Bee Keepers, the Chasm & Open Source

Confused? How about commercial open source and "the second chasm"?

Bernard Golden, CEO at Navica, has described a creative model of the "second chasm" in his July Newsletter. He is referring to a modification of Geoffrey Moore's well-known model of Crossing THE Chasm. The second chasm is his observation that on average only 1 in a 1000 users of open source solutions actually pay for the code. The result is that many commercial open source companies are experiencing slow top line growth. This can be OK if your company is cash flow positive and the management and shareholders are comfortable with running a user-growth as opposed to profit-growth business. However, many of the 150 or so commercial open source companies are VC funded and these VCs have clear expectations on exits and 30%+ returns on capital. Unless you happen to be in the right place at the right time like XenSource (bought for $500 million by Citrix), revenue growth is key. Here in lies the debate and frankly confusion over business models and chasms.

As part of Bernard's chasm discussion he refers to James Dixon of Pentaho and his paper describing bees, honey, bee keepers, and consumers of honey as a model representing code developers, open source code, commercial open source companies, and consumers of open source code. His point his that the bees work hard to create the honey and are less motivated to continue to produce if bee keepers are focused on making a buck on the creative content of the bees. I am not sure this model helps sort through the mottled values of the various interests around open source. Long before consumers tasted honey and bee keepers went into "business", bees made honey year in and year out and happily so. As consumers discovered honey, and bee keepers a market, the bee adapted to a new value chain. What makes commercial open source confusing is the treatment of bees and consumers as customers. The idea is that a small percentage of the bees will be consumers and that somehow this is a great business.

In my view there commercial open source is NOT unique to any other commercial business made up of buyers and sellers, competition, value propositions, profit incentives and investor returns. There is only ONE chasm. Moore has it right. The consumers begin as early adopters, accelerate to the pragmatists, and plateau with the laggards. If you are a commercial open source company you are actually a commercial company that happens to use open source as a competitive advantage. Your focus is on the buyer, the buyers needs, and the buyer's choices. In most cases this is the CIO and the IT professionals reporting to him/her. After many discussions with CIOs I have found that they are interested in solving problems and leveraging their IT strengths for some competitive advantage. They want to do commerce is certain traditional ways and are not interested unusual business models, legal issues, or difficult to understand or rely upon support models. They are not really interested in buying "insurance" for free software if their other choices include built-in insurance into a straight forward ROI value exchange between the seller and the buyer.

The open source developers are suppliers to commercial open source companies and as any normal supplier vital to your company's value proposition: they are to be respected, acknowledged, and rewarded. The successful bee keepers take very good care of the bees that serve them. My conclusions: (1) There really are no commercial open source companies, and branding yourself as such my be counter productive and confusing. There are only commercial companies that leverage open source to their competitive advantage. Your customers are traditional buyers who have alternatives, namely your competitors. You price to market, and bundle complete solutions that don't need insurance - just a relentless focus on customers satisfaction and incredible passion to help your customer succeed. You price to market and value - not to developer expectations. (2) Like bees and honey, developers and open source existed long before commercial companies leveraging open source. If the bee keepers want to enter the value chain, then it is vital to nurture developers with community contributions, services, barter, and where practical, monetary rewards. And (3) there exists a huge strategic opportunity for commercial companies leveraging open source. Namely, to repeat what the developers have done so well around code - collaborate. Such as around issues like interoperability and sign-on standards and more importantly with customers. Consider the huge leverage of getting your customers to form a collaborative project where they identify shared requirements, share resources to solve problems, and to work with your company to address issues and drive your roadmap to solve their future needs. Welcome to Open Source 2.0.

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