Open Source Strategies

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

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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