A bad economy is good for open source, goes the increasingly conventional wisdom. However, while it's undoubtedly a good time to be in the market with a low-cost, high-value alternative to proprietary software, there are tell-tale signs that the recession isn't blessing all open-source companies equally.
Ross Mayfield, co-founder of Socialtext
For example, at the Enterprise 2.0 conference on Tuesday Socialtext founder Ross Mayfield declared, in the words of a conference attendee via Twitter, that Socialtext's first quarter "sucked" and that its "pipeline collapsed." Socialtext, once described as a highflier in a "sizzling market," has apparently come down to earth.
Or has it? Is this a one-time blip for Socialtext? While Socialtext CEO Eugene Lee announced layoffs in April as the company looked to cut expenses, Mayfield on Tuesday declared that the company's second quarter looks strong. Even the best companies can slip in a brutal market.
Or perhaps Sociatext is fighting a weakness in enterprise collaboration ROI (return on investment) and demand, rather than open source?
If that were true, one would expect all companies in Socialtext's space to be hit equally, but this hasn't been the case. During this same first quarter, Socialtext competitor MindTouch experienced double-digit growth, while Microsoft's proprietary SharePoint product also continued to boom. (Disclosure: I am an adviser to MindTouch.)
I suspect Socialtext experienced a road bump, not a barricade. The difference is that, in true open-source style, Mayfield was candid about the slip up.
Open source remains alive and well. It's important to remember, however, that this doesn't mean every open-source company will do well.
Open source is not magic pixie dust that makes bad companies good. It's not a cure for the common recession. Companies still need to execute well, regardless of their licensing strategy. And, importantly, the wrong open-source licensing model can handicap a company, making it harder to profit from a project's popularity.
The recession, in short, will sift good companies from bad, whether open source or proprietary. As for Socialtext, its fate will not be decided by a single quarter. It's in a good market with a good model. It should do fine.
Follow me on Twitter @mjasay.
Schlumberger manager Julien le Nestour offers an innovative new pricing model to drive "enterprise 2.0" software like Twitter-for-the-enterprise: instead of offering volume discounts, start with a superlow up-front charge, and scale up fees as more users start using the software.
I have news for Le Nestour: enterprise IT already has this pricing model widely in use. It's called open source.
Reading Le Nestour's description of his proposed model sounds exactly like the pricing models used by Openbravo, Pentaho, Alfresco, Hyperic, and others:
Instead of charging less per user, as more accounts are purchased, vendors should charge more as more accounts are purchased...Using a volume-increasing scheme would accelerate customer acquisitions, new pilot projects, and the number of deployments that could potentially scale.
Vendors should provide very low entry points, charge for setup and deployment at cost, and let the users themselves prove the value of their services. Vendors would not incur additional costs because sales would be quick, and deployment would be sold at cost (which for software as a service is minimal)...This approach would also help define the value of an application: the vendor that is confident that an application will spread, once deployed within an organization, projects a different image than the one that tries to lock in all revenue up front, no matter whether deployment is successful or not.
Agreed on all counts. Open source derisks IT investments for enterprises and, going one step further than Le Nestour's recommendation, prods open-source vendors to continually innovate and deliver value to customers through a subscription model that allows the customer to walk (but keep the software), if the vendor fails to provide adequate value through support, software upgrades, and other processes.
Le Nestour suggests that the "potential is big" for his idea. I couldn't agree more. I just wouldn't call it new. We've had open-source pricing models for many years now, and they're paying off in spades for the companies that use them.
Disclosure: I work for Alfresco and am an advisor to Openbravo.
Follow me on Twitter at mjasay.
I didn't attend the Enterprise 2.0 Conference this year, but judging by Jeff Whatcott's commentary, I'm not sure I missed much.
It would appear that the Enterprise 2.0 world is still recycling the same froth in an attempt to stand out. Here's what Whatcott had to say:
I spent some time checking out the competition to benchmark our messaging and functionality. I was struck by how thoroughly undifferentiated the pitches were. Everyone was giving essentially the same demo, talking about the same functionality and use cases.
Internally, I heard from Jean Barmash on the Alfresco consulting team who echoed Jeff's comments:
Walking around the exhibition floor, it looked like everybody was offering very similar stuff--big focus on "communities"--creating them, managing them, etc.
It feels like we're in the early stages of Enterprise 2.0. Let's call it Enterprise 1.8 where everyone is showing the right slideware and demos, but few, if any, really know how to put it all to productive business use.
Until the money steps in, I think we're going to remain in a curious limbo where "shiny baubles" (a colleague's favorite term) get rolled out widely but for which few pay because no one on the enterprise side has really connected the dots between community, user-generated content, and enterprise productivity/business value.
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