Open Source Strategies

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

Tuesday, August 30, 2005

Does Open Source Matter?

The recent split of the Mambo developers raises this interesting question:
Does Open Source Really Matter?

In other words, does it matter if software is really developed by a collaborative community? Or is it good enough just to be able to get it for free?

Author Bernard Golden has written a very good perspective on this topic, entitled The Difference Between Friend and Faux Open Source. While being tactful enough not to name names, Bernard's article still gives a convincing argument that it does matter, because:
  • A collaborative open source community ensures the viability of commercial vendors built around it.
  • A truly open community protects users from vendor decisions.
If you have some time, I would highly recommend reading through it.

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Friday, August 12, 2005

Open Source Mayonnaise

Here's some incredibly valuable intellectual property:
  • 1 cup oil
  • 1 egg
  • 2 tablespoons of lemon juice or vinegar
Beat and mix well together.

What's this?

A recipe for mayonnaise, one of the most popular condiments in America. Now you have the secret for it, courtesy of a Google sesarch for "mayonnaise recipe."

This intellectual property is even more open than open source: it's in the public domain. So how are companies like Best Foods and Kraft able to make it in the food industries with their versions of mayonnaise?

Simple: by offering predictability and benefiting from economies of scale.

For the end users of mayonnaise, like delis, restaurants, and consumers, Kraft and Best Foods offer the predictability of quality. No need to worry about it coming out too sour or too lumpy--it's the same taste in every bottle. Important when you make sandwiches all day long.

For the resellers of mayonnaise, like grocery stores and supermarkets, they offer predictability in supply. Imagine losing loyal customers because you don't have something as basic as mayonnaise in stock. For all but the largest resellers, they also offer the advantage of scale. When the a jar costs $3 retail, you won't save much by trying to make it yourself.

And how do the manufacturers themselves benefit? Through scale and distribution. By creating a vast distribution network of resellers which allows them to manufacture and sell mayonnaise in large quantities, they are able to translate a thin gross margin into respectable returns on investment.

So what if somebody had owned "mayonnaise"? Perhaps there'd be a mayonnaise billionaire somewhere. But more likely, it'd be much more expensive, many fewer people would eat it, and it'd just be another odd condiment on the bottom shelf.

The lessons for software:
  1. There's more to a product than just knowing how to make it.
  2. You can always make money by delivering the complete package to the end user.

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Monday, August 01, 2005

Hotels and Homes

After two trips in two weeks, I've thought of a simple way to compare open source and commercial software:

Commercial software is like living in a hotel room.

The software vendor is like a hotel operator. They provide you with a set of services, and you pay them. If things break, you call them. There's a certain predictability to it. On the downside, your ability to customize is limited. It may also not always be there for you, an experience we've all had when our favorite hotel has closed or been sold to new owners.

Open source software is like living in your home.

You have a lot of control over it. You can pretty much make it do anything you want (within legal limits, of course.) Your options are more open. With your own home and with open source software, there's a full spectrum of service options available, from doing it yourself to hiring contractors to everything in between.

When are hotels and commercial software right?

Hotels and commercial software are right when:
  1. Your needs are fairly standard and well-addressed by existing service providers (hotel operators or software vendors.)
  2. You are happy with the price they charge for their services.
  3. You are reasonably comfortable that they'll be around (important for software) or don't really care if they aren't (usually the case with hotels.)
When is open source software right?

Like a home or its mobile cousin, the RV, open source software appeals to two distinct groups of people.

One group likes it for the low cost and don't mind either foregoing some features or doing work themselves. For example, traveling in an RV will allow you to save a lot of money, if you can do without housekeeping. Similarly, with open source software, you can save on licensing costs, if you're willing to support it yourself. Alternatively, you put together your own support package by shopping around from different vendors.

Another group has very special needs, and they can't find or don't want someone else to take care of those needs. Think about movie production trailers and surveillance vehicles--few hotels can be as accommodating. Similarly, open source software allows you to implement custom, unique, or differentiating features far better than most commercial alternatives. For many organizations which use open source software, this is a far more important reason than lower costs alone.

The future?

With the emergence of software-as-a-service (SaaS) or application service providers (ASP), will the future of software look more like hotels and homes? Will you one day "rent" generic software from SaaS or ASP providers and then use open source software as the basis for mission critical, differentiating software?

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