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InfoQ Homepage News Marc Fleury on what makes open source business models tick

Marc Fleury on what makes open source business models tick

Months after the acquisition of JBoss by RedHat, Marc Fleury has been making tours with RedHat investors - explaining the business model and how it works.   Marc blogged some of his thoughts on the JBoss matrix, providing one of the most coherent explanations of how an open source business model is different from a proprietary license revenue business model around. Definitely worth a read for those interested in how open source business models are changing the face of the enterprise software development industry. The key portion:
So what is the business model? Very simply, we transform the way software is developed, distributed and supported...While there is no free lunch and there is still an economic price to this development, the upside is a highly leveraged development model where quality software and limited resources can achieve large-scale success. JBoss reached 1 million downloads when we were just 2 guys and a dog.

...the power of the model rests in the extremely low cost of distribution and sales. We reach millions of folks with free distribution and then monetize this base. It is a very efficient way to acquire customers. The result is that we spend 30 cents for every dollar of maintenance revenue, while the competition, on average, spends $3 for every dollar that ultimately comes in as maintenance. The downside, compared to proprietary software, is that on average we only monetize 3% of our user base for JBoss and roughly 10% for Linux. This low cost of sales we achieve through mass distribution is what makes the model tick. The customer gets to make up his own mind as to whether the software is any good as opposed to having to go through the vendor’s pricey and biased salesforce. This enables the OSS enterprise sales force to be very effective since they mostly are targeting highly pre-qualified potential customers.

The underlying key to the model however is to already have a popular open source product that will produce a user base that can be monetized.  This was also echoed by Larry Augustin commenting on the growth potential of open source business models:
if the product does not have the adoption and usage to generate pull, the model won’t work. The initial temptation is often to fix this problem by creating “push” (i.e. spending money on BMW-driving sales reps to push the product). While push may be an answer, the real answer needs to come from an understanding of why the adoption isn’t there. Why aren’t people downloading, installing and using our product? How can we better understand the needs of the user, and make our software more useful to them so they will want to use. After all, we’re making the software and source code available for free. Price is not a barrier. If people won’t use our software for free, how much good is push really going to do?

This is good advice for companies looking to 'dump' products into open source - don't do it. If the product isn't compelling to begin with, it won't necessarily work as an open source project.  In the Java community, many point to Apache Beehive as such an example, others have suggested that that Glassfish could be such an example.

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