Sales and marketing for open source – same difference

Pentaho’s CTO James Dixon has been defending the open core licensing model against criticism from myself and Gartner’s Brian Prentice.

Specifically, James states: “Matt Aslett (451) and Brian Prentice (Gartner) talk about code contributions and R&D practices but rarely mention S&M”. He goes on to explain how he sees fundamental differences between the sales and marketing strategies and budgets of proprietary and commercial open source software companies.

As it happens, I’m very happy to talk about sales and marketing as we have just published a CAOS report, written by my colleague Jay Lyman, on “how open source software drastically changes the sales and marketing approach”.

As Jay outlined in his recent post, one of our key findings was that open source can enable significant savings in software sales and marketing, but it is often a case of spending differently rather than spending less.

The research was based on a series of in-depth profiles addressing the sales and marketing perspective of a number of nine high profile commercial open source vendors, supplemented by a sales and marketing survey of 25 open source vendors, as well as the previous CAOS survey of more than 1,700 open source software customers and end users.

50% of the vendors we polled said they spent less on sales and marketing efforts when compared to their experience or knowledge of traditional software vendors. It would appear from James’ analysis that Pentaho would be in that category. However, a near equal number (46%) reported they spent differently, rather than less.

Illustrating this, we found that while open source reduces the need for some traditional resources, such as salespeople, customer visits, sales offices and market research, it pushes more of the work and investment to the Web and in-bound marketing activities.

We also found that while open source generally provides greater speed in development and time-to-market for software, it can actually slow down the return on sales and marketing investment, since the user has the option to self-support without making contact with the vendors until they choose to do so.

While Pentaho was not one of the vendors profiled in our report, we did speak to a number of vendors using the open core licensing model. Perhaps their experience is very different from Pentaho’s, but they provided a few choice quotes that indicate that the open core model poses its own benefits and challenges when it comes to sales and marketing:

  • “The volume adoption in the open core component is required to make this model work. Done correctly, this model helps customers to find us and makes our sales and marketing model more efficient.”
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  • “We can compete with ourselves; i.e., our commercial product may not be purchased because our open source/core product contains sufficient functionality to solve customer problems.”
  • .

  • “Continuing to maintain the right balance of functionality between the freely downloadable open core and the commercial extensions is both art and science. It’s critical to get that right so the model continues to grow and advance.”
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  • “Number one [challenge] is differentiation between core and commercial versions. If core is good enough, your commercial sales will be impacted.”
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    There is much more detail on sales and marketing for open source in Jay’s report, including the survey results, vendors profiles, and best practices for commercial and community sales and marketing strategies. More details here.

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    5 comments ↓

    #1 Brian Prentice on 04.01.10 at 6:37 am

    Good insight Matt. I’d just add one observation. Ten years ago we were hearing a similar story from many SaaS vendors. But if you look at them today they’ve staffed up with expensive direct sales forces, alliance teams to manage the wide array of partnerships and added big marketing expenditure. There’s still a lot of water to go under the bridge but the benefits that open core providers advocate in saving S&M may be more a function of where they are in the business cycle than anything tied to their “business model,”

    #2 Matthew Aslett on 04.01.10 at 6:41 am

    Thanks Brian – good point on business cycle as well.

    #3 Doug Moran on 04.01.10 at 11:30 am

    Hey Matt,

    I’d like to add an interesting observation about competing with the core product. That was a big complaint from our sales people in the past. As time goes on, we see more and more of those “losses” turn into wins. The common reasons are that the project has grown to be more critical to the company, a new project comes on line, the cost of paying an FTE to support the software goes too high, the list goes on.

    A perceived loss to the core product is much better for us than a real loss to a competitor. The customer has the benefit of being able to solve their problem early and can choose to move to the EE product when they can realize a real return on that investment. They get value sooner and we get a pipeline of future business. It does take time and patients to fill that pipeline and it is an incentive to make the core product high value. I believe the ratio of loss to core vs loss to competitor is an indicator of a good EE vs open balance. A truly crippled core product is unlikely to beat anybody.

    Doug Moran
    Pentaho Community Connection

    #4 Matthew Aslett on 04.01.10 at 12:26 pm

    Thanks for the insight Doug. I agree “a truly crippled core product is unlikely to beat anybody” and I think this is a lesson that has been learned by most vendors.

    #5 Eric Barroca on 04.01.10 at 5:33 pm

    Hi Matt,

    Thanks for this analysis. I’m very convinced of this: open source in itself does not reduce sales & marketing. The software and the web-enabled distribution model does.

    Started a comment to this post and to Brian’s one, but made a blog because both comment were growing and overlapping. 🙂

    Full post here: http://bit.ly/crgeHS

    Cheers,

    EB.