Open Source Business Models Redux
I debated again yesterday with a colleague on open source business models. I don't believe there is such a thing. Several well documented models have been articulated and debated (see Matt Aslett, Roberto Galoppini, Carlo Dafarra for excellent cogent examples) but when you get into the discussion it immediately degenerates when you try to assign certain companies to certain models. It degenerates further when you try to invert the discussion to argue that these stylized business models share attributes or can be applied together when discussing example companies. To me it's a useless rat-hole of a discussion.
It confuses audiences into thinking "open source" (or "free software") is different in a business context. Such confusion:
- Slows adoption by customers.
- Causes investors to hesitate.
- Can lead inexperienced start-up executive teams to chase ghosts instead of focusing on the business at hand.
Here's how I tried to articulate the counter-debate yesterday:
- Customers buy solutions. In the immortal words of Theodore Levitt (Harvard Business School), “People don't want to buy a quarter-inch drill. They want a quarter-inch hole!”
- Geoffrey Moore wrote "Crossing the Chasm" in 1991. As well as clearly articulating the Technology Adoption Life-Cycle (that he has evolved over the ensuing ~20 years), it helps people understand that developing a "whole product" offering (the core product and its complements) provides a better solution to customer needs and companies in a market that provide the best whole solution succeed better than their competitors and peers.
- For technology solutions companies, there are a well understood collection of tools that product development management uses to deliver solutions.
- Buy or build complements and include them in the base product.
- Publish interfaces to encourage complement value add in an ecosystem of partners.
- Provide tools and frameworks to ensure partners can easily build complementary products in the ecosystem, providing an even bigger "whole solution" or enabling it to be re-positioned into new markets (i.e. onto new problems).
- Publish tutorials, how-tos, books, etc. to ensure people understand the product solution and can provide complement value add in the ecosystem. And publish here is a very loose word. Consider magazines and conferences and user groups here as well, and how the web helps or supplants each. The web removed enormous friction from this collection of related tools.
- Develop training programs to ensure people understand the product solution.
- Develop certification programs to ensure a good supply of knowledgeable people on the solution.
- Provide consulting services to ensure an immediate supply of knowledgeable people on the solution. Really though it could be other services as well (maintenance, repair, operational, etc.)
- To "buy" vs "build" for complement value add, you can add "borrow" (IBM Websphere and Apache, and Red Hat and RHAS) and "share" (IBM and the original Eclipse project, and Intel and moblin).
- New companies (Red Hat) with lower margin business models (compared to the incumbent) can use F/OSS components to rapidly develop products that either serve new markets or serve the bottom end of an over-served market and then evolve over to or up into an incumbent’s market space. [Classic Christensen economics here.]
- It broadens the base of "users" which opens future customer opportunities and locks out competitors. (JBoss and MySQL used this tool.)
- Companies that participate in communities:
- Can rapidly develop complements to core offerings in their solution network (without necessarily building complete products), e.g. SAP and MaxDB and MySQL
- Can amortize dev/support/maint costs of software components across customers/partners/competitors (e.g. the vendors in the Linux Foundation today are no different than the vendors in the OSF 20 years ago sharing the development costs of OSF/Motif and OSF/1 as royalty free base technology).
- Get to interact directly with like-minded customer prospects in community, influencing customer/partner developers.
- Build brand awareness and trust through transparency of actions.
- Companies that participate deeply in communities better influence those communities (e.g. participate, hire, or acquire).
- Companies developing their own communities increase the opportunity for partners to provide complement value add as well as encourages engagement and commitment through participation and contribution.
- Companies can use F/OSS projects to reduce the cost of sales by allowing users to try and pre-qualify themselves as customers.
- F/OSS projects are an interesting publication strategy against competitors from an IP strategy perspective.
What all of this means is that the ideas need to be turned around. Technology businesses and technology adoption is well understood. We know how to measure successful companies and compare them. We understand the tools those businesses use to engage customers and solve problems. Open source software is a key economic driver from an engineering efficiency and software reuse perspective, but it also opens new opportunities and additional tools for product management to engage better with customers and improve both the top line and the bottom line.
But there is no open source business model.