I loved this presentation by David Heinemeier Hansson of 37Signals. His topic? How to make money as an online software company.
His verdict? Charge for your product, but be careful whom you charge.
Chris Anderson elaborates on this theme:
37Signal's secret is not to target consumers (who don't like to pay) or big companies (that's a crowded space). Instead, they target the "Fortune 5 Million"--small companies with specific needs that are underserved...
It's interesting how closely some of Heinemeier Hansson's ideas map to the commercial open-source world, in which charging for one's value is, as Roberto Galoppini suggests, not always straightforward.
Why? Because proprietary vendors have long conditioned customers to expect to get charged for the wrong things or, at least, to expect to get charged too much for the right things. Larry Augustin suggests, in response to a post of mine, that "one of the things companies using an open-source model need to do is make sure they get paid for up-front costs up-front." Easier said than done.
As Larry summarizes, enterprises have been conditioned to expect their vendors to dump all the risk of a software decision on themselves. They try to "get back" at the vendors by writing punitive terms into license agreements (e.g., acceptance periods that make revenue recognition difficult), requiring the vendor to jump through demos and pilot hoops upfront at the vendor's cost, and more.
Hopefully, as enterprises come to invest more trust in the open-source vendors, some of these practices will fade and the process for selling software services will level out. In the meantime, however, Heinemeier Hansson has it right: you need to charge for your product, and usually whom you charge is much more important than what you charge.
Who says government can't innovate? As the US Small Business Administration recently demonstrated, government can innovate, and increasingly does so with open source.
The US Small Business Administration just won the prestigious 2008 GCN Technology Leadership Award for its innovative Business.gov website, a site that had formerly been bogged down by proprietary BEA software. No more. The site, which coordinates some 9,000 resources throughout the US federal government for 21 different agencies, has seen a 30 percent increase in traffic since it was resurrected through open-source technologies, including Alfresco.
... Read more
Savio Rodrigues of InfoWorld tries to parse what makes open-source buyers tick, and how to generate more of them. In so doing, he suggests that the real battleground is over those enterprises with both money and expertise to go it alone with open-source software (so-called "Category B" customers).
Why should they bother buying support when they can self-support?
For me, this isn't the right question. Using his MySQL-derived customer classification system, the real question is, "Can proprietary software serve Category A (companies with more time than money) at all?" and "Can open source more efficiently serve Categories B and C too?"
Implicit in Rodrigues' reasoning is, I think, a belief that if the software is proprietary, A, B, and C companies will all eventually just say, "Aw, shucks. I've got time/expertise/money, but what does it matter, I just have to pay anyway!" So the vendor cleans up on all three.
In fact, my own experience suggests that B companies buy less and less proprietary software (E*Trade is an example). Ditto goes for B, and C companies are willing to pay, anyway, so where is the conflict with open-source business models?
... Read moreSometimes we think that the reasons for Software as a Service and open-source success are mutually exclusive. According to David Heinemeier, founder and developer of the various 37Signals' projects and products, however, open source is integral to 37Signals' success.
In fact, it's fair to say by David's reasoning there's very little to recommend a proprietary software strategy anymore:
Open source provides an incredible amount of technical leverage for small companies. No matter how productive your rock-star programmers are and no matter how much judo you apply to your problems, solid infrastructure takes a long time and benefits immensely from broad involvement. It really does take a village to raise great infrastructure.
... Read more
Sometimes I read things like this and I'm relieved to find out that Steve Ballmer isn't completely deluded by proprietary ideology. Speaking at the Web 2.0 Summit today, Ballmer made it clear that his vendetta against open source isn't as all-encompassing as he sometimes makes it out to be:
... Read more"We will do some buying of companies that are built around open-source products," Ballmer said during an onstage interview at the Web 2.0 Summit in San Francisco.
A refusal to consider acquisitions of open-source developers "would take us out of the acquisition market quite dramatically," Ballmer said -- a tacit acknowledgment of how thoroughly open-source development has reshaped the software market.
I really like the advice in this 37Signals' blog post about writing good 'Help Wanted' ads. As with open source, the general theme is to be transparent. No hiding behind superficial buzz words and such:
The kind of help wanted ad you write can help determine what kind of applicants you get. Write an honest, thoughtful, clear ad and you're more likely to hear from candidates with those qualities. Spout a lot of buzzwordy nonsense and you'll attract people fluent in bull[potty].
Amen.
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