Panel discussion on Open Source business models

freelock writes "The MIT Enterprise Forum of the Northwest is hosting a panel discussion about Open Source Business models this coming Wednesday, February 16, in Bellevue, WA. The panel will be moderated by Dan Woods, author of the upcoming O'Reilly book Open Source in the Enterprise. Panelists include: Jacob Taylor, co-founder of SugarCRM; Byron Sebastian, founder and CEO of Source Labs; Kevin Foreman, general manager of Real Network's Helix project; and Tom Brubaker, the VP of a security company and founder of a demised open source company. Should be a very interesting discussion! Disclaimer: my company, Freelock Computing, is sponsoring this event.
Sign up here!"

Comments

Open Source vs. Gillette

[G4from128k]

It seems to me that the core of the open source business model is not that different from Gillette's razor-blade model. There are three parallels. First, in both cases, an expensive asset is provided at less than cost (software code or razor handle). Second, the same people that create the asset also offer some service or consumable (software customization/support or razor blades). Third, the enterprise then thrives on revenue from supporting the use of the freely provided asset

Admittedly, there are large differences between OSS and Gillette. The first set of differences are interrelated and driven by the cost of delivering a copy of the asset to the customer. Gillette faces a high cost of creating razor handles. Thus, it must create captive customers who are forced to buy blades. With OSS, the low cst of copies (the cost of download) means that OSS can tolerate a very high percentage of leaches (customers that take the free stuff and never pay for support or contribute). The ability to tolerate of leaches is a key prerequisite for Open Source.

Another similarity between OSS and Gillette is that both create (to varying degrees) an ecosystem that allows for enhancements to the core asset (e,g., add-on utilities for OSS or additional cobranded products for shaving). The fact that the core asset creates a hub for value attracts additional resources and additional customers in a virtuous circle.

Of course one key difference between OSS and Gillette is in the creation of the original core asset. Gillette pays a very large sum up-front to design the system, build the factories, and create the product (Gillette spent $1 billion to create the Mach III and 2.5 billion to create the Sensor). OSS pays "nothing" to its developers in the pre-launch phase.

The reason this works for OSS is two-fold. First, the cost of the core asset (the codebase) is almost entirely in labor. The ubiquity and low-cost of computers means that anyone can become a developer. This works because people seem psychologicaly more likely to donate time rather than money (a developer might spend 20 hours week on an OSS project at nights and on weekends, but would never consider donating 50% of a years salary to the project). Second, the very same people who donate their time to create the codebase have some hope of reward from the follow-on processes (customization and support) -- for Gillette the person the makes the handle is different from the person the make the blade.

Based on this, I would say the Open Source applies to endevours that have the following characteristics:

Low cost of copy of some core asset

Some potential for process-related revenues for use of the asset (customization, support, subcriptions, consumables, etc.)

Labor-dominated cost of asset creation

Interchangeable labor between the asset-creation and consumable/support sales process