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Open Source and Freeware

July 13th, 2007 by Jacob Ukelson

Selling IT to corporations is hard (well, selling to anybody is hard) and requires a lot of resources (especially around presale - POCs, Bake-offs, etc.) So a lot of VCs are looking to the open source model for salvation - not Open Source in its purest (as published in The Cathedral and the Bazaar), but as a way to lower the cost and frcition in selling to the enterprise.

The logic behind it is that the techies (especially in larger organizations) will download the software, play with it, and start using it in a limited way. This can be either as part of a project to solve a specific problem  (e.g. we need a new documant management systems), or just something that interests them as part of their job (why pay for a FTP client and server if you can just use FileZilla, or pay for a databsae if you can use MySQL). So the thinking is that this solves the issue of both penetration (the user find the stuff themselves), expensive POCs (the users will create the POC themselves) and the length of the sale cycle.

The second part of the open source equation is that users will become an active and viable community - both recommending and improving the product directly. Linux is usually given as the prototypical example - with a vibrant user community and a large number of developer\contributors. The allure behind this idea, and the feeling that you have more control (you can modify the code yourself, no vendor tie in, a community of developers\contributers) is what differentiates Open Source from just Freeware.

So how does a company make money off an open source product:

1. Sell services - any large organization that uses a product wants support, and will pay for it.

2. Sell add-ons, upgrades, premium versions - once they get used to the product, they will be willing to pay for added functionality

What doesn’t seem to work is proving a dumbed down, or partial functionality product to get people “hooked” and them sell them the full version, or leaving out important features.

So should you turn your enterprise software product open source. Before you you do here are a few things to consider:

1. How will the techies find your product? Is it a well know category (so that when  they need to find a CRM system, and the search for vendors, your product will show up - e.g. SugarCRM,).

2. Do you really have a technological breakthrough - or are you trying to sell an enhnaced version of a well established product category? If you do have a real, viable techical breakthrough - your code is open and you can be sure that the first people to download your product will be competitors looking for the “secret sauce”.

3. There are a LOT of Open Source projects out there -  take a look at Sourceforge, there are at least 100K projects out there. You’ll need to put effort (probably at least 1 or 2 people) to make sure that you stand out from the crowd and start growing a user community.

4. The open source download to sale conversion rate is low somewhere between 1 in 1,000 to 1 in 10,000, so you have to make sure that you get enough users to be viable.

5. It is a one way street, you can make your code open source, but it is really impossible to take back that decision once it is out in the wild.

6. Choosing a license - GPL gives you the most control, but many organizations don’t like it’s restrictions. Apache license seems to be universally acceptable - but gives you almost no control.

7. You need to decide what you will do with user submissions - and make sure you get the copyright for everything that is submitted.

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