Whether ompanies making lots of money with open source may not be preferred by enterprises

There have been a number of discussions lately on whether enterprises care whether what they use is really open source (EOS Directory), whether they are ready to contribute (Matthew Aslett, 451 chaos theory) and on how companies can design their revenue model (e.g. the open core thinking). Having talked to many enterprises over the last months and years they have their own perspective on this. Most enterprises want to work with long term viable partners, they want to use software that is still there in a couple of years and many want to purchase some sort of an insurance protection to make sure that if things go wrong they have access to help and support. The whole commercial software movements and the related VC funding is a consequence of this. However, not in all cases this lead to the best solutions and approaches. Many enterprises prefer software products that have a large community supporting it. Commercial open source software however often leads to models with fairly small companies doing the core development of a specialized product, the community being reduced to a testing and bug reporting role. Enterprises also prefer to have full access to the source code, even if they never want to use it themselves. And enterprises love software that can be supported by a number of different providers to create a competitive marketplace. Software from the Apache Foundation scores well along these criterias. VC backed open source companies forced to make money and therefore protect and monetize their IP have more difficulties to live up to these mentioned enterprise criteria. Seeing the constant changes in business models, license models and go-to-market approaches, companies out there are still looking for the recipe for success.There are a number of ways to make money with open source and combined with this there are a number of trade-offs to make and decisions to take:

  • Should the core of the product be open source or commercial?
  • Should extensions of the product be open source or commercial?
  • Should you build a slim more consumer oriented version as open source and an enterprise oriented feature rich version as a commercial software?
  • Can you monetize “management services”, such as packaging, testing?
  • Can support services be provided for money?
  • Do users need training services and are ready to pay for it?
  • Can professional services such as product consulting, implementation/integration support be marketed?

When a company wanting to make money with open source has to answer the questions above, then there always have to be considered some consequences in key areas of the business. How will potential partners (needed to bring the software to the market) accept revenue models, how will a community react, how will potential customers cope with it? And does a decision restrict the company in the way other software components can be integrated or used?The ideal scenario for Enterprises might be a company with a widely open product (core and extensions) and an attractive but not mandatory services portfolio on top. Ideally the product is able to attract a large community and the processes and procedures applied ensure a high standard for – software quality and a manageable release frequency. It is obvious however that with such an approach growth and expected multiples are less attractive for investors than IP and product centric companies. We have even observed that a number of companies have moved away from the ideal scenario after they received VC funding and are now protecting and monetizing more and more of their IP. Which, in some cases, makes them a less attractive choice for enterprises.The continuous struggle on how to make money with something that is perceived as being free will continue. We most likely will see new models and trials and sort of “thanks” to the current economic conditions we well probably also see more humble approaches that may actually please enterprises much better than some of the marketing oriented open source misuses that we have observed in the market.