Last week at OSBC I attended an interesting discussion between Matt Asay and Gartner’s Brian Prentice, much of which was spent discussing the relative merits of open core and pure open source business strategies.
Brian has written up his thoughts on the discussion, and I thought I would also add mine since there were a number of areas in which the discussion overlapped with my presentation on business strategies the previous day.
In short, Brian is not a fan of the open core model, despite it being a current favourite of many VC-backed open source specialists. There was a particularly amusing moment when one of the audience members pointed out that Brian’s criticism of open core could upset the sensibilities of most of the vendors in the audience. “Yes?” replied Brian, somewhat bemused, before pointing out that it wasn’t his job to make them feel good about their business strategy.
I think Matt actually summed up the situation with open core pretty well when he described it as “a winning strategy with a lower case ‘w’.” There is no doubt that open core is one of the most popular strategies among open source specialists right now.
As I noted in my presentation, in our 2008 report Open Source is Not a Business Model, we surveyed 114 vendors and found that the open core licensing strategy was used by 24% of them, compared to 27% using a single open source license, and 16% using dual licensing.
For the purposes of my presentation I took another look at those 114 vendors and found that in 2010 30% are now open core, 18% single open source, and just 5% dual licensing (which put some previous discussion into perspective).
However, I also noted that only provided a limited picture of how vendors generated revenue from open source software. In 2008 we were confident that in selecting those 114 “open source vendors” we had identified the vast majority of vendors making money from open source software.
As more and more proprietary software vendors, and software service providers have engaged with open source development, the concept of an “open source vendor” has become meaningless, to the extent that I now think it would be impossible to repeat such a survey.
While open core has been a winning strategy in recent years, I have my doubts about whether it will be the Winning strategy in the long-term. One of the reasons for this, as noted in my presentation, is that it is a product-led strategy (as opposed to pure open source services-led strategies).
There are two trends that are likely to limit the long-term success of open source product-led strategies. The first is that the proprietary vendors are now using open source collaborative development and code to lower the costs and improve the quality of their own product development, and are better quipped to compete with open core vendors thanks to their installed base, larger resources, and product maturity. I have previously argued that open core vendors actually need to become more open to encourage wider adoption and collaboration.
The second is the shift towards software services (SaaS, managed hosting, cloud-based delivery), where the value being delivered is via services, rather than products. While we see some examples of vendors using open core like tactics to encourage SaaS usage by providing bells and whistles not available in the open source version, my feeling is that with software services the value is in the delivery, and that open core approaches become irrelevant (although I do think there is a difference between application- and infrastructure-level projects in this regard).
As we see more workloads shift to SaaS and cloud environments, and we see more open source start-ups born into the “cloud era” we will gain a better perspective on how software services impacts open source-related business strategies. That is one of the main topics we will be considering as we continue our research into open source business strategies.