The discussion has wandered around a few blogs now, and I wanted a place to round it all up. The thread so far:
- We began with Matt Asay raising concerns about the downside of open source business models being freeloaders and leakage.
- I argued back that your community is your strength — that they aren't freeloaders. There are good comments following the post from Matt, myself, Ken Mulcahy (Virtuas), and Russ Danner. (Eric Albert was another Rotor team member who escaped to Apple to have fun again.)
- Matt pulled back over to his blog for his response to a mutual friend's pricing advice, and followed up with commentary on SugarCRM's model from a discussion with John Roberts (SugarCRM CEO).
- Larry Augustin expanded on his pricing advice on his blog, and Matt responded shortly after.
There's a lot of good discussion here. If I've followed it all correctly, I'll bring out the next set of questions and comments for Matt (but obviously anyone is welcome to comment):
- From Matt: "The difficulty for Alfresco has been that we have quickly been pulled into large, Fortune 500 accounts. It's a good problem, but I readily admit that it can be a problem." So it would seem people ARE paying for Alfresco. And these are big deals in Fortune 500 companies — so you CAN drive revenue while you otherwise focus on the community. That's GREAT! Cross the chasm on the bridge of these customers. (I wish I'd had this problem in Softway with Interix.)
- From Matt: "It's hard to set revenue expectations to zero when customers want to pay for it today. Alfresco isn't alone in this. Mule, the leading open source ESB/EAI platform, is being used in big installations today, as is Xen (XenSource). I think it would be hard to tell Peter Levine (XenSource) and the Mule people to turn that cash down." I don't think Larry suggested you don't take the money. He suggested that the expectations be set that there wouldn't be revenue. Huge difference.
- From Matt: "I don't know any VCs that are patient enough to wait the 5-10 years for
a JBoss, Red Hat, or MySQL to develop."
It's always tricky figuring out when to take the money, at what valuation, with what expectation set. (Red Hat started in '95, took the first round in early '98, and went public in the Summer of '99.) So your investors need to not tinker, and allow you to best deliver to your customers and engage with your community, whom you presumably know better than they do.
I don't agree with Matt that there's more than one business model. (There are very few business models in total — open source or otherwise.) But there are a myriad of problems customers want solved, and for every complex problem, there are multiple ways to solve it. And I push WAY out of the box on this. A customer wants to buy a solution. Taking a vendor centric view that the solution is exactly the software in the box, and therefore the value to the customer must directly align with the value the vendor created building the software (plus leverage/margin) limits thinking in this space way too much.
Moore (Geoff not Gordon) demonstrated in Crossing the Chasm that the vendor with the best perceived "whole solution" wins the business, so the core revenue stream and all its complements. Open source software and the communities that develop and use it provide a wealth of opportunities to develop complement value and pull through around such core offerings.
MySQL seems to be solving problems for three different groups of customers in three different ways around the software base that is the relational database engine. How many other ways can Alfresco be applied to what other document management problems, other than a support and maintenance revenue stream from large enterprise? How many other ways can you engage a community (or different communities) to develop and support the Alfresco code base(s) for the solution of those problems?
People will always pay for a solution they value, regardless of form. I still happily pay for software. Just the other day, I paid my US$25 for early access to the latest alpha version of NeoOffice/J so I could run the Mac-based ODF enabled version of OpenOffice instead of the X11-based version. As r0ml pointed out: information doesn't want to be free -- but it does want to be timely, and I'm willing to pay for that timeliness.
I love this picture. A manager at a previous employer put it up to show how creative the mouse was at solving the problem. Some of us were a bit more cynical and pointed out that the mouse was indeed, still in the box.
Very constructive and interesting discussion. I agree with your conclusions but I must admit that Matt has made some points.
I would like to add just one more idea to the discussion. As you pointed out, when defining our business model we need to have in mind what customer's problem/s are we trying to solve. This seems evident but many companies do not even think about it. Too often businesses are based on selling licences, without much worry on the rest of the needed services. The value is not in the product but in the guarantee to be backing your customers with the problems that will arise. For example, try to sell a (closed source) product whose manufacturer has disappeared: you won't find a buyer because the product by itself is worth nothing.
Posted by: Ignacio Correas | 06 June 2006 at 08:06