The formidable Mr. Asay has a nice post on the “remarkable JBoss revenue machine”.

“JBoss’ incredible lead generation led to 7,000+ qualified leads each quarter…..

This means that JBoss could hire “inside” sales people: people who spent most of their time on the phone or email, answering incoming leads rather than scouring the planet for people who would consider buying from JBoss. ….

Open-source companies are long-term businesses that harness the fruits of transparency to capture leads and sell value. Open source depends on effective monetization of Internet traffic, be that website hits, downloads, documentation views, etc.”

These are valid points. My only question to Matt is why JBoss had to shift to the Fedora model if they were driving such remarkable revenues. Saying “Red Hat made them do it” isn’t a good answer ;-)

Some quick math, JBoss had less than $30M in revenue in 2006. At $40k a deal (the mid-point of the middle category of revenue from the graphic on Matt’s post), JBoss would have had 750 paying customers in 2006. At 7k qualified leads a quarter that equals 750 / (4 * 7000) = 3% closing rate. A 3% closing rate is incredibly low. An inside sales rep should drive a 25%+ closing rate from qualified leads. Now don’t forget that some % of those 750 customers are customers renewing from previous years, so the net new closing rate would be even lower. But I digest/digress.

Maybe the issue is when customers get something for free, you’ll attract some buyers, but the majority will be locked into the “free” base price. Growing sales beyond the customers willing to pay for the value your OSS product delivers is challenging.

This is the Catch 22 of OSS.

The OSS business model is great to grow from $0-$50M, but very difficult if you’re trying to get to $100M. Moving to the next step requires something like the Fedora model, where certain products are only available to paying customers. Starting with the Fedora model would alienate your early users and effectively kill your business. Sticking with the non-Fedora alienates your shareholders as the company attempts to grow to $100M+.