Returning from OSBC last week, Gartner analyst Brian Prentice writes a post questioning the conventional wisdom of open core licensing. Brain argues that open core licensing provides significantly less value to the customer than it does to the vendor or the vendor’s venture capital (VC) backers. I agree with his conclusion, but don’t think that vendors or VCs should shy away from open core licensing as a result.
“The VC communities’ interest in open source, as I see it, is based on the view that a project’s associated community will lower development and sales costs. That allows them to build an attractive proposition when selling the company.”
Let’s begin by looking at single vendor controlled projects. These are the most common examples of successful, in terms of revenue potential, open source projects. If a VC still believes that a vendor will benefit from lower development costs as a result of selecting an open source development approach, they need to wake up. Look at virtually any single vendor controlled open source project and you’ll note that the vendor severely limits contributions from third parties. Amongst other reasons, ownership of the copyright and being able to track pedigree of the code contributions are key justifications for limiting outsider contributions. These are necessary steps for offering a commercially licensed product with confidence. Single vendor controlled open source projects do benefit from testing, documentation and translations from the user community. But these costs pale in comparison to the actual development costs. As such, I’d argue that lower development costs are not really a reason for VCs to invest in an open source project.
I would posit that lower selling costs are possible through an open core-based open source distribution model. However, Brian calls into question the value of open core distribution:
“The first is that open-core is a largely a re-tread of tired, old SMB packaging strategies which have almost universally failed in the market. Businesses don’t blindly jump into a free open source offering and then upgrade to a full-cost, proprietary product like it was some stimulus-response behaviour. From my experience they assess these products, from day one, based on the full version. That eliminates any sales benefit from the open source component of the overall strategy which, in turn, makes these open-core vendors just like any other small software provider slugging it out in a crowded market space.”
Businesses don’t blindly jump into any offering, free or otherwise. But developers absolutely do. I’m fairly sure that the Gartner customers asking for assistance regarding open source policies or open source product guidance are doing so because developers at the customer site are already using, or would like to use, an open source product. As long as the product is free, easy to acquire, easy to learn, has industry success or buzz and helps the developer be productive, the developer will at least evaluate the product. This is true for SugarCRM, Tomcat, Geronimo, Spring, Alfresco, Drupal or Eclipse, as much as it is for closed source products. For instance, we’ve see strong uptake in WebSphere Application Server for Developers since making it available for no charge last year.
A happy developer quickly becomes a proponent for the vendor’s product. This opens the door to a sale predicated on existing and productive usage of the product within the company. In the case of open-core licensing the sales rep will still have to spend time explaining the differences between the open community version and the commercial product. And the rep will still have to justify the price of the commercial product in terms of business value. But this will be a discussion with a customer much closer to making a purchase decision than by cold calling a customer without any previous usage history of the product.
Going back to Brian’s conclusion; that open core licensing favors VCs more than customers. Agreed, but is that a bad thing? Customers benefit, in the form of new features, faster defect fixes, better documentation, etc., when the open source vendor is paid for its work.
The previous attempt by open source vendors to balance customer and vendor needs by charging for support only proved challenging at best. Most large open source vendors have moved away from selling support directly to selling product licenses which also include support. This approach aligns with the standard industry practice of paying for product licenses in line with business value received. Until, or if, the cloud becomes the leading monetization route for open source vendors, I’d argue that selling product licenses, as is the case with open core licensing, is the best approach for open source vendors and their customers. Oh, and their VCs.
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PS: I should state: “The postings on this site are my own and don’t necessarily represent IBM’s positions, strategies or opinions.”