Open Source Network Services

An add-on strategy for Open Source Service Companies and an added path for Open Source Business Models

See also: Open Source Commercialization

Description

"Investors and other parties with significant interests seem to have finally digested the fact that a certain portion of the addressable software market will not only pay for freely available open source software, but that they insist on paying for freely available open source software. It’s a prerequisite for adoption, in many if not most cases.

As could have been predicted given their profession, shortly after determining that open source firms could in fact make money, investors wished an answer to a slightly more complicated question: how could the open source firms make even more money.

Open source businesses, after all, while often profitable and largely sustainable on an ongoing basis, displayed few signs that they would repeat the trajectory of the proprietary software firms that preceded them. A trajectory that made these same investors the preferred “even more” money; the kind of money that’s necessary to subsidize their numerous failed investments.

Open source has immense advantages in distribution, true, but significant and ongoing disadvantages in achievable profit margins and customer conversion percentages.

This question, then, happens to be a good one. Or at a minimum, a better one than its “how will you make money?” cousin. How are open source firms going to make even better money?

There’s no one answer to this any more than there was one answer to how open source firms would make money. The commercial open source world can be seen in that context as one of the larger and more interesting public economic experiments imaginable. What will people pay for? Where can commercial entities add the most value? All these questions and more are asked and answered, after a fashion, on a daily basis.

What is increasingly clear to me, however, is that the traditional support and service models will be augmented - and perhaps replaced, in some cases - by network services and offerings.

Much of the revenue directed open source firms way thus far has been related to their willingness to pick up the phone when things go awry. In that respect, it’s remarkably like insurance. And though insurance is a fine, profitable business to be in, it’s not likely to be quite as rewarding or profitable in the software business as it is elsewhere. Nor are the ISVs needs aligned particularly well with the customer. If the ISV does a perfect job with the software, after all, why would the customer pay for support?

Network services, for the most part, do not suffer from these failings (though they may, of course, suffer from others). If customers share some data and telemetry back with providers, both parties may benefit. And that service will prove to be more compelling, I believe, for customers skeptical of the value to traditional support and service.

Consider the examples we’ve seen to date: MySQL Enterprise includes “MySQL Network Monitoring & Advisory Services,” Red Hat’s Exchange seems to be a first step towards marrying the Linux ecosystem with network efficiencies, and most recently Canonical’s Landscape, a lightweight network enabled systems management service for Ubuntu customers." (http://redmonk.com/sogrady/2007/08/20/more_money/)