What ails commercial open source software companies?

March 25, 2015

Open source software is mainstream, open source has made (and continues to) the world (not just IT) a better place in many ways. There are many example of open source software ( Linux, android, chrome etc) to open source projects (gov data, open hardware, educational contents etc) However, we can’t say commercial vendors of the open source software have been very successful (upward of $500 million and profitable) in selling their subscription model and create a robust business – of course the most notable exception to this is Red Hat. Although, of late, there have been investments in and buyout of some of the commercial vendors and I wrote about it in my blog ‘Millions of Dollars in open source software business ..’, I feel these investments are more based on the promise than the past performance.

Why are commercial vendors struggling to grow despite being in the business for around 10 years or despite the fact that open source project has seen very high popularity (number of downloads), active contributors and deployments in large orgranisations in real projects.

Based on my experience working at Red Hat for 8 years (from 2001 to 2009) and later on 6 years dealing with many of these commercial vendors I can point out few areas that these companies are not able to address or areas that they need to improve upon. At Ashnik we deal with some of the leading names of these commercial vendors and hence I am not going to name any one in particular.

Focussing on free download or community edition deployment –

I have seen many sales executives building their business model or selling the potential of commercial success to the partner network based on these numbers. The reality is that those customers who have downloaded open source product and have deployed the community edition in real projects have tasted the joy of ‘free’ and ‘great product’. Now going forward these customers build their IT budgets attributing zero cost for these products. There is hardly any reason for them to pay for the subscription. For a sales person these are the most difficult customers to deal with. You can’t build your business based on this pipeline. Only thing is these customers act as endorsement for quality and usefulness of the product.

Distributor / reseller model in the initial phase –

Many of the commercial open source software vendors appoint traditional software distributors and resellers. It looks great on the paper that you have a reach in the market and now you can sit back and watch your cash register ticking. But this has not worked at all. The reason is for the open source product you need to go out and create a strong demand for buying subscription along with the awareness of the product. Many vendors that I have seen have tried to piggy back on the success of the open source project and assumed that customers would buy subscription through resellers. But without on-the-ground engagement with customers there is not going be a demand for subscription. This needs a ‘push’ strategy. Whereas reseller network is (in general) geared up to address ‘pull’ demand – which means customers calling and asking for the price of a product.

In such a scenario, it is important to appoint resellers who would go out in the market and create a demand. For this, commercial vendors need to create different margins and engagement model for the reseller. Most of the vendors have not shown understanding of this need.

There is one more reason coming in way of convincing the resellers to put in extra efforts to create pull from the market and it is about thin margins in net dollars. The open source products typically are priced much lower than proprietary products, hence even a higher %margin and promise of annual subscription does not given enough incentives to the reseller to invest in setting up sales and pre-sales team for these products.

This challenge can be addressed with innovative approach and identifying right partners. ( I can say that we have been able to guide and setup such models with the commercial vendors where they were open for discussions).

Sales and Channels team composition –

We all know that it is the people who make difference in success and failure. I believe that good sales people and people with adaptability would fit in any company, but we also need to understand that selling open source software to customers and building partner network needs additional understanding of the business. Many commercial open source vendors tend to recruit people from proprietary software vendors (typically their respective competitors). But I have seen that this approach has not worked for most. First of all the cost of these sales people is high and they have to go through steep learning curve that results in longer time to deliver. In many instances I have seen that these people have antagonized the reseller network with their approach (that comes from the business which operates on ‘pull’ model) and failed to capitalize on the goodwill of the open source project. Hence just recruiting your team from your proprietary software competitor is not a guarantee of success – rather most of the time it is counter productive.

 There are other areas that are equally applicable – whether you are open source or proprietary software company – to be successful in growing the sale and smart executives understand those things very well. What matters in case of commercial open source company is an understanding of the peculiarities of open source business and address them effectively.


2 technologies that are shaping business transformation

November 1, 2012

I wrote this blog first for my company’s website.

We all know how IT has become center stage of business transformation in last few years. It has its own challenges that are unique and at the same time has opened up new opportunities.

The senior IT executives have to deal with operational and strategic level challenges all the time.  On one hand there are project delivery, cost management, resource management, vendor management issues on the other hand there are other strategic challenges such as aligning IT to business needs, creating a roadmap for business transformation through IT, keep pace with new technologies and protect the bottom line while doing all the above.

Being in the IT industry for more than 22 years, I am able to understand how challenging it is to satisfy the constant demands from businesses.

I just wanted to share with you two trends that I foresee would be the foundation of enterprise computing (that would replace traditional IT ) and how we can help you.

Open source is one of the key technologies that has shaped the enterprise IT and now shaping the consumer IT. Actually with BYOD kind of trends, the consumer and enterprise IT is converging. I do not have to tell you how Linux, middleware such as JBoss, database such as PostgreSQL have come to become trusted technologies in large enterprises. The major stock exchanges, telecom companies, banks and technologies companies such as Google, Facebook, Salesforce etc, have embraced open source technologies to drive business needs.

We certainly see the bright ‘clouds’ on the horizons, as a new technology that we think would shape the coming few years of IT and business. Cloud computing does not mean putting everything on the public cloud. We certainly see big merits in bringing the cloud computing as a way of managing IT infrastructure inside your data centre. The agility, flexibility and scalability (both – up and down) this model brings, is what all the CIOs and CEOs have been looking for.

We, as a boutique consulting company are specialized in helping companies bring about business transformation by use of open source and cloud computing technologies.


Singapore, consider the open source way to achieve “quantum leap in productivity through pervasive innovation”.

February 12, 2010

Recently, the leadership in Singapore has stated its intent to grow the productivity by 3% and it has also identified, rightly so, that if it wants to make this happen it has to encourage the innovation. Very true. Gone are the days when you could through more cheap labour to manufacture some thing or you could push same labour to do more things in given time. This is an era of services industry and knowledge economy and not the 19th century manufacturing practices.

Productivity through innovation is the right way to do. But the question is, can innovation happen if you tell bunch of people to go out and innovate? Does it happen if you just throw money after it? Answer is no. Though it needs money and bright brains, it does not happen in isolation and silos.

Consider the examples where innovation happened to solve the real problems :

TED – open translation project :

When the prestigious platform wanted to make knowledge available (through the talks) to millions of people who do not speak English wanted to translate the work in 40 international languages, what did it do. It turned to its users – gave the tools in the hands of the users to translate the work. And the result? Job done in very short span of time, with such a low cost.

Goldcorp

Few years back, a Toranto based gold minning company was struggling with debts, strikes and bad market conditions. Prospects were not looking good for survival. How the CEO turned to mass collaboration and not just saved the company but took it from $100 Million to $ 9 billion company is an interesting case.

GE Plastics

When GE plastic wanted to grow it business even when it has 90% of the market share, how it turned to its customer with “toolkit” concept and not only increased its Total Addressable Market, but retained its lead in the market share.

Wikipedia

How the world’s largest encyclopaedia was created through user contributions in short span of time with little or no money.

The common theme in these disparate examples has been use of “mass collaboration and user driven innovation”

Now these are famous and well documented case studies. There are many more that have innovated through “mass collaboration”. If you notice there has been so much written about it in recent years and so many case studies are available. What Singapore can embrace from these solutions is processes, methodology and environment creation to address the problems through mass collaboration.

Open source software is one the earliest success stories of how collaboration, sharing and standardisation can help you do more with less and democratize innovation. Talking about standardisation, if you want to turn innovation into mass innovation, you need to create standardisation. In the recent presentation at Plug in conference in July 2008 Andy Grove, former chief of Intel, urged the American Automobile industry to learn from open source towards standardisation in regards to creating “ Green energy automobiles”

Creating a culture of adopting open source software in Singapore would help in many ways :

  1. Help create understanding of mass collaboration
  2. Help companies to deploy its capex and opex more efficiently there by improving the productivity
  3. Contributing to open source software would create necessary mindset toward innovation.
  4. Standardization, which comes with the use of open source software would lead towards mass innovation

When Thomas Goetz said the following, in 2003, it was prophetic, today is it is the reality.

“Software is just the beginning … open source is doing for mass innovation what the assembly line did for mass production. Get ready for the era when collaboration replaces the corporation. “

Gong Xi Fa Cai (Wish you very prosperous Chinese New Year )



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