Open Source- open Money !

                At EC, we have a lot of people coming to us with all these different ideas about building portals. More because we often push Ads like ‘Have an Idea ? We have the technology. Build your dream web portal with ECBuzz.com’. So we get to listen to a lot of ideas everyday. And as true software guys, what do me and sushant do when we have to work out a proposal for something new, we follow the standard coders maxim : Good coders code. Great coders reuse !, and look out for existing softwares. We look out for all that free stuff, or better call it open source to reuse. And every so often, we used to wonder- how do these guys make money ? With all the code up for grabs, are these people so noble at heart and want to earn so much goodwill – of course not ! So this leads to the all important question – how do open source companies make money ?
           There are 2 entities here, the ones who write the original software (‘original company’) and the ones who take it, reuse and deploy (lets call these ‘parasite company’). The case of the latter is easy to understand- why reinvent the wheel, if someone is just giving it to you, take it, polish it and sell it. So we will consider entity 1 here. Lets try and see.
           So you come up with this great idea, find a loophole in the market, or just have a super enhanced version of some existing concept and you decide to make a software solution. After toiling hard and working with great passion, you build your product. Lets say you spent about $20,000 building it. Lets see how going open source is going to help you make money, both in terms of saving of essential investments and actually generating revenue.

Marketing : once you have decided to go open, you give away your code for free download, have it for a free download on your product website, blog about it like mad and post about it in every possible place you can. You start attracting some developer community attention – obviously its free and no one has anything to loose to download and see what you have done. It’s amazing how the word FREE has a specific magnetic effect on your mind no matter where you see it. Anyways, so people start downloading and messing around. To your surprise, the software starts reaching customers who would have never have even considered or even come to know about it. Here comes the most important point about going open – you need a software that is seriously good – because it is naked out there, a good enough will never attract developers and downloads. You didn’t spend a penny and your software is already going places by harnessing the power of open source to market itself. This much about saving on money – now about actually making some-

Service : You then put up pages on your website about a complete installation suite(1st source) – a preinstalled OS, DB, App Server and your free application over that and offer it for some price, say $5000. You can now officially use – free, open source, $0 only to attract all the attention you want. There is a good chance that a lot of prospects considering your software will go for you as of all the parasites thriving on you, you yourself are obviously the most reliable. Next comes your customization : Many of the users who consider going in for your free software, would need some arrangements to suit their own needs and since the idea of getting the software for free has already gotten them excited, they would not mind shelling out something like a $100/hour for customization(source 2). And once you have gotten your customer – you always have the enhancements :-) @ may be $150/hour which becomes our 3rd source.

Support : By now, with some amount of downloads and some community focus on your software, you would probably have an active support and knowledgebase on your site. Its obviously free until now. But now onwards, you start charging for a support package selling support on case basis or a monthly or yearly basis(Say $100/month). Consultants depending on your software and serving customers will not mind paying you for all genuine support. Every programmer has their style of coding that other coders dont understand and trust me, even if its open- tones will need support which is our 4th source.

Demoware Open Source : This is a somewhat debated but definitely a very effective way. Give a really basic, almost commercially non usable version of the software as complete open source. And have a professional and enterprise paid edition over it(Say $500 and $900 respectively). The lowest version suffices the basic needs, but people are stuck up during critical customer custom deployments and have to upgrade. Sugar CRM does this. But attracts a lot of criticism for marketing itself as open source while truly being our demoware open source. But they seem to be better off than other truly open source CRM’s. Proprietary softwares like Salesforce.com, Oracle On Demand and FreedomCRM are way better off in the CRM market though. Anyways, so this is our 5th source.


Collaborative Money : This is where open source is used to collaborate and help some other aspect of your business to monetize itself. Google have Wave and Android open for developers and cant we see the android boom now(2% to 7% growth in market share in just 6 months). Turning these into open source is actually their marketing strategy to market their software through the power of the community in order to be able to sell more Advertisements. So that’s source 6 to use the self marketing power of open source to generate revenue through some other aspect of the business.

        So as per our(just some rough) analysis, you need to sell 4 Installation suites($20000) or 200 hours customization ($20000) to break even and we have not even considered other sources.

        So open source is not about goodwill or spirit, its about fierce competition and capitalism. You know that the company next to you has the same piece of clay as you have and it all boils down to who can mould it better and sell, thus fostering innovation and productivity. No one can put it in words better than Red Hat CEO, Jim Whitehurst “If we all had to walk around naked, we’d spend more time in the GYM”. :-)