I’ve been catching up on reading and found this on Roberto’s blog which pointed to this story on Matt’s Infoworld blog.

One interesting point that Roberto highlighted was Matt’s comment:

“They would buy from us, anyway, even if we gave them the code. Not all of them, mind you: most of Europe seemed to be running Alfresco (Community – then our only open source product) without paying us a centime. But we figured that these companies wouldn’t buy from us, anyway.”

Well put Matt. What’s wrong with a set of customers who don’t pay for using your open source software? Non-paying customers don’t directly cost you anything other than *maybe* a few dollars in bandwidth.

But they provide significant value.

Non-paying customers are users first. So, they may find and report bugs (although these users likely won’t get an expedited response) that would also impact your paying customers. So they help with product quality.

From a competitive standpoint, isn’t it better for a customer to be using your open source product without paying, than using your competitor’s product?

Depending on the openness of your community and the development practices at the non-paying company and their industry, you may receive some fixes or new function from this customer set.

But most of all, these non-paying customers act as a credibility badge for your product. How many of us search for some tool, say a password keeper, and finding 10 of them, narrow our review process to the top 2 based on the number of downloads? Try as our parents did to teach us otherwise, “peer pressure” still impacts a large portion of everyday decisions.

Which brings me to this HBS Working Knowledge article titled “How Do You Value a Free Customer?” The research behind the article is more focused on multi-sided markets, i.e. companies that serve two or more distinct customers who need each other to form a market, although the company may only drive the majority, or all, of its revenue from one party. The author provides EBay, Monster.com, or the Real Estate market as examples. Traditional models of CLV (customer lifetime value) don’t take into account the value of, say a buyer, if the seller is who pays. As the author puts it, traditional models ignore the network effects.

Vendors (OSS & traditional) focused on converting non-paying customers shouldn’t lose sight of the value these customer provide.