There is no such thing as Commercial Open Source

While Bernard Golden and I agree on many things we do not agree on commercial open source. I believe it was John Roberts, CEO and founder of Sugar CRM, who first coined the term "commercial open source" as he was raising money from VCs. The term stuck and many others rode the term through funding events. John is clear that his company is a commercial company that leverages open source. His competition is saleforce.com and his strategy and tactics are to gain market share and leverage open source to his competitive advantage.

In Bernard's latest Navica newsletter, he challenges Savio Rodiques of IBM and Matt Asay of CNet and Alfresco on their assertions that "commercial open source" companies cannot scale above $100M in revenue. Bernard argues that low pricing creates much larger demand through price elasticity and that 3% close rates on leads are OK if the sales effort is very low such as Land's End catalog sales which amount to over $1B in revenue per year.

In my view commercial open source was trendy 2-3 years ago for raising venture capital. It has meant nothing but confusion to either the IT buyers or the developers. If you cruise the SugarCRM website, the front page and most of the tabs now show a logo tag line "break away". They have not dropped the old logo with the tag line "commercial open source" which is still on 50% of the tabs (I assume they are gradually moving away from the old logo). Not once on the front page is open source mentioned. Under the products section SugarCRM uses open source to explain their differentiation or unfair advantage. This is consistent with my assertion that Sugar is really a commercial company - period. Sugar values its open source community and leverages them to seek an unfair competitive advantage. Sugar is price competitive to saleforce.com and I would bet they measure their lead to close for ratio revenue against salesforce.com - not as a percentage of downloads.

IT executives understand what is a commercial company and how they want to do business with them. Developers understand open source and how to leverage it. That works. Is there any revenue ceiling for commercial companies leveraging open source? - no. Is there a ceiling for any company that gives away most of their product value and gets only a small conversion, say 3% in revenue customers? - yes. JBoss owns about 25% of the their market and less than 5% of the revenue. I have no idea how much revenue is garnered by Open Office but it is very small compared to total downloads. If price elasticity mattered, Open Office would dominate Microsoft. Apple on other has set relatively high price points and is now winning market share from Microsoft as a commercial company. Ditto for iPhone. MySLQ, MuleSource, Funambol, are winning the old fashion way. Clear commercial value prop that is better than alternatives.

I vote to forever bury the term commercial open source and move on. Commercial companies are forming great relationships with developer communities, nurturing them to gain a competitive advantage. There are no scaling limitations, no $100M ceiling, and no pricing models that succeed by giving away to much value that choke the top line growth. There is only one chasm and there are no open source business models - only commercial business models.

Can we learn from open source and apply it to the commercial market? - you bet. Can a community of commercial companies leveraging open source work together with a community of customers and solve common problems and leverage each other's strengths? - you bet. Does open source represent a huge innovative and disruptive force that when augmented by commercial business models can create a huge breath of fresh air to IT orgs who need new alternatives? Yes.

Comments

[Dominic]

Great post and completely agree. All the debate about what it means to be "open source" and various definitions of "hybrid source" distract from what is most important: Delivering value to customers and how to build a business around that value. Let the marketplace decide what are the best business models, not arbitrary philosophical distinctions. Personally I believe that, eventually, releasing source code for free for community development and lead generation purposes will become standard-operating-procedure in most categories of software, but be so intertwined with various ways of monetizing and adding value that these arbitrary distinctions will be moot. Ten years from now, vendors and industry experts will wonder why we spent so much time debating these issues, and so little time paying attention to what customers really care about.