OpenX's strategy to 'leapfrog' the competition

I've written before about one of my favorite open-source companies, ad-server company OpenX. However, since I first covered the company, a lot has happened, all seemingly positive.

For one thing, OpenX now tops 300 billion ad impressions per month, 150,000 publishers, and 2,500 paid customers using its hosted offering. This impressive growth, however, belies a big challenge for OpenX:

Next comes the more difficult process of converting the free products and services into revenue-generating operations. The vast majority of the ads served by the installed software were from freely downloaded versions, and few of those using the hosted service are premium customers.

In effort to better understand how OpenX plans to address this opportunity (or problem), I called company founder Scott Switzer on Thursday to get the scoop.

Much of what OpenX is planning is currently not yet public information, so we'll have to wait until January to give a more detailed explanation. Let's just say that a fair amount involves the nascent OpenX Market, currently in alpha, as well as an e-commerce play, which probably counts as pre-alpha. TechCrunch has hinted at the importance of OpenX Market, essentially a place for advertisers and publishers to congregate and do business.

According to OpenX:

OpenX Market is the latest service from OpenX. The Market is a place where publishers can easily make their advertising space available to large numbers of buyers (including ad networks and agencies). Those buyers get the opportunity to bid for each impression, with the highest bidder displaying their ad, if their bid beats a floor price set by the publisher.

It's not hard to connect the dots and see OpenX taking some percentage of the business generated on its Market. But for the Market to be interesting, OpenX needs to continue to drive adoption of its platform, something Switzer pointed out that its open application programming interface and six months of efforts to make it highly extensible, Mozilla Firefox-style, could help do:

We've spent a lot of time over the last six months, developing two major things. One is a full-blown API to give "developers a way to control the ad server so they can automate common tasks, and integrate with other applications in a stable and reliable way."

The more interesting thing is a full-blown plug-in framework. Almost a year ago, our road map was pages and pages long, but we decided that instead of being the only company to develop new OpenX features, we'd spend the majority of our time building infrastructure to open up the OpenX framework to let others build it out.

OpenX traditionally has been the "light" version of a "real" ad server. But what this does is that it helps us to leapfrog bigger, better-financed competitors, in terms of features and functionality that we can offer, similar to how Firefox competes with Internet Explorer. Within a year, Firefox was able to eclipse IE in terms of functionality, much of that due to its community.

This move puts control of the OpenX road map back in the hands of our publisher community. This means no lock-in, but lots of network effects that drive benefit for us and for our customers. We want to ensure we have a platform that manages the needs of all publishers, not simply the big (or little) publishers. We want "our" platform to be a true community platform.

This might sound like wishful thinking, but OpenX is already well down this road, as its developer wiki demonstrates. Over 100 plug-ins have already been built for OpenX. Historically, developers have hacked together extensions to OpenX, but in the new version of OpenX the company has rebuilt these plug-ins to make them easily installed and upgraded.

OpenX got to 300 billion ad impressions per month through open source and a low price tag (i.e., "free"). But it's going to get to 3 trillion ad impressions by enabling publishers to claim control of the OpenX ad-serving platform, then monetizing all that interest with a marketplace that brings together high-quality publishers with high-quality advertisers (or buyers).

OpenX is taking on big incumbents like Google with a model that looks like it just might work. Why? Because OpenX isn't trying to do it alone. It's enlisting the publishers on the OpenX team, treating them as partners to help augment value rather than as customers from which to extract value.

That sounds like a winning strategy to me.