A blog for the enterprise open source community
The five ages of vendor-led open source revenue strategiesMatthew Aslett, December 1, 2008 @ 9:38 am ET
Before I got waylaid with traveling I wrote that each of the various open source revenue strategies might have its place depending on the stage of commoditization and the short- and long-term goals of the individual vendor.
I was thinking it might be possible to describe the lifecycle of open source strategies, but I never got around to following up on that… until now.
I hereby present the five ages of Vendor-led open source revenue strategies, which takes us through the evolving revenue strategies of vendors that dominate their own open source-based products.
Some vendors may stay longer at one stage than another, or even skip a stage entirely. I don’t claim this to be perfect, and it doesn’t necessarily work for vendors that build a business around community-led projects (I’ll come back to that), but I think it is essentially accurate:
The Support Age
The vendor releases its open source project, prompting widespread downloads and disrupting the market. Since it has first-mover advantage (especially if it uses the GPL) the vendor is the only source of support and services and benefits accordingly from its support-based revenue strategy, which provides support, training and consulting. A dual licensing strategy may enable the company to generate additional revenue from open source-shy ISVs and enterprises.
The Subscription Age
As the software matures and users become more comfortable with it community-based support is a viable alternative to ad hoc support contracts, while third party training and consulting businesses appear. The vendor looks to ensure more repeatable and long-term revenue through the addition of a subscription offering featuring updates, bug fixes and support etc. The subscription offering also enables the vendor to commit to indemnifying its commercial customers without the need for a separately-licensed version.
The Value-add Age
Enterprise users have built up a decent level of expertise and are able to self-support with confidence. Given the maturity and quality of the underlying code some begin to question the need for long-term subscription plans for non-mission critical environments. The vendor responds by adding additional features and services to its subscription offering, such as management capabilities, while maintaining a 100% open source software strategy.
The Extension Age
With the underlying code base even more mature the vendor is struggling to convert large download numbers into paying customers and there is the constant need for newer services to maintain interest in the subscription offering. The vendor turns to the Open-Core strategy and begins to offer proprietary functionality either delivered as a service via the subscription offering, or as a standalone complementary product.
The ?????? Age
It remains to be seen. One possibility is The Golden Age whereby the vendor hits upon a revenue strategy that provides balance in supporting the needs of both community and commercial users, bringing an end to war and poverty, aligning the planets and bringing them into universal harmony, allowing meaningful contact with all forms of life, from extra terrestrials to common household pets.
More likely though is The Acquisition Age, whereby the vendor sells-out to a larger player. My money is on The Embedded Age, whereby the open source software becomes a component of a wider commercial package, either through the extension of the Open-Core model, or through absorption into a larger vendor’s commercial software strategy via acquisition.
UPDATE – As suggested in the comments, The Hosted Age should be added to the list of potential outcomes. I wrote previously about the convergence of open source and SaaS and how the two model complement one another. Several vendors are already moving in the direction of SaaS being the enterprise deployment model for community open source software. – UPDATE
Any other ideas?
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