Open source = market development

Generally, when a company wants to open a new market it needs to spend months to years dumping money into it to stoke demand.

MySQL and other open-source companies do market development a little differently. They dump software to seed a market. Lots of software.

Sun executive and former MySQL CEO Marten Mickos discusses this in a recent article with Computer Business Review:

I would say the ratio [between raw downloads and installations] is between one in one hundred and one in one thousand. If you look at averages you get useless information, because we might get 10 million downloads in China and we know almost none of them will pay anything in the near future. In the web 2.0 space, most will pay. In countries with a high GDP, many will pay, and in those with a low economy absolutely nobody will pay today.

The old model would have had MySQL spending money on sales and business development teams in these emerging markets, trying to figure out when and how to scale teams there. In open source, the customers download the software and tell you when they're ready to buy.

More efficient. More productive. More intelligent. And it's not just a matter of emerging markets. It's also a matter of emerging customers. Mickos goes on to say:

In open source we say fail fast, scale fast. Many web 2.0 ideas will fail, but when Google or Facebook [two of MySQL's biggest customers] get it right they suddenly need to scale like crazy. Open source is the only model where they can scale fast on exactly the same code base; it's the same product. All of the [commercial] database players have free versions, but when you need to scale you need a slightly different version [of the database].

Customers tell you when they're ready to buy more (support or other services around the software). You don't have to spend the same amount of time trying to convince them to deploy the software to get the value of Feature X. They already have the software. They already know.

It is such a simple model, and so effective. The only thing preventing more software vendors from changing to the model is years spent cheating customers on an anomalous 20th-century proprietary model. That model is dead: just look at what VCs are funding. The dinosaurs of the proprietary world will be with us for many years to come, but the new companies being born are open-source and SaaS (software as a service). That is the future.

[troubpk]

Matt,
Excellent post. I would add this new product distribution model is works effectively because access to the source code allows localization. Another factor is the massive 'partner' ecosystem which gets developed. MySQL has done a great job in building this ecosystem and, like customers, some partners generate demand and revenue.

[Briansdg]

I definitely concur with the article and the above post. The last paragraph of the article couldn?t be truer and will prove to be completely prophetic.

[douglasdooley]

Apologies for another seemingly anti-OSS post, but the reason MySQL was bought is directly tied to their need for more sales and business development resources. Marketing is still needed. Reference architectures, Non-commission system engineers, proof-of-concept centers, and pre-built solutions are all needed.

This whole thesis that if you build it, they will arrive is not true. It is true for a few projects on a massive scale, and most others on a small scale, but the true OSS winners will be business execution teams, that manage the technology at all levels of the value chain. Business has not changed, pricing has.

This is the 2nd post in 2 days that promotes the theory that OSS has it won, and that "proprietary" apps and companies are left to maintain their base, but not to compete. I think this is mis-guided, for there is nothing guaranteed about JBoss, MySQL, and Alfresco's assault on these types of companies, just because they have OSS licenses.

Huge amounts of investment are needed in the business side of managing innovation, and having a rock-star CEO is not enough. All of the things that OSS companies need to do can be encapsulated in the theory of competitive advantage, where pricing is but 1 component. Much, much more is needed for JBoss, MySQL, and Alfresco to knock off the incumbents, and simply following the trend is not enough.

Matt, again, I understand the purpose of your blog, and I appreciate it, read it, and look to it for some of the best info. on the software biz. But it would be naive to think that a certain trajectory assures victory. Would not the same have been said about the trajectory following the advent of the Internet, and be used to argue for Netscape's impending dominance.

Great people from Netscape and great product strategy could not overcome all factors, and it fell. Glassfish, LDAP, and JavaScript, notwithstanding, nothing is left of their efforts. All good, but only a certain measure of success for something that may have once seemed so inevitable.

[jkunz001]

@douglasdooley no need to apologize as there is nothing anti about your post. The fact is that oss companies are waking up to the reality that you can't get away from business 101. While the community effects are real and valuable, they are insufficient to scale. I think you hit the nail right on the head. Well done.