Monday, March 24, 2008

The (open source) business model

These are the days of OSBC in San Francisco. A conference that is still quite valid and interesting, despite open source being now everywhere. My hope is that we are done with talking about licenses (enough, we have GPL and AGPL v3, that's all we need) and we'll focus on business models. Here, I am not sure we are done.

I have been thinking a lot about it lately (maybe because I was on a beach on vacation...) and I came to the conclusion that, eventually, there will be one prevalent business model around open source. I am not talking 2009, maybe 2015.

I have never been a fan of business plans based on support or consulting or professional services. They do not scale. Good to make a living (a very respectable thing, do not get me wrong), not to build a billion dollar company. Licensing it the answer for hyper-growth.

Now, with the world moving towards Software as a Service (SaaS), and everything being fed through the Net, how do you make it all work?

First, you need open source. There is no question about it.

Second, you need a market for your open source product. Where you will not make money. But that will give you all the benefits of a big community. That market - in my opinion - is the enterprise. Not every enterprise, those companies that value the source code in open source. That want to touch it. Those that want to deploy open source in house. To them, you give your software for free. You do not make money. It is your community. You do not upsell to them.

Third, If someone is hosting your software, they pay. You "license" the code to them. The end user might still be an enterprise, who has pushed that application in outsourcing. That is, enterprise that use SaaS software pay for it, even if it is originally open source. They won't see the code or touch it, but they do not want to do it. That's why they chose outsourcing. You can be the hoster or you can sell to hosters (your call).

Fourth, If the end user does not want to pay, you subsidize the price with advertising. The SaaS offering will be free, but you will make money anyway.

That's it. Simple as it goes.

Who is doing it? Well, Funambol is... That was too easy :-)

What about SugarCRM? They are close to this model. They have Sugar On-Demand. They could change the license, dump all the features in the community edition for deployments within the enterprise, and focus entirely on their hosting business. Maybe they will, one day... I would be curious to check with John how the revenue split is today and what the trend is (I might actually do it tomorrow on the boat ;-)

What about others, non-open source company? How different is Google from hosted open source with advertising? Should they just open source the code they have built so that people could deploy it in house, protecting it with AGPL? Why not? What about Why not do the same? Why protecting your code if you can defend it from competitors and get the advance of having a community working with you?

I am really curious to see how this will play out. And to listen to what people say at OSBC. BTW, I am speaking there at 2 pm on Wednesday, the panel is "Out of the Server, Into the Network" chaired by the mythical Larry Augustin. If you are around, give me a holler.