UPDATE: Does Open Source Software (OSS) "scale" as a business model - Open Source Software Up the Stack

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December 04, 2007
UPDATE: Does Open Source Software (OSS) "scale" as a business model

UPDATE: Please note the correction below. Magnolia had previously used the LGPL not GPL.

There are a series of blog strings emanating out from and into Alex Fletcher's recent blog entry about the open source software (OSS) business model. I found then interesting because I spoke this week with someone us researchers call "a data point," Boris Kraft, CEO and Partner of Magnolia, based in Basel, Switzerland and NYC, NY. Boris brings some real-life experience to the theories Alex and the others are discussing. Those discussions basically ask what it takes to scale up a business based on OSS and--among other things--whether a service-only OSS business model works. I have covered some of these subjects in my Talking to... series interviews with Apatar, Loopfuse, Talend and others.

Just for background, Magnolia is a commercial open-source enterprise content management (ECM) softwre based on the Java Content Repository standard (JSR-170). I was talking to Boris primarily because of an upcoming article that will appear in the ebizQ Features section concering OSS ECM and Content Management software.

Boris had a compelling reason to support open choice (my mantra if you’re a regular reader), which is why Magnolia features both a GNU General Public License (GPL)-based distribution and a second more conventional license for its enterprise edition (like many other OSS devotees promoting the so-called dual-license model). At its beginnings, Magnolia adopted the services-only approach that Alex and the others talk about as a means to monetize Magnolia's ECM software and he found that the market did not respond. He thinks that it might be because IT folks perceive no cost to mean not as much value. Once Magnolia moved that services value into the conventionally licensed Magnolia enterprise edition along with some functional enhancements (see my upcoming report), business took off.

In deciding to go the dual-license route, Boris discovered some non-intuitive OSS market dynamics. Conventional wisdom says one or a few IT staffers download and adopt some OSS code for a one-off project and then if the project expands, they buy service and support (or an enterprise edition if that is the way the service is sold). Boris finds instead that more often than not top-level IT management is showing confidence in OSS and just saying “let’s just do it; we can service it ourselves,” even in big companies. This is especially true if the OSS project/distribution has been designed to be easy to use. But a result the OSS supplier cannot generate the revenue needed to keep the ball rolling. Our research showed that was probably the case with JBoss prior to the Red Hat acquisition.

Boris had one other interesting point about running an OSS-based business. Magnolia has joined the growing group of OSS communities that bases its OSS project on the GNU General Public License (GPL) version 3. Boris had a compelling reason: it makes the community more community like. With GPL v3, any one that makes changes and then distributes those changes, also has to distribute them back to the community. That was a glaring loophole in Lesser GPL (LGPL), which Magnolia had used before, according to Boris.

And to put my two cents worth into the business model discussion, as I've said elsewhere, I don't even think there is an OSS business model. OSS is a development model tied to a wide array of terms and conditions. The business model most associated with OSS has actually been around for over 100 years--do a search on King Gillette. But there other ways of monetizing OSS; for example, see that little company out in SV that monetizes OSS by selling ads on its web site. You'll probably use their OSS-based service when you do the search on King Gillette.