In terms of a market size the oil and gas producers do not provide a large marketplace for the ERP systems provider. The numbers of oil and gas producers just don’t make up a market of any size in terms of providing the software developer with any pricing or investment leverage. This is contrary to what the producers believe as they think that they are paying high prices for something that is not critical for their operations, but necessary for their corporate needs. And because it has more to do with the firms corporate needs it has to come out of their administrative budgets. Where the prices asked by the software developers appear to be beyond what is reasonable for the producers needs.
This disconnect between the producers and software developers has been going on for as long as there has been software. Many attempts have been made to overcome the difficulties and as we know there are few successes. There are however a significant number of investors who believed that the marketplace for oil and gas ERP systems would be one which provided a good return. Note that I mentioned believed. The belief is legend and the stories are well within the current investment communities memory of why not to invest in the oil and gas ERP marketspace.
What have we seen lately. The fact of the matter is there has been little in terms of innovation in the past twenty or thirty years and there is nothing in terms of ERP software that is coming to market. There is also no support for anything in the marketplace from the producers themselves. The violent response that People, Ideas & Objects has received by the oil and gas bureaucracy reflects that ERP systems are poorly understood. It also shows that this area is not perceived as providing any value to the oil and gas industry.
To the larger point the software investment community is not going to participate in any funding that is not supported by the industry itself. If the industry marketplace is so small when the product is built that they can then treat the software vendor to the fact that they only have the oil and gas industry to sell too. This also has the software investment community running in the other direction. Therefore the funding for any developments has to come as a result of the oil and gas industries own financial resources. There are no free lunches, anymore.
And we have seen with the treatment of People, Ideas & Objects that the bureaucracy is well entrenched. And they are happy with the status quo. And the only threat to their franchise is to have someone establish an alternative to their capabilities with the formation of some software that competes with their ways and means. And they have effectively dealt with that.
Not everyone is so enamoured with the ways and means of the bureaucracy. And that is why I keep moving on with this project. The oil and gas investor community has a vested interest in making sure that the funding of this project goes forward and a competitive system is built. They are the ones that are the most affected by this, and they are the ones that will benefit the most. And that is why we need to have the resources of the industry provided to fund these developments. Its in their best interest and no one else's.
People, Ideas & Objects value proposition is that we provide oil and gas producers with the most profitable means of oil and gas operations. We do this through providing, supporting and defining within the ERP software a business model that enables the producer to be more profitable than any other business model that is available. In comparison to the current corporate business model that is used by the oil and gas producers. We have calculated the opportunity costs for the 2012 calendar year at $94 billion for the North American marketplace. These differences are documented in the Preamble to the Preliminary Specification.
These opportunity costs are the motivation that the oil and gas producers need to fund the development of the Preliminary Specification. The opportunity costs are not available to them in their current corporate business model. To obtain them they must build and operate under the Preliminary Specification. The majority of the gains are as a result of the ability to raise the market prices for natural gas. This is done by the ability to remove the marginal production from the marketplace without the associated losses on operations. A feature of the Preliminary Specification and something that the bureaucracy have proven an inability to deal with.
This value proposition is consistent with the ability of Information Technologies to disintermediate industries. People, Ideas & Objects business model provides a radical ways and means in which to operate the oil and gas industry. Focused on the industry standard Joint Operating Committee it provides the ability to address the issues and opportunities that oil and gas producers face in the 21st century. The Preliminary Specification has been designed to provide the producers with a dynamic, innovative and accountable organization that is also quick. It also removes the bureaucracy from their comfortable position within the industry.
It won’t be by chance that our organizations are able to achieve the attributes described in the Preliminary Specification. Organizations are defined and supported by the software that they use. To achieve a dynamic, innovative and accountable organization, it will need to be defined in the software first. That is one of the facts that we need to learn. People, Ideas & Objects also provides a software development capability that will enable our subscribing producer firms to take the Preliminary Specification and build on those attributes within their organizations.
Whom Are We Building Systems For.
We now 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 / investors 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 / investor? 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 and investors, 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 Preliminary Specification.
When we concern ourselves with the economic 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 / investor 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 / investors. 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. For example the 2012 opportunity costs of $94 billion requires production discipline be imposed throughout the industry.
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 lose power, and who is to gain? And how can it be the business of scientists or computer professionals to take part in a political struggle for power?
We start off with recognition that China is now the world’s number one consumer of energy. That the demand for energy in the next several decades will be insatiable. And the somewhat fixed number of earth scientists and engineers will have substantial business opportunities addressing this world demand. It will be 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 / investors 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 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 / investor 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 specifics of how we provide our guarantee of the most profitable means of oil and gas operations is contained within the Preamble to the Preliminary Specification. The producer firm can specialize within their domain of the earth science and engineering aspects of what an innovative producer requires. The majority of the administrative and accounting functions will be provided through service providers who are focused on the process and are using the industry as their client base. This specialization and division of labor by the service providers and the producers provides the profitable means of operations for the oil and gas producer in comparison to today’s business model. It however also opens many opportunities for the producer to manage their operations in ways that address the issues and opportunities of the 21st century. These were quantified for North American operations at $94 billion in opportunity costs for 2012.
To achieve this specialization and division of labor between these organizations, individuals and within society will not occur spontaneously. If the oil and gas industry wants to achieve the next level of organizational efficiencies, such as what is defined in the Preliminary Specification. It must be defined and supported in the software that is used within the domain of the organizations, individuals and society that benefits from it. We have reached the limits of the gains that can be achieved by spontaneous order. It must be a deliberate act undertaken by the producers to move to the next level. Only then can the economic output of the industry expand for all concerned.
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 / investors, 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.
To start we need to clearly identify the three different groups that are supported by the producer firms. These groups include (1) People, Ideas & Objects, (2) the user communities and (3) the Community of Independent Service Providers (CISP). The need for this financial support is as follows.
People, Ideas & Objects assesses an annual rental on all producers / investors for access to the software applications, software development, cloud computing infrastructure and the user communities involved in the development. These funds are assessed based on an annual rental for each barrel of oil equivalent of the producer / investors. This rental has been set at $1.00 per barrel of oil equivalent for the 2010, 2011, 2012 and 2013 calendar years. Producers with 100,000 barrels per day of production would be assessed $100,000.00 for anyone of those years. In addition, assessments are due and payable by March 31, of each year. Producers / investors are subject to a 300% penalty for any late payments. All producers / investors are required to pay the rentals and penalties from 2010 forward.
Funds are distributed from People, Ideas & Objects to the users groups themselves for their participation in the development of the software. These users are the producers employees or consultants that define and design the systems they and the producers / investors want and need. People, Ideas & Objects are user based software developments.
The third group that receives direct funding from the producers / investors is the Community of Independent Service Providers. This community is engaged by the producers / investors to handle many of their specific systems related needs. Accounting systems integration and training are a few of the areas where the CISP will be used most often. These are also part of the larger group of service providers who handle the administrative and accounting functions of the producers. Funds for these groups are outside of the People, Ideas & Objects Revenue Model.
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.
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 perspective 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; making it more of a project management type of venture.
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 / investors 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 deliverability 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 Preliminary 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 / investor. That producers / investors 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 / investors themselves. The purpose in structuring the hardware in this fashion is to eliminate the producers / investors 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.
We have talked about the risks of becoming blind sleepwalking 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 approach to funding these software developments. It serves no one's interests, People, Ideas & Objects, the Community of Independent Service Providers, Users or Producers / investors to proceed without dealing with this issue. It is best to identify these conflicts and compromising situations now, while the influences are manageable.
Producers / investors are expected to fund the software developments on the basis of their production profile. Rental fees are assessed on all producers / investors starting January 2010. This eliminates the possibility that some producers / investors will pay disproportionate shares of the development costs through early participation. All producers / investors 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 / investor firms.
Financial participation is how the communities are supported and hence able to avoid the trap of becoming blind sleepwalking 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 / investors to focus on their 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 / investors participation in these communities. Producers / investors, 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 environment” in which users are able to define, build and use the software tools they need to do their jobs.
People, Ideas & Objects focus is on its users and the business issues and opportunities that they face in the 21st century. We are not providing “new” technology for technology's sake. With respect to our revenue model, technology has a substantial impact on our product delivery.
Traditional ERP vendors in the oil and gas marketspace have “sold” a solution to the oil and gas producer and then supported the application through an annual service contract. These competitors are selling a product that does not consider changes to the business environment. Contrast that to the People, Ideas & Objects revenue model that is dynamic in that we are focused only on changes in the business environment. It is these changes that are the source of our revenue stream. Without changes to the software, there would be no developments and no fees would be assessed in the current year by People, Ideas & Objects.
It is a fundamentally different point of view. The traditional ERP vendor is constrained by their code and their customers. Any changes to the code needs to be populated to the variety of customers who use their software. Therefore there is resistance to change by the vendor. People, Ideas & Objects uses the cloud computing infrastructure where changes can be populated to the user base quickly and efficiently. We are oriented to the changes in the oil and gas producers business environment. It is these changes that drive our revenue.
Our focus is to provide a software development capability to the oil and gas industry, service providers and service industries. One that enables the industry to make the changes necessary when the business opportunities and issues arise. We believe that proceeding through the 21st century without a team of committed and capable software developers that are working in the core ERP area will seem reckless in a few years.