tecosystems

As recently as two years ago, the dominant question we fielded in connection to commercial entities founded around open source projects was this: how will they make money? Why would anyone pay for something that is free?

Regrettably, we still field that one more than we may like, but in the face of the ongoing operation – not to mention the growth – of entities such as MySQL and Red Hat, it’s far less common than it once was. 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.

These are each interesting in and of themselves, and certainly distinguished from traditional break/fix type support services, but it’s their potential impact that I find most fascinating. These could compel even businesses such as ours to engage commercially with the providers in question. Commercially, as in we’d pay them.

Not great sums of money, it’s true, but something. Unlike the big guys, I have little intention of paying merely for support and service fees, because frankly little goes wrong and what does I can usually fix. But would I be able to justify expenditures for metrics on performance, comparisons with other similarly loaded machines, online security assessments, transparent patching, query optimization, problem application identifications, and so on? You bet.

And while we’re about as far out the tail as you can get, significant merely in aggregate, think of the opportunities for monetizing the quote unquote Web 2.0 players. Every single one of them has had difficulty at one time or another scaling or tuning or merely keeping growing server farms up and running. Some of their problems will doubtless require the attention of people, might not many of them be addressed proactively via a network connection? I can’t see why not.

If I were an investor, then, one interested in how open source firms can make even more money, I’d investigate the possibility of delivering value added services online. It may not be the only answer to the question, but it’s the one with the most promise as far as I’m concerned.

Disclosure: MySQL is a RedMonk customer and Canonical has expressed an interest in becoming one, while Red Hat is not a RedMonk customer.

Popularity: 12% [?]

Share This

Related posts:

1. Making Money With Software, or Because of It?
2. Open Source: Thinking Outside the Glass Box
3. “Hybrid” Source, MySQL, and the Economics of Open Source
4. Systems Integration and the Open Source Opportunity
5. Billion Dollar Open Source Businesses?