My accounting prof liked to say that “cash is king”. I believe him, and in 2008, I predict that cash (i.e. revenue and profit) will begin to matter a lot more to OSS vendors and their VCs/investors. I don’t buy the “OSS is different, so don’t compare us using metrics that commercial vendors are compared with” line of thinking. I’ll expand on this in the next few posts. I will also reply to 3 comments on a recent post.

Bill Miller wrote:

“But to have adopted “just use the commercial software business model from day 1” would never have provided the opportunity to have a business at all.

The assumption that they “…would have paid to get your product…” is a bad one. A lot (most even) of these user would not have paid for it and would never have used it at all.”

Bill, you are 100% correct, because of OSS awareness and preference, a commercial software business model from day 1 is not going to work in the majority of software markets these days. I agree that OSS lets a vendor reach a lot of users who would never have used your product. However, I do not think OSS is very successful at converting this set of users into paying customers. This has more to do with human nature than goodness or badness of OSS.

Let’s imagine that there are 3 users:

[a] Would have paid for a comparable product, and will pay for support
[b] Would have paid for a comparable product, but will not pay for support
[c] Would not have paid for a comparable product

In a Support Subscription business model, you will have 3 users, but only 1 paying customer. Is that good? Absolutely, you are trying to break into the mature and consolidated software market, so a large number of users are a good thing.

The problem is that user [b] was already looking for a similar product when he found the OSS product 1. If not for OSS product 1, he would have been stuck with a commercial product, or an alternative OSS product 2. Now you and I can argue what percent of [b] users can be convinced to pay for support. I suggest it is a very low figure. The problem is you’ve given the user something of great value for free (i.e. the product), and now you’re asking him to pay for something of much less value (i.e. the support). Before someone says “see, Savio doesn’t understand the high quality support that OSS vendors deliver”. I get it, but do you pay a premium for a BMW or Mercedes for the customer care when you take your car into the shop, or for the actual product? We are all trained to value products to a higher degree than the services that go around these products. I don’t want to minimize the ancillary services, but only to point out that we are trained to value products more. In software land, we’ve trained buyers to value support at approximately 15% of the value of the initial software cost. Also, [Heresy_On] OSS products of high quality provide little incentive to purchase support [Heresy_Off]. With all this in mind, how can we expect a large portion of users like user [b] to pay for the milk when we’ve given him the cow for free? (or something like that)

This is why I believe that OSS businesses of the future will employ the model that MySQL did with Workbench from day 1.x (likely not day 1 as it would kill the hopes of a community around the product).

This is a long winded way of saying: OSS businesses of the future will have to offer products to paying customers that are different than what is available for free. Emphasis on products. OSS proponents will have to leave “religious definitions” of what is and isn’t OSS at the door. OSS vendors, investors, and users will be better off.