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Open Sourcing Software in a Large Corporation?
code-libre asks: "I work for a small R&D group in a large corporation. We've spent the past few years developing a small but unique piece of software that was originally meant for internal use only. A VP recently approached us and asked if we could 'package and sell' the software so as to get a direct return on investment - at prices as much as $500k. Within our group, we worry about the costs associated with long term support and maintenance. We are also sure that a price over $10k is ludicrous, let alone $500k. I think it would be an excellent move to open source the software, but I need some advice..."
"Even at a price of $10k, we don't expect to sell more than maybe 20-50 licenses. Costs associated with producing this software thus far are approaching $2mil, so we doubt our costs would be recouped. It is thus relatively easy to make the case that we _shouldn't_ sell the software.
On the other hand, it is software that will be vitally useful to those in the right markets. I would like to present the idea that releasing the software for free (and open source) will have two effects: one, branding the software turns it into a free piece of advertisement for our company in emerging markets. Two, open sourcing it will allow for others to help improve the software, which we in turn can use to our advantage - an indirect ROI.
Will points like this fly at a large corporation with little to no policy on giving stuff out for free? How can I convince an older generation of business leaders that FOSS is the way of the future? Ideally, I would like to help the company setup a internal group that could expedite small internal projects to the market place via FOSS routes. Any one have any experience with this?"
On the other hand, it is software that will be vitally useful to those in the right markets. I would like to present the idea that releasing the software for free (and open source) will have two effects: one, branding the software turns it into a free piece of advertisement for our company in emerging markets. Two, open sourcing it will allow for others to help improve the software, which we in turn can use to our advantage - an indirect ROI.
Will points like this fly at a large corporation with little to no policy on giving stuff out for free? How can I convince an older generation of business leaders that FOSS is the way of the future? Ideally, I would like to help the company setup a internal group that could expedite small internal projects to the market place via FOSS routes. Any one have any experience with this?"
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if they go for it, if they've spent $2M to develop it, think they have a market (even if it's only going to recover 25% of its cost), and you didn't use any open source tools to develop it (and so they don't have experience with OSS). Besides, branding OSS will make you seem to your "customers" to be responsible for supporting it. I hate to say it, but unless you make a BUNDLE from services (i.e., unless it turns out that the customers using your software are already paying you at least $50K/ann for services), it will be a hard sell.
From what I can deduce from your post, you've got basically zero chance of convincing the higher-ups. And frankly, I'm not even sure that open sourcing it is a good idea, anyway. If your target market is 20-50 customers and it's a niche piece of software, you're dreaming if you think anyone is going to do any work on it, much less submit patches back. You're essentially giving your $2 million of R&D away for free with no gain for the company. No corporation is gonna go for that.
I would prolly caution you to be careful with this. You say this software is reaching close to 2mil in development costs. That's quite hefty for an internal piece of software. Open sourcing the software could be of great benefit... but make sure that you don't open source you or anyone you work with out of a job if it turned out that less devs were needed. (I don't know enough about your current situation)
As to how to approach the VP and other PHB's... You're going to have to go the only route that will make sense to them... Show how it will help their bottom line. That is why he came to you to begin with, and it's what he wants to hear. Giving away software he is looking to sell isn't going to recoup the costs of developing said software.
Sell support perhaps?
Maintain two versions? An open source version that feeds into closed version perhaps?
This is a tough one if your VP's mindset is dollars.
I had zero luck with it at with one of my previous employers where I was in a similiar situation (although with less 0's in the figures) I just couldn't find a way to appeal to what they wanted to see... money.
"why don't you just slip into something more comfortable...like a coma!"
You're already thinking in the right ways - C/B of selling at a certain price.
Don't forget support commitments, opportunity cost of turning your R&D lab into a customer facing "profit" center, etc.
Also, don't be surprised if, as you go through the process, you find that a certain price-point, set of behaviours, or various possible changes would make it profitable.
I forget what 8 was for.
You built the software for the company, meaning they contracted you to build it for them.
That means it's their software doesn't it?
If it's useful to a niche market, you're essentially asking the company to give away what could be a competitive advantage - something they developed at great cost. This is probably part of the half-million dollar price tag they're tossing about.
And if it's so wonderful, the market price may be higher than you think. Toss in the source code for the customer, and you may wiggle around your concerns of having to do so much support & customization; and maybe you can even get some of the source code for customer's changes back as part of the negotiations.
Open source software is great for commodity stuff, but in valuable niche markets - it's a tough sell for simply giving away.
A piece of software that is worth that much should be taken full advantage of. This is what R&D is meant to do for a company. If you are in R&D this is supposed to be your job, and it is supposed to pay off for your employer someday. Don't complain when this actually ends up successfull.
Open source should not be a consideration for this unless there is some other mitigating concern? Such as the company needs open source, or the software is stagnant because the company doesn't have the resources to apply towards development.
You can always Open source it later.
Be careful about jumping into open-source. Remember, most successful projects scratch the itch of a developer. Chances are, this is a product of interest mainly to large companies -- not your average Linux hacker - open source won't be a panacea. A model that combines open-source and the associated benefits with a per-seat support contract, could very well work, however. Considering the huge investment ($2m) your company has made, it's certainly worthwhile to try to recoup as much as possible. It nearly goes without saying: don't assume that you can just throw it out into the open. It works for some projects (e.g. WebKit recently), because it's directly applicable to a lot of end-users. Not every project's like that.
((lambda x ((x))) (lambda x ((x))))
"Even at a price of $10k, we don't expect to sell more than maybe 20-50 license"
Very few products have a market this small. If you can get it off the ground, to the point that you ship just 20, there's no reason 200, 2,000, or more is not an option. Don't write off the chance of making some money, or at least the opportunity of recouping some of your investment.
((lambda x ((x))) (lambda x ((x))))
If they try and charge $500k and don't sell any, you won't have a problem (at least not that problem, anyway).
The main economic cases for open sourcing the software are:
- the community will provide "free" maintenance to it
- your company can provide expert support for it, for a fee
You mentioned that you have qualms about the second one, and so the question is whether the VP will value the potential savings in maintenance costs enough to give up whatever competitive advantage your firm gains by keeping the software to itself.
I would suggest that you start by advocating opening up parts of it, perhaps under a BSD style license. Attempt to get your VP or someone else to try to get someone like IBM on board doing the support and possibly remarketing parts of it to their business/consulting clients. Of course, I have no idea what kind of software this is or how modular it is, so it may be all or nothing... still, I think that a partnership with a software/services firm that is open source oriented would make a lot of sense.
Amazing magic tricks
Some companies share their source code but only with customers, or share the source to anyone but demand paid licenses for commercial use. OpenMFG is one. There's also typically a guarantee that the product would become fully open source if abandoned.
You want us to help you talk yourself out of a job?
No, it isn't, not on that basis. All the money you have spent on the project thus far is sunk cost, meaning that money is gone whether you open source, sell binaries, or do nothing.
The only figure that matters now is revenue, and the only shot you have of convincing your bosses to open the source is to show that that will develop more revenue than keeping it closed. That, I would guess, is a dicey proposition.
In my experience, few pointy-haired bosses understand non-monetary benefits of open sourcing like getting free development work from the community (which may not be a consideration on a niche app like this anyway), and fewer yet give a damn about positive publicity unless they're in marketing or PR. It's all about the Benjamins, baby.
Where do I sign??
And don't underestimate them either. Don't assume that they are just old stick-in-the-muds who can't make an important paradigm shift. If they read business magazines, they probably know all about the FOSS model of doing business -- it was all the rage a few years ago. And they might well know better than you the risks of that model. Recall that most companies that tried to profit from giving away software have either backed away from the concept or are out of business!
Look, if they think they can sell even 1 $500k license, thats better than the 10-20 $10k licenses you are proposing.
If the VP approached you about this, its probably because he knows much more about the $500k possibility than you do. Take it as a hint that something is really there, rather than something maybe being there.
Besides, maybe the VP also wants to make sure your salaries are justified in the face of out-sourcing or cost-cutting measures.
A company who needs/wants the software you describe makes two evaluations:
1) Is the purchase price going to be offset by reducing costs or increasing sales (ROI)
2) Is it cheaper to purchase existing software or write your own (taking into consideration that purchased software may not be an exact fit)
If your company invested $2million in this project, they obviously think the ROI is going to be $2mill+.
If I was faced with the opportunity to pay $0.5mill to get $2mill return, my choice would be obvious.
If I was in your management chain, I would be greatly concerned about the intelligence and usefulness of such a person working for me who, not understanding the value of their work and the investment of the company into their work, wanting to give it all away, or sell it on the cheap.
Keep in mind that in many cases, your customers will not be interested in seeing the source. They want turn-key black boxes.
It might be that your case is different, leading to more customers and actual contributions to the code base. In that case, do not 'sell' the software as much as a support contract with the source access being a bonus.
A firewall can not protect you from yourself. Turn off what you do not need. Do not use the firewall to do your work.
As the original poster to this Ask Slashdot, I would like to take a quick moment to respond to some of the comments I've read.
A lot have suggested I may be undervaluing our product. I wish this were the case, but in creating this software, we have worked with many far more comprehensive packages that sell for prices just below the $100k mark. Our product can be thought of as a plug-in or additional tool to the aforementioned products: It is a single tool that, though useful, is not at all more valuable than the other tools already out there. (An expensive one to develop, but it is not that great.)
Part of the original idea was to get indirect ROI as it would help us in our other areas of work internally - helping us in our current product line as well as picking up new customers and contracts. It has indeed done this, but the VP's are hoping to get more direct ROI now.
Ideally, as per the second to last sentence, I would like to extend this out to create a new dept./group within the company that can prove this to be a successful strategy and can bring products like this to market much faster.
You guys are thinking backwards on ROI. The company has already spent the ~$2M - that's a sunk cost. Presumably, they have recouped, or will soon, the cost of this in internal business advantage. In other words, the costs to look at are the costs of selling and supporting it versus the income from selling licensing and/or support.
Without critical missing data, the ROI can only be guessed at. I'm supposing that the marketing types have already determined that number, from this point, is positive in a reasonable time period. Presumably, from the range of prices and size of the market as discussed, demand is price-inelastic, which makes sense if the business types are expecting a positive ROI from supporting the software. I cannot evaluate, either, the business impact on selling the product: if it provides a critical market advantage to the company (presumably it does, with that kind of R&D behind it), selling it may not make sense because of the loss of competitive advantage in a small market served by what (given the budget) must be large enterprises. I will simply assume that the business people have done their job, and that any loss would be smaller than the expected ROI gain.
Balanced against the net of ROI less the loss of competitive advantage, code_libre offers branding and getting back improvements. I suspect that the likelihood of getting the product improved by outside coders, given its niche character and the large amount of development effort already invested, is small. Thus the balance is net gain opposed to branding gains.
If the gain from branding can be quantified (or if a qualitative argument can be made that the company can be the single source of software, and thus related services and products, in a captive market), it is possible that the business would agree to open source the product.
But given just the information above, if I was asked to make the call, I would be disinclined to open source it. A captive niche market will often pay outrageous prices for software. Consider this: imagine if the software in question worked out when an airline should carry extra fuel, as opposed to when it should fly a leg with minimum safety margins, in order to take advantage of the cost differentials between fuel prices in different airports. Not a lot of customers, but each one could save millions of dollars a year (well, Delta did, and it can be extrapolated that others would, too). They would thus be likely willing to spend a million dollars to buy an enterprise license for the software: though the cost is huge, the benefit is even larger.
So from what I know, this would be a seriously uphill battle even if the company did have a robust history of open sourcing non-core software.
-- Two men say they're Jesus. One of them must be wrong. - Dire Straits
If you can't package it up for sale to paying customers, you can't package it up for the Open Source market, either.
If you can't support paying customers, you can't support the Open Source market, either.
If you're never going to have more than a few dozen paying customers, you're never going to have more than a few dozen Open Source customers, either.
Seriously, if you're an R&D branch, just toss the package over the wall to production, and let them figure out what to do with it. If you're afraid of getting support calls, or bug reports, or feature requests after it's left R&D, then that's a conversation you should be having with the VP. Idle speculation about how many people might find the software useful, or how useful they'll find it, really doesn't do you very much good.
Your business obviously thought this software was valuable enough to spend two million bucks making it. It's a competitive advantage; you have it, and the other people in your industry don't.
If you open source your software, then your competitors get it too. But instead of spending two million bucks, they get it for free, so they have money to spend on OTHER stuff that YOUR company doesn't have. You are weakening yourselves considerably, hoping to get a payoff of equal or greater value.
So you'd need outside code contributed that would be worth at least another couple million. The chances of that happening are laughably small. Unless your software addresses a very broad horizontal market (at least tens and probably hundreds of thousands of possible installations), there's no way you'd ever get two million bucks' worth of patches.
The LAMP programs, Linux, Apache, mysql, and Perl, have probably gotten that level of free time donated. But there are very few others, and you most likely don't have 'the new Apache' on your hands. Let's charitably put that chance at 'tiny'.
Not all code should be or needs to be free. You would definitely be doing your customers a favor if you included the source code with the product, with strong restrictions on what they can do with it. But just releasing it into the wild directly and immediately harms you a great deal, and has only a small chance of paying off.
From the very rudimentary data provided, it looks like open sourcing your product is almost exactly the worst thing you could do.
Okay, you're saying that your company was willing to spend $2M to develop this, but no other company would pay more than $10K to acquire it? If you really mean that, you must think your management are complete morons to have paid you to do this. Reversing it, if it was worth $2M to your company, why is it so inconceivable that it might be worth a quarter that to someone else? I'll assume here that you hadn't really thought about it that way, and go a different direction.
Assume you're right and it's only worth $10K. Sell it to 50 customers at that price and you've made $500K. You seem to be saying that because that's less than it cost to develop, it isn't worth selling. Clearly, it wouldn't be worth developing the software from scratch for the sole purpose of selling it if those figures were accurate. But you've already made the software, and $500K is a lot more than $0, which is what you propose to earn from the software.
Your next argument is probably "it will cost us more than $500K to support it". Okay, says the VP, either we sell it as is, or we sell support contracts to cover the cost of support, or we offer support on a time and materials basis.
Basically, any way you do the analysis, if the software really can't be sold to make any money than either 1) your company was stupid to spend this much making it or 2) most of the capital value from that investment is unique to your company's business and it's worth holding onto the competitive advantage of sole use. In case 1), selling it is trying to recoup from a mistake. In case 2), selling it is a mistake, but giving it away would be an even worse one.
SHOW ME THE MONEY!!!
...to suggest this roughly $2 million ago.
Open source works well in development. It diffuses costs and gives you more resources to work with in manpower. It doesn't work as well after you've spent $2 million bucks and then give the software away freely to everybody.
The real debate here is that if you switch to a better system for less than the maintenance costs of your current in-house one-- which would be the only reason to not be eager to sell it--, you should RUN RUN RUN and buy it. Stop throwing money into a pit when you can get a better product cheaper. That's the discussion to have with your boss.
Look, I like open source as much as the next guy, but if you suggested to me that we take our $2 million project and freely give it away to our competitors, I'd laugh you out of my office.
Next time, start the project as open source. Don't wait till you're $2 mil in.
You fucking moronic OSS zealot. Then you'll see ROI.
If it's half as large as you would indicate, your company already pays millions upon millions for software annually. You'd be amazed by what companies pay for Oracle, PeopleSoft, Windows, Office, Exchange, etc.
Hell, the per-user list price for an Exchange Client Access License (CAL) is $67 a seat. Assuming you have 10,000 employees, each of whom has a PC. That's $670,000 annually for email, not including the base price of the Exchange server. Note that each Exchange CAL gives you an Outlook CAL "for free", which pushes client usage towards Outlook on Windows.
Sure, you can buy through resellers and get volume discounts, but we're talking hundreds of thousands of dollars per year for freaking email.
I don't think your group is very familiar with enterprise software licensing schemes, or you'd have mentioned the number of users you expect to access the software in companies that might consider buying it. If this software package is as good as you claim, it's certainly possible to imagine a company tossing out a few hundred thousand for a license. You can make up numbers based on your experience as a coder, but until you do a little research into enterprise software licensing and costs you're doing your company a disservice by throwing out numbers so casually.
Hell, your company invested $2 million into development. Obviously they made an economic decision, and decided to go ahead with in-house development. If your company paid $2 million for the app, it has to be worth something to other businesses.
Projects may go over initial estimates -- what was originally budgeted for development of the application? That's the price your company was willing to pay for it. I'm sure they budgeted more than $10k. Find out this initial estimate, and use that as an estimate of what you'd expect to sell it for, and base your estimate on something real, not some number you pulled out of your ass.
Somebody get that guy an ambulance!
They won't go for it after spending so much, nobody would contribute anything to such a niche application even in they did agree, and you'll look bad for even suggesting it.
Somebody wasn't paying attention to RMS's actual ideas.
1) FREE AS IN SPEECH, NOT FREE AS IN BEER.
If you feel so strongly, the customer can be given the source along with supporting documentation, a one year contract for support, customization, or whatever, and your company still gets money. Speech can be private, and can be compensated for.
The *real* point of Open Source is no secrets between developer and user. Nothing says Bob on the street corner needs to know.
Nobody says you have to put it on SourceForge. I suspect 99% of projects on SourceForge don't belong there anyway, and that about 5% of downloaders from SourceForge do something to change the source code, and less than 1% actually do any useful development to support the project. Basically, I see SourceForge as a vanity press: anyone can upload their new Java-based MP3 jukebox alpha-quality software, and feel like they are part of some cool movement, striking a blow against the man. But that's another topic.
2) Quick career hint: a company pays your salary because it thinks it is getting something *more* valuable in return, not to send you on some ego trip as an OSS missionary. Save that for when it is *your* company.
If you are known to higher-ups in the company as someone who was absolutely essential in a multi-million dollar revenue stream, and is likely to do similar things in the *future,* they might not outsource your job to India. (Unless you are already working there, in which case, they won't outsource it to China.)
And if you are tired of working for your company, that kind of dollar figure next to "head developer" will get you hired a lot more quickly than "code monkey."
GPL is your friend here.
If you are in a proprietary software market, your competitors wouldn't be allowed to used GPLed source.
But you get the advantages of giving your software freely to anyone who wants to play with it. Your company would be a nice company.
Of course, free support from the "community" could or could not happen, you shouldn't count on it.
You should only GPL your software, from a bussiness sense, if you want to make your software more used, or if you want to undermine your proprietary software competitor's software dominance (a nice blow). If you want free PR, it's good too, if your target audience is the kind of people that likes that kind of thing.
If you want to sell services, and think you can, it's good too. When the code is free, there is such a thing as a free market for support, so you can get a way with charging as you want for support (at least enough to make it worthwile), without being a bad guy ripping off locked-in customers.
But one important bit, from the bussiness sense, is GPL, don't BSD. That way, if your software is worth 500k to company that can afford it, you can re-license it under a proprietary license and charge them as much as you want. It's not a new thing. Mysql does something like that.
The poster is not thinking logically, for example:
"Even at a price of $10k, we don't expect to sell more than maybe 20-50 licenses. Costs associated with producing this software thus far are approaching $2mil, so we doubt our costs would be recouped. It is thus relatively easy to make the case that we _shouldn't_ sell the software.
The $2mil is a sunk cost. It is irrellevant to whether or not you should try to sell the software. The decision does not depend on how you can recoup all of your losses, it depends solely on how you can minimize your losses. That doesn't mean that selling closed source is the best way to minimize losses, but that's the way you have to think about the problem.
not thinking logically? Who in a large company thinks logically??
Sunk costs are irrelevent. If his boss wants to sell it for $500,000, and he *imagines* (in his dreams) that they will sell 500 copies, then his "open source" direction would need to make more than 250 million to be acceptable to the boss. This is not logical, but it's how management makes decisions.
His best bet is to have marketing do a survey to find out how much interest is out there, and then deflate the bosses expectations as much as possible.
Besides, if you they decide to go with your plan and it doesn't work out to what they *imagined* they would earn otherwise, then consider yourself canned.
He's going to get canned eventually if he doesn't leave - this is the 2000's, not the 1950's. Nobody is a 'lifer', especially if they want to be.
At least by GPL'ing it he can continue to work on his project when he leaves.
My God, it's Full of Source!
OUTSIDE_IP=$(dig +short my.ip @outsideip.net)
If it's a "plug-in" can you license it to the "aforementioned products"?
From your post it seems your company wasted alot of money due to NIH (Not Invented Here) syndrome. I hope the new customer revenue stream offset the expense.
If the cost to "productize" and maintain the software is higher than what you'll get from the pessimistic scenario (according to you, 20 x 10k + whatever you could get from selling support), then it's a risk probably not worth taking, so opensourcing it will only bring benefits (goodwill, possibly selling support, and possibly sharing the maintenance costs with other companies).
However, if there's a good chance you might net more by selling than you might save (or net) by opensourcing, I believe it would be unreasonable to ignore this.
If I were you I'd prepare a few scenarios (opensource, optimistic sales, pessimistic sales, etc), where you show the variables over time:
- projected sales income (none if opensourced)
- projected support income
- maintenance costs (possibly lowering faster over time if opensourced)
- the one-time costs for productizing it (if you're selling it, people will hold it to higher standards)
- the (one-time?) costs for opensourcing it (cleaning up code to avoid embarassement, community building, communication, etc)
- mention the goodwill/brand recognition/good pr you might get from opensourcing, but it's hard to put a number on that. That's for the marketing guys to figure out, I guess.
The point is, give your bosses the right tools to make an informed decision. Chances are they'll proceed to make the right one!
Sourcefire (makers of SNORT) could probably give some advice on how they went about charging for a free product. Good article in the latest Howard Business Monthly (Sourcefire is based out of Columbia, MD... abt 10 mins from house, which is in Howard County, MD)
http://www.bizmonthly.com/6_2005/1.shtml
Perhaps you can convince the Powers That Be that they can charge for it *and* still release it to the world for free.
--Dave
That's is the problem with pretty much all the open-source advocates in this thread, right there. What the VP will be asking, since he has a clue about how to run a business for profit, is "Who will use the software, and how will them having the source benefit us?" How it benefits anyone else is utterly irrelevant, unless benefitting them indirectly costs the employer, in which case it is definitely a bad thing.
This shouldn't be a question of "convincing" the VP that open sourcing is the way to go. If the submitter is trying to convince the VP of that without being sure of it himself -- and if he was sure of it, we wouldn't be having this discussion -- then he's simply putting some personal agenda ahead of his duty to his employer. At that point, he should be fired immediately, and replaced by someone whose work is going to benefit the employer who's paying for it.
If you disagree, post your argument. (-1, Overrated) isn't your personal censorship tool for views you don't like.
hell, our company was so paranoid that our lawyers had to read the licensing for vim and emacs before they would let it be installed on the computers.
;)
BTW: we have more lawyers and accountants than talented engineers
You're missing the fact that not releasing this software means the competitors will need to develop the software themselves..at a 2 mill setback.
So the choice is..keep competitive advantage within the company, or make 200-500k.
Considering this, and the small market, I don't see ANY advantage to open sourcing it. It's not like open sourcing it will mean hordes of programmers improving your software for free. It means giving up your competitive advantage.
Plus, any improvements that competitors make will likley not be distributed and released.
Wow, sent an e-mail as suggested when clicking on "use classic" banner, and got a fast response that addressed my msg
Even so, if you sell 10 licenses at $10k each you've still made a *known* $100k, plus probably 20% more per year on a support contract. Open sourcing it for free advertising/word of mouth is an unknown quantity, and most companies with half a brain will go for the known over the unknown every time.
As someone else already said, the development costs are sunk, so forget about them. It's all about how much money you can bring in after it's been developed.
You've just given another reason for selling it. You have already identified a market for the product. Giving it away at this point would be insane.
Personally I think your VP is doing the smart thing. Even if the software isn't eventually sold, at least he is seriously considering it. The business is there to make money, not make OSS look good.
While the GPL is a better choice than BSD if your purpose in open sourcing it is publicity; I don't think the GPL is quite restrictive enough. If someone doesn't like the way you manage the project, they can just fork it and remove all references to your company except a small blurb on a well-hidden about page...
That of course depends on how many ass-holes decide to use your software that don't like your company...
Actio personalis moritur cum persona. (Dead men don't sue)
you spent $2 mil of the cmopany's money to make this.
they pay you out of the profit they make. that salary pays your rent and food.
dont be all holy now and start screaming for OSS. oss is oss because people who work on it gets paid somewhere else.
software industry is not just about writing stuff, it's also about making money off it.
you will grow up. you too will learn. people with mortgage and kids already know.