451 CAOS Theory 
A blog for the enterprise open source community
Can LoopFuse crack the open source conversion conundrum?
Matthew Aslett, January 25, 2008 @ 5:46 am ETThe merits of the open source distribution model in generating sales leads have been well documented but it’s always good to see statistics that back up the theory. I recently talked with a new open source software vendor (who will remain nameless, although in the interests of avoiding confusion I should state it was not LoopFuse) that shared with me some statistics about its first year distributing open source code and the comparative cost of lead generation using the proprietary model.
In its first year using an open source distribution model the company saw:
- A 12X increase in ‘awareness’ (web hits, community engagement, media mentions, conference visits etc).
- A 13X increase in web site visits.
- A 17X increase in software trials.
- A 40X increase in qualified leads.
- An 8X increase in engagements.
Of course, during a year in business you would expect to see an increase in awareness, trials and leads whatever the business model, but the following statistic puts the merits of the open source model into perspective:
- The company’s executives estimate that it would have cost in the region of $2m in marketing to get those leads if the company was not open source.
Instead of spending that money on marketing (and more besides on sales reps and field engineers) the company has been able to invest it into engineering and documentation, which both help to drive adoption levels. This is is not necessarily to say that the open source model is better, but it does nicely illustrate how it is very different from the proprietary model in terms of investing resources to drive growth.
Of course, the statistic that will have jumped out for many people is the drop from a 40X increase in qualified leads to an 8X increase in engagements. The theory that leads are not enough in open source software has also been well documented.
The ability to turn those qualified leads into paying customers remains a missing piece of the commercial open source puzzle. As Stephen Walli noted today, people might look to Red Hat, JBoss and MySQL as examples of successful open source business models, but it is still not clear conclusions can be drawn from their experience. “It’s definitely an area we need to go think about some more, figuring which software business ratios are significant and which practices to encourage,” he adds.
As Alex Fletcher previously noted: “Yes, proprietary companies are inclined to ramp up sales teams to hawk their products and yes, it is a competitive advantage that open source companies aren’t shackled to doing the same, but the $500k+ deals that don’t happen by way of traditional engagement [driven by vendor outreach] through a sales team are the minority.”
Of course, when it comes to lead generation, open source has a new answer to that in the form of LoopFuse, which made a splash in the press this week with its take on marketing and sales automation. It is no surprise to see the company targeting fellow open source software vendors as potential customers.
If LoopFuse does have the secret sauce, we should expect it to be the first to close the gap between lead generation and customer conversion. We will be watching with interest.
Comments (10) Categories: Business strategies,Software
Based on my experience with XAware, the impact of an open source model on distribution is far greater than even the numbers quoted above would indicate. XAware converted to an open source model with the launch of its XAware Release 5 in early November, 2007. In less than two months, which included the holiday season, the number of web site visits has been more than 3x the number from all of the prior year, nearly 100,000 visits in less than two months since announcing on November 6. The number of downloads of the software in the two months since announcing the open source model, approaching ten thousand, exceeds the number of prior users and trials accumulated over the company’s more than five year history. XAware is already seeing the expected benefits of wide distribution and use, with new users of the open source beginning to document use cases, make feature requests and identify bugs – which will drive up software quality and rate of innovation and adoption. The company is also experiencing inbound inquires about paid support services, availability of commercial license options and enterprise runtime management software made available separately under a commercial license model. We can now speak from direct experience that open source is a powerful and disruptive model for software that brings economic benefits for users and for providers. Bill Miller, XAware.org
Thanks for the insight Bill
[...] This just in from Matthew Aslett. A true must read if your business has anything to do with Open Source, as it clearly show how Open Source strategies can be a powerful marketing tool. Case in point: a unnamed company switching to an Open Source distribution model, with mind-boggling numbers about their first year of operations (emphasis mine): In its first year using an open source distribution model the company saw: [...]
Great stuff, Matthew, thanks for this. I found these numbers a bit scary to some extent, as they seem to show a somewhat poor performance of Open Source when it comes to generating invoices. Other than that, I can definitely witness the impressive lead generation capability of Open Source (though I would quite refrain from using the word “qualified”), as well as the sheer amount of resources required to perform conversion. I just wish Commercial Open Source had a better value proposition. I played a bit more with your numbers on my blog, and it’s a bit of a mixed bag. Would love to hear your feedback!
Hi Gianugo,
One important point that I didn’t make in the original post (and should have done) is that the figures for awareness, web site visits, software trials and qualified leads show year-on-year growth, while the figure for engagements is cumulative, so it’s not really accurate to calculate engagements as a proportion of leads.
Additionally, for small companies focused on just a couple of customers and a handful of leads the conversion rate is likely going to be disproportionately high.
That said, I agree that there is clearly more thought that needs to be put into the value proposition. I have noticed that this January, compared to last January, there were far fewer open source start-ups boasting about their download numbers. Maybe they realized downloads are not enough.
Matthew,
thanks for the clarification. It makes more sense now, but still I’m not sure if there is any metric we can rely upon, as semantics (eg. “qualified leads”, whatever that means) are getting in the way. At the end of the day I guess it’s just old school: bookings, bookings, bookings.
[...] Can LoopFuse crack the open source conversion conundrum? (451 CAOS Theory) [...]
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Sorry, LoopFuse is NOT an OSS vendor in any real sense.
I’d be grateful if you could amend that article: LoopFuse OS code was released as v1.0 under GPL, mainly – it seems – to get some publicity (which it did). Since then no changes or updates have been released to the OS code, and others can’t contribute, whilst the hosted app (that you refer to as the commercial offering) is at v3.9.
Yes, there is (early) OS code for LoopFuse, but description of LoopFuse as any form of actual OSS company in this way is disingenuous at best.
[...] Can LoopFuse crack the open source conversion conundrum? (451 CAOS Theory) [...]