Comments on: No more free lunch for the Web or open source

Open source needs to find ways to charge for its software. Like the Web, "free" can no longer be the driving strategy.

[vikinzer]

What I find amazing is that we are having to learn this whole "advertisement" lesson again because no one has bothered until very recently to attempt to model web advertising off of the previously successful advertising businesses. Video needs video ads, audio needs audio ads, and open source needs something completely different.

The concept of selling "solutions" is really just taking support to a higher level. It is the level it needs to be taken to. As an example on the very low end I do volunteer work for a local radio station and the workers union I am a member of. I deployed Drupal at the workers union. I configured Drupal to make use of SSL, and made several custom content types using CCK. Drupal on it's own does not provide the functionality I have worked into their deployment. While anyone can use the functionality now they needed someone with my expertise to create the solution for them from the open source software. This is a VERY basic low level example of the type of value that can be charged for. Once it's setup and configured I am not needed nearly as much. Companies need to offer services to create these solutions both on the low end for small companies/organizations and on the high end with much more complex software stacks. They could provide solutions to organizations that would not normally be able to afford having solutions programmed for them from the ground up, and they could have a full revenue stream. I just with there were more companies out there doing this so the larger shops have some purchasing prospects.

[J H F]

Am I missing something? What is Red Hat doing that would be a change to it's business model? It provides it's proprietary Red Hat software for sale to earn profit and produces it's free open source version to meet it's obligations to the community, just as Alfresco does through it's parent company Adobe. Are they going to change that? What is going on, I don't get enough information from this to know. Yes, Sun is having problems but that is not new. They created Java but can't for the life of them figure out what to do with it. They have moved to open source because they can't make it with their proprietary business. How does what you say effect Mozilla or does it? I am left with so many questions.

Sorry Matt, but I have to disagree (what's with this week? I disagree with everyone?)
RedHat is one of the examples of the exemplar "open source" company; they have very little software unreleased (and it's mainly because it is just acquired, and still not vetted for release). CentOS is a testament to this, as Jboss and countless other tools, including their SpaceWalk satellite system. And it seems to be doing just fine even in a difficult economic situation, having still a reasonable profit and expansion in a moment that is usually considered not easy.
You want a McKesson peer? Look at Dossia, a conglomerate of large employees like AT&T, Applied Materials, BP America, Inc., Cardinal Health, Intel Corporation, Pitney Bowes, sanofi-aventis and Wal-Mart; they are using the open source Indivo Health software to power their own health care systems.
As for the Economist article, it focuses on advertising as the only source of income; and I can not found any significant OSS system that uses THAT as a business model (and I would advise against it. And no, Mozilla doesn't count, as the home page setting is not advertising, is sharing service revenues.)
I know for sure that services are not scalable at the low level (but can have exemplar results at large scale, see Accenture, IBM global services, KPMG, and so on); that support can be difficult to monetize, and that there are lots of difficulties- like any business model. "But that's the hitch. There must be some commercial value that a customer can't get (easily) anywhere else to drive open-source monetization". Of course! Companies are starting to discover that you should get something for the money you pay them. To imply that Open source cannot deliver it as it is doing now, well, it's an assertion without proof.

[EveningStarNM]

What vikinzer and the article's author fail to recognize is that if they charged for many services that are now free then the consumers of those services would choose to do without them. And while Matt Asay might not be able to comprehend a business model which incorporates "free" open source hardware and software, others obviously can. All industries, including the advertising industry, will have to find business models which actually add value rather than simply claim to add value or add psuedo-value which turns out to be superfluous. As consumers become more sophisticated, and as they learn to avoid more advertising, they find it easier to find superior products rather than accept what they've been force-fed for so long. Those superior products include open source products.

The benefits provided by open source, the most important of which might be security, are so good that it pays to invest in it even if there's no up-front payoff. And the open source model won't be replaced by people who are trapped in old-model thinking. I suggest starting by providing decent customer service -- service that actually makes people happy. The times, they are a-changing.

[BtmnHatesRbn]

Wait...the Web isn't free? And charge for open source? Somebody hasn't watched the Shareware episode of Computer Chronicles made over 25 years ago.

[BrucePerens]

You're half right. Commercial Open Source businesses need to have some sort of value you can't get anywhere else to monetize themselves. Linux, Eclipse, Apache, and a long list of others don't run under this paradigm at all. They are driven by cost-center dollars, not the profit centers of commercial Open Source businesses. They are just fine without the Billion-dollar Open Source businesses, because they are already operated by Billion-dollars worth of non-Open-Source business.

Aren't you harping on the "people must pay for stuff" theme every day or two? It's only applicable to the little corner of commercial Open Source within the much bigger universe of Open Source. If all those businesses got hit by a bus (which might well happen) Open Source would do just fine without them.

[pentest]

Is it possible for you to not use meaningless buzzwords? Granted, a report to a businessman will be greeted with smiles and nods if it is filled with buzzwords, even if it doesn't actually say anything. Still, you should try to write more intelligently please!

[idfubar]

I'm impressed that Matt is able to write about open-source monetization without have a revolt in the comments; maybe there is hope for civility!

[philipdc]

Matt I am a great fan of yours, but I can't always agree with you. I posted this on my site www.turbocash.net :

Matt Assay, for whom I have the greatest respect, is at it again - predicting the demise of the free Open Source model. He is backed by no less an organization than the Economist. At least he is honest about it. Matt always clearly declares his interest as an employee of Alfresco, a commercial Open Source project, but in the positions he is taking about our industry, he is starting to look more and more like the public relations department of a typical commercial software company.

This darkness and doom is box-standard paranoia for the Silicon Valley set when the business cycle passes through the shadow of the moon and things start to cool in sunny California. This is the dawning of the Age of Aquarius and even Commercial Open Source companies are not exempt ? they also feel the revenue pinch and have to scratch pencil lines though staff organograms. However dimming of the lights is not the future of all Open Source projects, and those that avoid the pitfalls of commercial Open Source do not suffer this fate.

The problem that Matt and Alfresco have, is that they are taking on the same financial structure of the commercial companies, namely outside shareholders and monthly payroll bills. The need for revenues is now been driven by the cost push inflation underlying their income statement. If you have followed my blogs you will see that I have always said that we Open Source projects are in the same industry as the proprietary software companies. ?Open Source? is a development methodology, not a business model. However, in a business sense we have also come to use Open Source as a marketing tool. We certainly use ?Free? as a marketing tool. Even the esteemed thinkers of The Economists cannot get their heads around a zero revenue model. Their thinking is distorted by their own limitations that free content must be accompanied by advertsising in order to exist.

?Whodat say dey gonna give away da software and stil gedda foldin stuf??
Just Google ?Free Accounting Software? and look who comes up.

On the table is the recurring issue that still stalks the restless dreams of Open Source project leaders. Should users of Open Source software be made to pay for the product? TurboCASH users, see our poll, have a clear opinion. 60% want their software free and 40% are prepared to pay for the delivery of the software and surrounding services. This leaves us with two distinctive markets to deal with. How do we continue to provide our freeloaders with the stuff they desire, and make it good enough to get them to keep telling their friends about it. In parallel, how do we give the specialized attention to the customers that do want to pay us for it. In particular, how do we offer our paying customers a deal they can't refuse, when they can simply download it for free!

[philipdc]

Part 2

The TurboCASH deal is simply this:

1) Single users get TurboCASH for free - Open Source. This creates a massive marketing vehicle that brings in new users. We could do better by having a team dedicated to SEO and user acquisition, but in reality the users come in faster than we can deal with them. I would like to service them better, but there is no need. The voluntary forum, the documentation that we provide is sufficient.

2) Would we get more users by feeding them free support ? - Yes, but costs would climb rapidly. We would also get more users by offering them free sushi, but without a commercial model we would soon run out of tuna. If the users is not willing to pay to have a problem fixed, presumably because it is not that important, then they should not be surprised that a volunteer support person should feel the same lack of importance in solving the problem. hat is why our cost structure is so low and why we are able to ship at zero price.

3) The TurboCASH project runs very lean. As the project leader, I am a one man business, and firmly dedicated to continuing with that strategy. You may regard this as a little ecentric, but most of the core developers and consultants have similar or only slightly bigger structures. What makes us powerful is not the size of the individual components, but the size of the combined network, which is now stretched over 80 countries and in over 25 languages. TurboCASH would survive even if a Pakisani cricket team came to play us, stayed overnight and our security guards fell asleep.

4) TurboCASH does not have an oppressive central system looking for licensing fees or support fees. On the contrary rather than looking for licensing fees, I am always looking for ways to outsource the revenue collection! So yes we keep our revenue down, but we also keep our costs down. If you do pay money into the TurboCASH project, we want it to go to our developers and consultants. The developers and consultants are all self employed and the corollary is that it is very difficult to force something to get done for free by the TurboCASH network. Download and use the standard product, call fro voluntary help, but this does not extend to free customer services or free modifications. That said it is a lot harder to get a commercial company to make a change than to get us to make a change!

5) For the paying customer and for the working consultant this project is an ideal working environment. The software is licence free and can be copied and distributed without recourse or payment of royalties. This makes it easy for the consultant to quote on delivery and logistically easy to deploy. The consultants always have TurboCASH in stock! No sales lunches, no freight, no delivery expenses, no stock control, no debtors department, no cashbook reconciliations, no legal action for bad debts. All these are the costs that Matt and the Commercial Open Source products keep adding to their mix and push up their cost of doing business.

6) To deal with the 40% customers who do want to pay us, we do have a commercial arm, albeit distributed. We see multi user systems as a separate market in the accounting industry. Developers develop plugins and we release a multi user commercial version. In the multi user version we spend the effort on development and testing to make sure that the multi user version is a bullet proof app for mission critical apps. By charging this out to a club of commercial users we are able to provide them this service and use the spill over technology to boost the offering to our single user systems. So in a commercial sense, the multi user customers end up financing the single user customers.

7) Is this still Open Source? Purists may feel that we are ?forcing? the multi user users to pay us and that this is against the spirit of the Open Source movement. Not so Blackadder. Nothing in the GPL says that any party may or may not sell the software. If a customer is willing to buy the software, then anyone may supply the software at a mutually agreed price. No seller may breach the GPL, the software must always be supplied under the GPL Licence. To make sure that this is so, we regularly post the full source code on the web available for download. Anyone is welcome to download the TurboCASH source, compile it and begin distributin. This of course would be pointless. The TurboCASH project provides a commercial licence at $100 per year. This is way below the $ 50 000 plus that it costs to maintain a multi user version and is priced at a cost to the individual users way below the cost of commercial multiuser software. Simply put, if you can't afford $100 a year for a multi user accounting package, its not our business model, but your own that you should be worried about.

[redviking121]

As an old techie I disagree fundamentally with Matt.

Equating free gadgetry with the open source movement and culture is utter nonsense.
A look at the roots of open source shows that a lot of very bright people being hammered
by software license budget issues decided that there were a set of core services which
were too important to be left in the hands of the financial markets. We are talking about
rocket scientists and the like. Folks at Lawrence Livermore Labs, for instance.
While it may make for flashy copy, it is not clear that Matt understands the roots of open source
and why in tough economic times, it may find renewed vigor.

To be sure many commercial software vendors would like to create fear, uncertainty and doubt about open source. At one point FUD was the acronym of that marketing strategy at none other than IBM.

Perhaps Matt is engaging in free commercial speech. That is the first amendment right of corporations to propagandize. (Half Joking)