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I had no sooner finished blogging about the need for better definitions of open source sotware (OSS), Web 2.0, SaaS, and other buzzwords when a link put me on to a couple of posts that talk about OSS as a business model. The jist of my thought process here is that the OSS community has to agree on some terminology and definitions underlying the historical and current-day dynamics of information technology (IT) markets in order to avoid talking past each other the way that happens in religious arguments. Walk in the other guys' shoes; all that sort of good stuff.

In making my point on business models, I am using this post quoting Marten Mickos of MySQL. But I saw multiple academic and press versions along the same lines. The idea of all the articles was to give advice to entrepeneurs using OSS.

According to the blog post, Marten identifed a list of business models (see below). I do not know for sure if he is the source of course but wherever they came from they grossly overlap and mix up OSS community/culture with selling software. The result is some potentially misleading advice. The most important thing to remember if you are thinking of using OSS to start a business is just that: you are using OSS, you are not becoming OSS and there is no separate market for OSS. There is no business techniques on the lists I saw that are new to the IT industry or even dependent on OSS (Note I am using the other post's wording and avoiding the argument about what free and open really mean, should mean, or that people believe they mean metaphysically.)

- "Software is free but we need donations and subsidies to survive." Apache Software Foundation, Eclipse, and ObjectWeb are given as examples but I suggest IBM Common and Share circa 1955, or Digital Equipment's DECUS circa 1965, are equally good examples. Of course it is also misleading to consider this a business model since none of these organizations are in business.
- "Software is free but we sell ads and placements." Mozilla is given as an example. I am not sure how the Mozilla ad-based monetization program works (can't find it mentioned on the Mozilla web site) but the concept dates back almost 100 years to U.S. radio broadcasting. To me Mozilla is a better example of the OSS trend of open sourcing a product after a period of charging money for a license. I have no objection to anyone giving away their property (I am doing it right now) but it's not a new business model, it's sales tactic (see comment about cheese lady below).
-- "Software is free but if you embed it in closed source, you better pay a fee." Marten uses MySQL and others as examples. I guess he'll give MySQL to me to play around with but anyone that makes money with it gives him a cut; that's a business tactic called "Here's an SDK." I'm guessing the tactic is as old as SD.
-- "Software is free but services are not." Covalent is given as an example but this example is making my point: Covalent isn't selling software.
-- "Software is free but on-going maintenance, monitoring and provision of binaries is not." Red Hat is called out but I think this is misleading since the software is free from Fedora (but see the discussion about Apache, Eclipse at the beginning of the list). Covalent and Red Hat are basically the same types of business and those businesses do not sell software.

This is the second most important business-model item in the list. If you are going into the service business, make sure you are prepared to give service.

-- "Software is free but some enterprise features are not." SugarCRM, Zimbra, JasperSoft are given as examples. Just like the lady in the supermarket handing out free cheese.
-- "Software is free but we built a closed-source product around it" EnterpriseDB and GreenPlum are used but if they are examples of this behavior (I am not sure), that makes them just plain old software developers/independent software vendors, no new or different business model here.
-- "Software is free but hardware is not" Sun is singled out along with a PBX manufacturer but of course this is how the computer market began.
-- "Software is free but we sell everything else on the planet, including closed source software." This is a critical example; the list uses IBM but in fact any leading IT supplier can be plugged in.

The leading suppliers have used OSS magnificently to reduce their R&D expense and improve profits. Although buried here in the middle of the list, this is the business story behind OSS.

-- "Software is free but that's not our real business" Again, as with the first example, a hobby cannot be called out as a business model and provide the basis of a sensible discussion of options to ISVs.
-- "Software is free but we regret it." The list picks on Borland but see Mozilla above (and an increasingly long list of freeware products that are masquerading as OSS for marketing advantage).
-- "Software is free because we dumped it and don't want to see it any more." Actually no example was given, so as to diplomatically not offend anyone I think. I'll stick with that motive myself.
-- "Software is free because we want to drive web traffic." This is software as a service and a whole other post.

Bottom line: lists are fun but don't base any business decision on them especially if you have a mortgage or plan on paying for your kids' college educations in the U.S.

Posted by dennisb in OSS Culture |Digg This|Add to del.icio.us

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