I wrote this a few weeks ago and held it back until now. I decided to publish this somewhat in response to Roberto’s post. While Roberto is trying to find a band-aid to the problem, I think we need to re-think the root cause of the problem.

I’ve been blogging about OSS for nearly 2 years now. My in the trenches experience with OSS goes back to early 2004. The constant drumbeat of “proprietary software is dead, open source is the only path forward” has been deafening at times. I’ll admit that I too used to espouse similar words. But, I am fortunate enough to work with colleagues who’ve been in the software industry since day one. They’ve challenged my thinking on open source and made me ask the difficult questions that OSS proponents don’t seem willing to ask. That’s why I’ve been writing that OSS will not kill the software industry as we know it. Rather, OSS will be a component of every software vendor’s strategy.

Like you, I read OSS proponents claim that the lowered marketing, distribution and sales costs associated with OSS would ultimately convince all proprietary vendors to open source their products or perish. These proponents could only hope to be as correct as one can be in predicting a winner based on the score after two innings.

Yes, OSS lowers marketing, distribution and sales costs. And yes, OSS is a great way to drive revenue from $0 to $X. The value of $X differs based on the software segment in question (i.e. operating systems vs. business integration vs. databases vs. content management). I’d put the value of $X at $100M for most software segments. Once an OSS vendor approaches $X, their business dynamics, and more importantly, customer dynamics, change dramatically. These changes were not wholly understood by OSS proponents making the “repent or perish” claims, simply because virtually no OSS vendor had run into their $X figure at the time.

As the vendor reaches $X, they have saturated Category “C” users (i.e. those with cash and willing to spend cash to save time). Now, the OSS vendor must try to win with Category “B” users (i.e. those with cash, but who have been trained by the OSS community to expect value for free). This is no small task. It is however a task that requires significant marketing and sales expenditures. The only way that you can convince these users to pay is through the same route that proprietary vendors have been using for decades; sell proprietary products. Sounds vulgar, I know. I’m sure many OSS vendors will try novel tactics instead. It won’t work. Selling proprietary products, while sure to draw fire from “the community”, is truly the best way forward.

I’ve had conversations with several leaders at large(r) open source firms who have all expressed that, contrary to published reports, selling open source products is, simply put, difficult and gets more difficult as the vendor grows. It’s not surprising that their employers are all approaching their individual $X. This is why I believe that a fresh look at the OSS business model is required. Nobody seems willing to acknowledge this. Strategies that work from $0 to $X aren’t necessarily the right strategies to grow beyond $X.

Next up: The OSS business model is broken – here’s one potential solution