from getting the axe when budget cuts come.”
“Finally, the good folks at 37signals are true visionaries and not just on the technology or business front but in terms of building great organizations too. I haven’t met founder Jason Fried but reading interviews and stories about him, he’s clearly the real deal. And they didn’t just create a great company they also spun off their technology into an open source framework (Ruby on Rails) and refined a new form of development termed ‘Getting Real.’ Think about that for a minute. Here’s a company that is doing amazing things and they also had the time to create the dominant web 2.0 development framework and write a book. Yes, they’re a small team, but that too is a testament to their talent.”
(http://www.altgate.com/blog/2008/12/microsoft-buys-37signals-for-200-million.html)
According to Wikipedia1:
37signals promotes an internally-developed Agile software development methodology and philosophy called ‘Getting Real’. Getting Real eschews formal programming methodology and focuses on creating useful alpha software with small teams, then iterating to a simple useful application based, in part, on real-world customer feedback. The company initially expanded without venture capital and advocated the ’self-funded startup’ approach, although it has since taken investment from Jeff Bezos.
37signals has held seminars about their methods in Chicago and other U.S. cities. The philosophy recommends online advertising (particularly via blogs) rather than standard methods. The company uses Apple computers exclusively and has said it would ‘never hire someone who doesn’t use a Mac’.
Since 37Signals clearly has an anti-Microsoft bias, I disagree with altgate’s prediction of a Microsoft takeover, but do think that as the company has already taken investment from Amazon, there may be a chance of a takeover coming from that direction. Clearly Basecamp® is established with huge popularity and adoption across the Fortune 5,000 companies, and is a perfect match to the scaled use model of the Amazon cloud. The BasecampHQ homepage is featuring a Safari screenshot, and the popularity of Basecamp in the developer community makes it attractive to a company like Apple that pride’s itself on being the preferred choice of design professionals. Apple also has a close relationship with Ruby on Rails development and may find ownership of a popular, fast-growing, open source web framework like RoR attractive.
Oracle’s Telepresence seems to challenge Basecamp® indirectly by offering a more expansive option of video-phone communications. Since Basecamp® already has add-on features that include chat and time tracking applications, it is possible that the company will introduce this as another paid option for Basecamp® subscribers at sometime in the future, creating another profitable revenue stream. I think Basecamp® has hit a key point of new market creation, establishment, and dominance and will be bought up this year from some direction, but the site will continue to become more popular with clients and developers for managing outsourced, international web and software development projects.
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Basecamp is however getting so many competitors now… that might be a big detriment to their business. What say?
Ravy – I noticed last year that a lot of the start-ups promoting at seminars were pitching new versions of project management and online collaboration suites for development teams – it is undoubtedly a big market and constantly innovating. But, there are so many social networking sites, are you worried they will be a big detriment to Facebook? After a certain point, a company emerges and defines a market – I think that is what Basecamp has done recently.
Basecamp is arguably the best web based project management system out there, but that won’t stop someone else developing a better one, or marketing one better, and eating into 37signals’ market share. However, I think what will keep 37signals at the top of the game is their dedication to innovation and adding to their suite of applications. If they keep listening to users, and pre-empting demands by coming up with great solutions that all integrate together, then their package as a whole will continue to lead the field.
I agree with Joseph, and would like to add that I think 37signals has also hit what I call “critical mass”. Basically, they have enough market share to be a big player. This draws the attention of other companies, who develop their products to work with basecamp. That’s some serious added value for customers, and 37 signals just has to maintain a functional API.
Maybe 37 Signals has the greatest market share at this point, but I must agree with Joseph that it won’t stop others to develop even better software.
Actually, I am convinced that there is better software for project management than Basecamp, but Basecamp are on the market for so long and people simply know them and trust them and won’t “experiment” with others.
I’d definitely like to see it! Maybe a list of good options. The problem is that once you have been using a solution for a while, it’s a REAL pain to switch. You need to retrain people, migrate all the existing data PLUS months or years worth of older data (if you want historical records). Re-create documentation, etc. Something would need to be a LOT better. For now, I’m not in too deep, but in 6 months that won’t be the case anymore!
Looking at start-ups launched at the Web 2.0 conference last year, there were a lot of new project management and online collaboration sites targeted at software / web development groups. oDesk also has a great site, but as mentioned, many of my freelance clients request Basecamp or already have their own Basecamp environment for managing multiple projects like Aaron. I think a nice business model is to combine the two – the networking, freelance, and outsourcing of oDesk (around $130 million in sales,, 10% commission) with the project management tools of Basecamp. Or alternatively, could Basecamp generate similar traffic to oDesk or eLance if they operated an outsourcing / freelance board on their site? What if they added careers, recruiting, and job posts? Another big market. If everything is scalabale on cloud models, you have the opportunity for cloud apps markets like the iPhone store on the same domain. Maybe simplicity is Basecamp’s key to success and all of the extra functions and site sections would dilute their main offerings, but my estimate is there is a lot of potential to expand after achieving the market share & brand identity that Basecamp has currently.
It looks like activeCollab is an option, but it costs $200-400, you need to host it yourself, and it costs $100-200/yr for support. It’s definitely less expensive, and I like the idea of hosting it myself, but at the same time I like not ever having to worry about Basecamp. I think I might try out the demos though and see.
“Unfuddle, a project management solution for software development, is now using Amazon EC2 and S3 for virtually 100% of its infrastructure, including web and database servers. Unfuddle makes extensive use of EBS volumes and snapshots which has completely transformed their backup process. Read the full story.”
http://aws.amazon.com/solutions/case-studies/unfuddle/
http://developer.amazonwebservices.com/connect/entry.jspa?externalID=2331
This website, (although I’m not a big fac of the name) lists a lot of basecamp spinofs and alternatives, might be worth a visit:
http://www.whybasecampsux.org/
I think this article is a guide for beginners in real estate business.