At OSBC last week, one of the most frequent (whispered) topics of discussion in the hallway conversations I both participated in and overheard was the ‘open source bubble.’ In other words, there’s mounting concern that some of the open source businesses gaining funding simply don’t merit it. This has little or nothing to do with open source per se, IMO, but rather betrays the herd mentality of those who would seek to profit off of it. Stephe’s got a good piece on the subject here, and while I’m not ready (or qualified, for that matter) to say that it’s a true bubble, I can say that when I hear VC’s demanding service providers ‘open source everything’ I get nervous.
Open source is a tremendous force in the software world, and I’m increasingly convinced that it’s a preferable development model under many circumstances, but what it is not is the solution to every problem. I have no problem with VC’s exploring opportunities for leveraging some of the advantages of an open source model – say in distribution – but demanding it? That makes little sense to me.
All that said, however, I remain convinced that applying open source to the industry analysis model is an idea who’s time has come. You might have seen some of the chatter around open source analysis over at James McGovern’s blog (1, 2, 3) or Jon Udell’s here, but clearly it’s an idea that’s piqued the interest of some very intelligent folks of late. James in particular got some folks asking me about it with his remarks at OSBC.
Now we’re certainly not seeking outside investments (unless someone wants to walk in with a sweet 7 figure buyout offer – then we’d probably listen ;), but I thought it would be an interesting exercise to examine our business as a potential investor might. I figured this would also be useful for the people who continue to ask us: how do you make money? What follows are some of the metrics investors and open source executives alike mentioned last week as their guidelines for open source business opportunities and investments.
Q: Given the fact that it’s difficult for smaller firms to break a new market by themselves, is the open source opportunity around an established mature market with viable, recognized players?
A: Three words: Gartner, Forrester, IDC
Q: Are there opportunities to disrupt the business models of the larger, incumbent players?
A: Not to the same degree as is possible in the software business, b/c people don’t scale as well as bits, but my belief is yes. Research, for example, is one area poised for significant disruption, IMO. Between the increasing distrust of commissioned research and the fact that research is now freely available all over the internet – and not just from analysts, please note – that revenue source for the established players would seem to me to be difficult to sustain over the longer term. We can afford that, because a.) we don’t do commissioned research and b.) research has always been an incidental component of our overall revenue. Likewise, making content open and freely available begins to leverage Google to build authority and visibility – while content locked behind a paywall conversely inhibits authority and visibility.
Q: Are there (sufficient) barriers to entry?
A: I didn’t record who said it, but one of the speakers last week contended that community is open source’s barrier to entry, and I concur. If our own experiences and those of working with commerical and open source communities alike have taught us anything, it’s that building a community is difficult, long term work. While we certainly don’t boast a /. or Groklaw sized community here at RedMonk, both James and I have been delighted at what we and our readers have been able to build together. We get nearly as many compliments about our readers comments as we do for our own work, which says quite a bit about the time some of our contributors invest in sustaining this community.
The other point to make here is on a question that I hear a lot, which is: given that we publish most of our current research and opinions to our blogs freely, aren’t we worried that other analysts can steal our ideas? I actually find this notion laughable for a couple of reasons:
- First, that implies that the only value we provide is captured in the blogs. That I don’t buy. As much as I like our content, a big part of what we do is behind the scenes; making introductions, looking for competitive opportunities to exploit, etc.
- Second, that implies that just reading our blog permits one to replicate our analysis, which I don’t believe. Analysis, rather, is dependent on the ability to make and see connections between different projects and technologies on the fly. If all you do is regurgitate, customers are smart enough to figure that out.
- Third, that fails to recognize the value of our many contributors, who enhance our own research by pushing back, giving us new suggestions, etc.
- Last, because our content is freely available, all a customer would have to do would be to Google the ‘idea’ that a competitor gave them to discover that it came from us.
So no, I’m not particularly worried about the risks of open content; they are far, far outweighed by the benefits.
Q: Is there extreme pain being felt by customers? If not, you’re going to have a tough time selling.
A: This one’s easy: talk to software vendors and ask them how much they like working with the big firms. Gartner Watch, after all, exists for a reason. I don’t know whether it’s a good or a bad thing, but we’ve been told on more than one occasion that people like doing business with us if only because we’re not one of the big guys. So is there pain? I think so.
Q: Do your customers have budget – is there money available for what you’re offering?
A: This is another question we get asked a lot, and I always defer to my three tier (will pay/might pay/won’t pay) customer segmentation. I can’t speak for the industry as a whole, but we’ve found that there are enough firms in that first category, that are willing to pay for the value that you offer, to build a very viable business.
Q: Can you offer your service in a painless fashion?
A: This is one advantage – maybe the only one – that the industry analysis world has over the software business. Our ‘switching costs’ are zero. To engage with us, one has only to pick up the phone.
Q: Is there long term sustainable differentiation from your competitors?
Q: Given that we’ve been around about 3 years, I don’t think we know the answer to this yet. Given that our business is one focused mainly around people, however, with community an increasingly important factor, my suspicion is yes, we can differentiate ourselves on a sustainable basis.
Q: Is there the beginnings of a great management team and can you build one in a capital efficient way?
A: Great management team? Ha! We may be stuck there
Q: Is your business simply about commoditizing the market, or can you seek to expand it as well?
A: We very much hope (and have seen, to some extent) the latter. Certainly we’d like to do our part in bringing the total costs of research down to more reasonable levels, but we’re also very oriented towards expanding into new markets and doing what we can to work with customers of all shapes and sizes. Would we like industry analysis to be available to customers who could never afford a subscription with one of the larger industry players? Absolutely. Maybe that’s with free content, maybe that’s with low cost services, but we certainly perceive a significant market growth opportunity rather than just a commoditization.
More importantly, we want to be sure that our open source analysis brings tangible benefits back to the open source projects themselves. Whether that’s giving them publicity and attention, contributing to them with some combination of time, money, and resources, we consider our relationship with open source communities vitally important. While our client base is mainly vendors, we value our relationships in the open source world very highly and will seek to give back at every opportunity.
As always, we’d appreciate whatever thoughts or suggestions that you all might have as far what we’re doing well, what we’re missing, and other opportunities (we’ve internalized the podcast suggestion, John, don’t worry ;). After all, you guys are our differentiator