Open Source Strategies

A blog about open source software and business models, enterprise software, and the opentaps Open Source ERP + CRM Suite.

Monday, April 18, 2005

Two Can Play this Game - Trial By Fire 2

Part two of a continuing series on unique business challenges facing open source projects and businesses.

Let's say that you have a successful open source project or business: Customers love the low cost and flexbility. Venture capitalists are beating a path to your door. Even slashdotters think you're cool.

Then, one morning, you wake up and find that--

A commercial ISV waives licensing fees on a competing product.

Think it can't happen? Ask yourself this:
  1. How many razor companies give away the razor to sell blades?
  2. How many printer companies give away the printer to sell cartridges?
  3. How many cell phone comopanies give away the phone to sell services?
In every industry, imitation is the sincerest form of capitalism. If there really are enough profits from services to forego licensing, how long would it take your competitors to figure it out as well?

This is a risk every open source project and open source software company needs to plan for.

If your open source strategy is just about the lowest price, then you have a real problem. Once your competitors respond by waiving licensing costs, what advantage do you have?

Fortunately, open source can be about more than just price. Because it creates a high level of user involvement, an open source project can provide some unique benefits that are priceless. For example:
  • Can community testing and patches help you produce higher-quality software?
  • Can community input focus your development efforts and make you more efficient?
  • Has the open source development process made your code more modular and cleaner?
  • Does your source code really offer customers greater flexibility?
  • Can you build a global, distributed development model and innovate faster, better than your competition?
  • Are your users more loyal because they are part of a real community, rather than just passive licensees? Will they go evangelize for you?
In other words, do you have a real community, or do you just offer free stuff? This will determine whether your project (and company) is more like Amazon.com or a Pets.com.


In the end, your commercial competitors may be doing you a favor by waiving their licensing fees. They will draw away users who were just interested in "free." Now you can focus on a core customer base which really appreciates the true value of your offering. By re-focusing on its needs, you will eventually emerge stronger.

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