6 ms·

From what I've seen, some businesses/organizations have been successfully employed open-source based business plans. However, they don't seem to be software-pro

by credo 16y ago

From what I've seen, some businesses/organizations have been successfully employed open-source based business plans. However, they don't seem to be software-product-development companies.Here are the categories I see 1. Software companies like Google: Google open-sourced Android, but Android isn't their money-making business. They want to use Android to help their primary business - search and advertising. They haven't open-sourced their search code or their ads code. 2. Consulting companies: These companies focus on generating money from software consulting, not from creating software products. So promoting the open-sourcing of software-products is good for them. The software/consulting division of IBM is a good example of this category of companies 3. Hardware companies like Sun: These companies make their money from selling hardware. They stand to benefit if software is free/cheap and easily available for their hardware. 4. Non-profits: These organizations get money from wealthy individuals/foundations and their software products/websites don't need to generate revenue. I'm curious to know of other open-source business models that have been used to build a sustainable business.

rythie 16y ago
RedHat made $653m last year, mostly by selling support.
- elblanco 16y ago
  That's an interesting example. I wonder how much of the software stack is profitable in this way? I'm willing to guess very little because most software isn't so horridly complex. If you need to pay for support services to use a web browser, a text editor, or some other completely normal piece of consumer level software for example, that would be the software's problem and only exemplifies the areas where open source doesn't work as well as proprietary. Companies make money from software because they devote lots of resources into making software easy to use. Relying on support services to float every random xyz piece of software will make for a very dead industry. The funny thing is that I've never actually seen any viable business models from the open source community about how to build a business around free software (as in beer and freedom) that wasn't entirely couched in "support services". This creates the unfortunate situation that if a company were to create a consumer level piece of software that was easy to use (say, anything by Apple), they would put themselves out of business. Their incentive then is to simply make the software terrible to use so they can sell support services. On top of this, the price of support services is often quite a bit higher than the alternative of just buying software. A thousand dollars of custom consulting will get you about a day's worth of labor hours. If I need to bring in a guy for a week to setup some software, or purchase the $3000 easier to use proprietary software, I'll go with the cheaper option. Even replacing that software at some point in the future, due to lock-in or what have you, is cheaper. Paying a bunch of money so I can figure out how to use an OS to connect to the internet so I can send an email or make a home movie is a waste of my time and money. Ergo, support services only work when the cost of buying a proprietary solution that works out of the box (or with minimal support) is greater than the cost of the free software plus support services. And yes, I recognize that I'm talking about beer here, but for end-users of software, that tends to be the principle consideration. The truth is, most people and companies that use software care very little if their freedoms are being impinged by using MS-Office.
  - rythie 16y ago
    A few things: Mostly what RedHat sell is server services and a lot of the original market they competed with were similar services from IBM, Sun, SGI etc. I don't think support services work for desktop software, particularly not for non-business critical parts I don't think Open Source is really about the cost for larger businesses. It's about having something stable, reliable, predictable and ultimately knowing that you can get it fixed if it breaks. Google, for example made $23.7bn last year, their software stack, as I understand it, is completely either open source or coded internally, so they can fix anything that goes wrong. Had they been based on proprietary software, then they would be at the whims of some company who doesn't want to fix their issue (think Microsoft for example). Facebook have found the software they used was not able to work at the scale and cost they wanted so were able to tailor it to their needs, they would have found it difficult and expensive to do that with proprietary software. Companies around free software often sell services because that's what people want and they didn't often write most of the software themselves anyway. Whilst Open source does get a bad rep. for being hard to use, I think it's unjustified and if your people can't work it out then their not very good TBH. Most startups are based entirely on open source software, so there is a certain amount of proof that on the server, at least, it is easy enough to use. I think you under-estimate the cost of replacing software when large numbers of people have become used to it's intricacies and not forgetting many staff need training in order to use any software effectively. I've been involved in a few big projects and the people time involved usually outweighs the software by 10:1 even with proprietary solutions. Also bigger organisations are less risk adverse so they tend to buy support contracts on everything. Software is a commodity and the ones making a lot from it have mostly engineered a artificial situation where it's difficult for anyone to compete with them effectively. That is not good for you as customer and is a risky strategy for them.
    - elblanco 16y ago
      I want to return to something I said because on review I realized it wasn't really clear "The funny thing is that I've never actually seen any viable business models from the open source community about how to build a business around free software (as in beer and freedom) that wasn't entirely couched in "support services". " When I said "build a business around free software" I meant as the producers or authors of the software. The reason I make this distinction is that I think most of your examples involves companies building a viable business around open source software as users of the software. I'm also implying a distinction between authors of software vs. people who modify the source to do something they want -- and yes I realize that's a bit of a stretched distinction w/r to open source. Often times the authors are the same people who use and contribute small bits of modifications to the code. What I mean is that, say Apache for example, comes from the Apache Foundation. If I make some modification to the source to make it do some particular thing I want, I'm modifying the software in the same way a car enthusiast may modify their Honda to do something they want. (If, what I made is generically useful, I can submit it back to the Apache Foundation and perhaps cross the line to become and "author", but in most cases we're talking about people who mod software in some way). The last place I worked for does about $10bn a year. It's a technology company with their hands in projects as diverse as autonomous undersea robots to text processing systems. They've successfully built a business around a mix of proprietary software solutions and some small percentage of open source software. The default OS is some Microsoft Server OS, databases are almost exclusively Oracle or SQL Server, Web servers are almost always IIS. They also write a lot of their own software, typically in Java (even before it was opened) and/or Perl but most of the software jobs involve writing code in some highly proprietary development environment like those you find in finance, HR, or some other types of systems. Java and Perl just happen to be go-to languages because it's easy to find people who write in those. Python was starting to show up a bit as well when I left that job. They also get ok mileage from really true open source software. Red Hat finds its way onto some fractional percentage (along with Apache, JBOSS, and a few other odds and ends -- including the aforementioned Perl). But in many cases, they could do what they wanted with completely proprietary solutions. Those systems were usually selected due to some client requirement, or because the licensing costs are free (beer). I only ever ran into one true open source advocate in the entire place, and he was usually laughed out of proposal work because his "solutions" options would have extended the development effort by a year and required hiring an entirely new staff of people raised on that ecosystem rather than the preferred and proprietary MS/Oracle/Sun/Cisco ecosystem. Finding qualified staff to work on the open source stuff was frankly a continuous and quite major problem for us -- often times, because those people counted as people with specialized skillsets vs. the average run-of-the-mill trade school "tech guy" they simply cost more to hire. In other words, we ran the numbers over and over again, and open source rarely made sense for us. I do think that the reverse is also true though, for small startups open source can make a lot of sense in both senses of the term "freedom". For the bottom line, it's free, if you are doing something weird you can, in theory, mod the software to do something unique. It's not always easy, and I've seen many cases where the target goal was too big for the staff and the startup folded. Web startups are also interesting because for the most part, the work they do with open source results in a completely proprietary web app (something RMS has lamented on quite a bit recently). Many big businesses likewise do great things with and for open source (IBM, Sun and Apple come to immediate mind) in terms of funding the kinds of expensive Open Source development efforts that would otherwise not exist because building world class software by part-time hobbyists is extremely difficult -- there's really only a very small handful of those projects, and most of them have been funded recently by large corporations looking to leverage the initial investment/development effort to make their solution work like they want. But by and large, large organizations will move to whatever accomplishes their goals for the least amount of $$$. Even startups. If a startup can use a proprietary solution for $x thousands of dollars vs. modifying some existing open project to scratch some itch for $y thousands of dollars, and x<y they'll go with the solution that costs x. For example, how many startups use Windows or OSX as their primary desktop OS vs. some flavor or Linux/BSD? Probably most. This guy gets a lot of what I'm saying here. http://lunduke.com/?p=1075 http://lunduke.com/?p=1075 It's a great analysis of the problems in the community flavored with a hard dose of pragmatic realism. He gets it that "just do it open source" doesn't really make sense in many cases because the community is by and large made-up of people who don't understand what it takes to make a business.

by credo 16y ago

rythie 16y ago

RedHat made $653m last year, mostly by selling support.

elblanco 16y ago
That's an interesting example. I wonder how much of the software stack is profitable in this way? I'm willing to guess very little because most software isn't so horridly complex. If you need to pay for support services to use a web browser, a text editor, or some other completely normal piece of consumer level software for example, that would be the software's problem and only exemplifies the areas where open source doesn't work as well as proprietary. Companies make money from software because they devote lots of resources into making software easy to use. Relying on support services to float every random xyz piece of software will make for a very dead industry. The funny thing is that I've never actually seen any viable business models from the open source community about how to build a business around free software (as in beer and freedom) that wasn't entirely couched in "support services". This creates the unfortunate situation that if a company were to create a consumer level piece of software that was easy to use (say, anything by Apple), they would put themselves out of business. Their incentive then is to simply make the software terrible to use so they can sell support services. On top of this, the price of support services is often quite a bit higher than the alternative of just buying software. A thousand dollars of custom consulting will get you about a day's worth of labor hours. If I need to bring in a guy for a week to setup some software, or purchase the $3000 easier to use proprietary software, I'll go with the cheaper option. Even replacing that software at some point in the future, due to lock-in or what have you, is cheaper. Paying a bunch of money so I can figure out how to use an OS to connect to the internet so I can send an email or make a home movie is a waste of my time and money. Ergo, support services only work when the cost of buying a proprietary solution that works out of the box (or with minimal support) is greater than the cost of the free software plus support services. And yes, I recognize that I'm talking about beer here, but for end-users of software, that tends to be the principle consideration. The truth is, most people and companies that use software care very little if their freedoms are being impinged by using MS-Office.
- rythie 16y ago
  A few things: Mostly what RedHat sell is server services and a lot of the original market they competed with were similar services from IBM, Sun, SGI etc. I don't think support services work for desktop software, particularly not for non-business critical parts I don't think Open Source is really about the cost for larger businesses. It's about having something stable, reliable, predictable and ultimately knowing that you can get it fixed if it breaks. Google, for example made $23.7bn last year, their software stack, as I understand it, is completely either open source or coded internally, so they can fix anything that goes wrong. Had they been based on proprietary software, then they would be at the whims of some company who doesn't want to fix their issue (think Microsoft for example). Facebook have found the software they used was not able to work at the scale and cost they wanted so were able to tailor it to their needs, they would have found it difficult and expensive to do that with proprietary software. Companies around free software often sell services because that's what people want and they didn't often write most of the software themselves anyway. Whilst Open source does get a bad rep. for being hard to use, I think it's unjustified and if your people can't work it out then their not very good TBH. Most startups are based entirely on open source software, so there is a certain amount of proof that on the server, at least, it is easy enough to use. I think you under-estimate the cost of replacing software when large numbers of people have become used to it's intricacies and not forgetting many staff need training in order to use any software effectively. I've been involved in a few big projects and the people time involved usually outweighs the software by 10:1 even with proprietary solutions. Also bigger organisations are less risk adverse so they tend to buy support contracts on everything. Software is a commodity and the ones making a lot from it have mostly engineered a artificial situation where it's difficult for anyone to compete with them effectively. That is not good for you as customer and is a risky strategy for them.
  - elblanco 16y ago
    I want to return to something I said because on review I realized it wasn't really clear "The funny thing is that I've never actually seen any viable business models from the open source community about how to build a business around free software (as in beer and freedom) that wasn't entirely couched in "support services". " When I said "build a business around free software" I meant as the producers or authors of the software. The reason I make this distinction is that I think most of your examples involves companies building a viable business around open source software as users of the software. I'm also implying a distinction between authors of software vs. people who modify the source to do something they want -- and yes I realize that's a bit of a stretched distinction w/r to open source. Often times the authors are the same people who use and contribute small bits of modifications to the code. What I mean is that, say Apache for example, comes from the Apache Foundation. If I make some modification to the source to make it do some particular thing I want, I'm modifying the software in the same way a car enthusiast may modify their Honda to do something they want. (If, what I made is generically useful, I can submit it back to the Apache Foundation and perhaps cross the line to become and "author", but in most cases we're talking about people who mod software in some way). The last place I worked for does about $10bn a year. It's a technology company with their hands in projects as diverse as autonomous undersea robots to text processing systems. They've successfully built a business around a mix of proprietary software solutions and some small percentage of open source software. The default OS is some Microsoft Server OS, databases are almost exclusively Oracle or SQL Server, Web servers are almost always IIS. They also write a lot of their own software, typically in Java (even before it was opened) and/or Perl but most of the software jobs involve writing code in some highly proprietary development environment like those you find in finance, HR, or some other types of systems. Java and Perl just happen to be go-to languages because it's easy to find people who write in those. Python was starting to show up a bit as well when I left that job. They also get ok mileage from really true open source software. Red Hat finds its way onto some fractional percentage (along with Apache, JBOSS, and a few other odds and ends -- including the aforementioned Perl). But in many cases, they could do what they wanted with completely proprietary solutions. Those systems were usually selected due to some client requirement, or because the licensing costs are free (beer). I only ever ran into one true open source advocate in the entire place, and he was usually laughed out of proposal work because his "solutions" options would have extended the development effort by a year and required hiring an entirely new staff of people raised on that ecosystem rather than the preferred and proprietary MS/Oracle/Sun/Cisco ecosystem. Finding qualified staff to work on the open source stuff was frankly a continuous and quite major problem for us -- often times, because those people counted as people with specialized skillsets vs. the average run-of-the-mill trade school "tech guy" they simply cost more to hire. In other words, we ran the numbers over and over again, and open source rarely made sense for us. I do think that the reverse is also true though, for small startups open source can make a lot of sense in both senses of the term "freedom". For the bottom line, it's free, if you are doing something weird you can, in theory, mod the software to do something unique. It's not always easy, and I've seen many cases where the target goal was too big for the staff and the startup folded. Web startups are also interesting because for the most part, the work they do with open source results in a completely proprietary web app (something RMS has lamented on quite a bit recently). Many big businesses likewise do great things with and for open source (IBM, Sun and Apple come to immediate mind) in terms of funding the kinds of expensive Open Source development efforts that would otherwise not exist because building world class software by part-time hobbyists is extremely difficult -- there's really only a very small handful of those projects, and most of them have been funded recently by large corporations looking to leverage the initial investment/development effort to make their solution work like they want. But by and large, large organizations will move to whatever accomplishes their goals for the least amount of $$$. Even startups. If a startup can use a proprietary solution for $x thousands of dollars vs. modifying some existing open project to scratch some itch for $y thousands of dollars, and x<y they'll go with the solution that costs x. For example, how many startups use Windows or OSX as their primary desktop OS vs. some flavor or Linux/BSD? Probably most. This guy gets a lot of what I'm saying here. http://lunduke.com/?p=1075 http://lunduke.com/?p=1075 It's a great analysis of the problems in the community flavored with a hard dose of pragmatic realism. He gets it that "just do it open source" doesn't really make sense in many cases because the community is by and large made-up of people who don't understand what it takes to make a business.