Building a business selling open-source software

While TechDirt experiments with optimal configurations of digital media business models, Rob Walling has unwittingly landed on a sure-fire way to build billion-dollar open-source companies.

I say "unwittingly" because Walling's post is all about "How to Compete Against Open Source Competition." In the process, he does a fair job of describing how to build an exceptional open-source business.

Walling starts with a reprise of a classic Marten Mickos quote: "open-source software is free if your time is worth nothing." It's pithy and somewhat true, but it's not as rich as Mickos' commentary, which points to an opportunity in Walling's accusation.

Mickos said:

There are two types of people, those who will spend money to save time, and those who will spend time to save money. Striking a balance is important for any open-source company getting into one of the new markets now emerging on line.

With this in mind, Walling deprecates open source for failing to make software easy and intuitive for its users. While this may be true of community-led open source, it's emphatically not true of commercial open source, which has arisen to fill the functional and procedural gaps Wallings points to as ways to beat open source.

In fact, Walling's suggestions for proprietary competitors to open-source projects turn out to be great advice for commercial open-source projects, too:

1. Save your users' time. Ensure a painless installation process, top notch documentation, top notch support, and a minimal learning curve for getting started using your application.
2. Market hard. You have a marketing budget; odds are high your open source competitor does not. If you can position your product well and build a reputation for good documentation, support and usability, you will sell software.
3. Focus on features for your demographic. Your open-source competitor is going to win when it comes to college students, hobbyists, and other groups where time is worth a lot less than licensing cost. You will have an edge with business users since time is highly monetized for entrepreneurs and enterprises. Build features for people who are likely to buy your product.

Again, great advice, but unfortunately for Walling's thesis, there's already a breed of company that is actively following this advice, and it's the commercial open-source projects like JBoss, MindTouch, Openbravo, Pentaho, etc., as well as foundation-led efforts like Eclipse and Mozilla. Such organizations already know how to add the polish, documentation, and features that an organic community may lack.

Just look at how Acquia has boomed as it complements the Drupal community: 200 new customers in the past six months alone, including The Economist, Intuit, Sony Music, Adobe, and more.

Beyond this, and unfortunately for Walling, open-source products also have something that virtually every proprietary product will never have: free distribution and the flexibility and security that comes from source-code access.

In other words, provided that open-source companies can fill the revenue hole with premium features or some other value-added service that compels payment, then the other advantages of open source trump that of proprietary products.

Follow me on Twitter @mjasay.

[emcconne]

Whether commercial or open source there are lots of ways to go wrong when trying to grow your distribution. Lots! Acquia, MindTouch, and all the others you listed are doing more than just a couple of things right. I tried to document some of what I thought they'd done right at http://www.mindby.com/2009/7/How-To-Attract-and-Keep-Users.

[alegr]

So how many open source companies have over a billion $ value?

[pentest]

How many proprietary companies have "over a billion $ value?" As if that proves anything. The smaller companies, whether OSS or not tend to do the bulk of the actual innovative work. The behemoths just plod along buying and copying what they can, as a whole they don't really contribute anything of substance. A small 10 person shop can get rich doing quality work, without because billion dollar businesses. Most people don't get into development with money as the prime motivator.

That said, IBM does a lot of OSS business, as does Sun, well Oracle now I guess. Novell, perhaps Red Hat.

[lefty.crupps]

> Whether commercial or open source
These two are not exclusive of one another. Open Source is a development model; Commercial means it can be sold. Even Free Software (a licensing model) is still commercial.

Proprietary is the opposite of Free Software, which often overlaps with Open Source but not always.

Businesses are migrating to open source despite some of the issues Mickos raises. Open Source commercial products are still in their adolescence but will soon be on par with their proprietary competitors. In the future, the distinguishing factor will be the development and distribution models and less about quality issues, deep pocket marketing, and documentation.