[Note: since I am writing this from a sunny beach, with a cell phone, I will not be able to add more than a few links to external pages. Will add the rest of them at my return, after the 12th of July]
It seems that Open Core continues to be the source of significant debate; I wrote quite a few posts in the past, and Open Core was one of our researched business models (for more details, see my LinuxTag presentation on business models). I would like to enter again the debate with a few short comments on my own:
- Companies using OC are not the devil, and should not be called names because of their choice of business model. Actually, there are no good and bad business models - only models that work, and those that do not. So, if open core works for a company, that’s a good thing.
- Open core models are somehow confusing for adopters. As a consultant for more than 100 companies and public administrations, actually explaining open core is one of my most common tasks. And the marketing message of companies is confusing: if you go to the Zimbra webpage (no offence against Zimbra, which is a company/product I love and use as example of good practice) you see the phrase “Zimbra – the leader in open source email and collaboration”, not “Zimbra – the leader in open source and proprietary email” (not that the phrase would win any context
) and the same for all the other open core companies. This is not, in my opinion, such a negative point if the website explains the difference between versions in a simple way, as for example both Zimbra and Alfresco do. - It is true that open core models tend to have a higher revenue than non-OC models. It is also true that OC does have an intrinsic limited number of contributions from outside (as we found in FLOSSMETRICS analysing a few hundreds packages), and as can be found in the mentioned LinuxTag presentation. So, you may have higher monetization ratio, but you basically forfeit external contributions. The CEO should decide what is more important – so the decision is not “ethical”, but practical and based on economics. You will never get the kind of participation that Linux, Apache and Eclipse do have in an Open Core model. If that is ok for you – that’s great.
- The fact that most VC are funding open core companies is just a data point. Lots of open source companies do well without VC funding.
- It is true that lots of people claims that “pure” open source models are not sustainable. Even my friend Erwin Tenhumberg (that is quite knowledgeable, expert and incredibly nice on its own) had a slide in this sense in his LinuxTag presentation; and you can find lots of comments like that in many publication (something like “the majority of OSS companies adopt the so called mixed model”, despite this being actually false, as we found in our survey of OSS companies). The point, like said before, is that the important thing is not that there is a superior model, but that for every company, every market there is an optimal model – it may be OC, it may be pure services, or lots of combinations of our 11 building blocks. The optimal model changes with time and market condition, and what is appropriate now may be wrong tomorrow.
- No open source model can achieve the kind of profit margins of proprietary companies. So, if you want to make your OSS company, remember this basic fact. If you want the kind of profit margins of Microsoft or Oracle, forget it.
So, to end this post, there are three critical points: whether the model is clear for the adopter (and this should be a given, and actually nowadays I would say that most companies are absolutely honest and clear on this), whether the software in its open source edition provides sufficient functionality to be useful to a wide range of adopters (and this is a fine line to walk, and requires constant adaptation) and whether the increased monetization compensates for the lack of external contributions, that can substantially increase the value of the code base (you are trading cash for code and engineering, in a sense).
Can we put this to rest? End the name calling, be friends, and call all of us family? Especially since right now, under the sun of Fuerteventura where I am writing this, it seems difficult to fight
[by the way: sorry for any misspelling. There is no spell checker here on this small screen...]
#1 by Karl Beecher - July 7th, 2010 at 17:36
I continue to enjoy your blog. Hope you’re enjoying the holiday (I know how you feel, unable to resist posting while trying to relax).
I just have a question on your first bullet point, stating that there are no “good” or “bad” business models. Your words, so I may misinterpret you, but those words, to me, carry moral connotations.
Are you saying that there is *no* moral dimension when deciding on the use of open core, or do you think that there *is* a moral dimension, but it ought to come secondary to business?
Enjoy the rest of your vacation!
#2 by cdaffara - July 10th, 2010 at 12:11
Dear Karl, many thanks for your readership
It is always heart-warming to know that someone knowledgeable finds what I write interesting.
As for the core of your comment: your question is very important, and would deserve a full post on its own. In the traditional theory of the firm there is no explicit ethical dimension, as it is implied that everything that is unethical is also illegal, and thus the firm is free to maximize revenues (or whathever metric they want to use as guidance) within a space that has no ethical connotations. In more modern views, several cases demonstrated that law and ethics are sometimes diverging, and thus now more companies are starting to include ethical guidelines as well. The company may or may not take this into account; this means that there is a moral dimension (there is a moral dimension in every human action, just that in most cases the implicit effect are so limited that it does not matters) but most companies are using it eventually as a secondary aspect – the primary condition is to stay alive, then comes everything else. Some companies are using it to guide business decisions; some “pure” OSS companies are clearly motivated by ethical considerations in their choice of business modes.
As for open core, I believe that if done in a transparent and informed way it does not carry negative ethical connotations with most ethical structures in use in the world nowadays. So, it should not be considered implicitly “bad”, that is something that seems to be widely believed right now. On the other hand, I am still not convinced of its long-term suitability, for economic reasons.