FLOSS Business Models

One of the constant themes since the free software movement has hit the mainstream is how the can you make a software business successful when you don't charge per se for your software. This is a nonsensical argument on several levels. First off the philosophy of the Free Software Movement doesn't prohibit you from selling your software! They only require that you make the program and it's source available. Strangely people make the rather silly assumption that by making your software available freely you will undercut demand for the commercial version (ie the one that costs money). This is one of the strangest calculations I have seen people make in regards to the free software movement. For example here's a telling quote from the open source section of Wikipedia

Making money through traditional methods, such as sale of the use of individual copies and patent royalty payment, is more difficult and sometimes impractical with open-source software.

Yet there is no real explanation why this is often said, nor anything other than anecdotal evidence that it is true. Nothing prohibits the GPL model from selling individual licenses. When a corporation or individual purchase a piece of software they are not simply purchasing a single license, they are also purchasing access to support and the help desk and most importantly upgrades.

Software acquistion costs represent a tiny fraction of the cost of ownership of software. Most companies when purchasing a piece of software look at the after installation support and integration costs. They look at the support costs. They look at the help desk costs.

The above article seems to bemoan the relative lack of FLOSS companies operating in todays markets. But the challenges facing any FLOSS software company is no different than any closed source company. Indeed, it seems to me that starting a closed source software company is an inherently riskier proposition especially when chasing customers in today's markets. For example for a corporation to buy a piece of closed source software from a relatively new vendor is next to impossible as the risk that vendor will go out of business is far too high. Source code escrow will be required at least along with 2-3 years of financial data. Perhaps even a completion bond.

With an open source company may have these same challenges as well but availability of source code acts a risk mitigator for the CIO considering purchasing the software. Indeed if I were starting a new company and my market required selling to companies larger than 25 million in annual sales, I don't see how any approach other than an open source one gets you in the door. Getting source code out of escrow with a company in bankruptcy (a very real concern for any start-up company these days) is next to impossible.

The simple fact is that there is almost no difference between an FLOSS company and closed source company. They face the same challenges for adaption in the market. The FLOSS company has the advantage that they can use the open source nature of the company as a marketing tool to acquire customers, mitigate risks for their customers. Let's face it. Starting a software company is a risky proposition. Many of them are bound to fail. Being an open source software company just makes it easier to succeed.

Great MS Blog - from a former employee

This post is an especially great one about why a break up of Microsoft would have been a good thing.

Where are the MS web startups? How Microsoft is losing innovative developers.

There was a recent post by Joel Knauss' Bnoopy Blog It's a great time to be an entreprenuer about how now is the best time to start up. He cites several key factors

• Hardware is 100X cheaper
  
• Infrastructure software is free
  
• Access to Global Labor Markets
  
• SEM (Search Engine Marketing)changes everything
  

What's interesting to me is the infrastructure software component. It's almost uniformly the case that these start ups are running on the LAMP (Linux, Apache, MySQL, PERL,PHP) software stack instead of the Microsoft stack. At first I thought perhaps it was merely my bias that prevented me from finding them. Companies like Flikr, Jotspot, Blogger etc all uniformly have adapted the LAMP stack to launch their new products.

So I went in search of the web start ups that are using the MS stack. I started at Microsoft. It seemed to me that partnering with Microsoft is a good way to get a ton of publicity that a start up so desperately needs. Here's how I approached the problem. I assumed that Google is inifinitely better at searching Microsoft than MS is. Actually they about the same. I used the search term "startups" in a site restricted search. I came across this Business Startups at Microsoft. Since I am looking for startup success stories, I clicked on the Startup success link. Eventually I ended up here I suggest that you spend some time there. I have spent several hours there and it's apparent that Microsoft's venture arm is still quite busy and active, making Microsoft a good partner. It's also apparent that every single one of those start-ups are traditional venture plays (ie see a market, go after it.) Not a single start-up highlighted by Microsoft is truly innovative new service that change the way that people use the web. In part this is because those sorts of start-ups are quite rare, everyone want to make the next Flickr. Most of the start-ups on the Microsoft page are selling software to the Fortune 500, very often to improve some part of their Microsoft architecture.

I suspect that real reason that there is a relationship between the very best developers (those most likely to develop a world beater application) are developing on the LAMP stack. This crucial loss of the far right hand of the Bell curve for MS doesn't bode well for the MS stack. As has often been noted, programmers on the far right hand side of the bell are often 10 to 100 times more productive than programmers in the middle. With the loss of these free range developers, it will only continue to extend the ecosystem of open source software and the LAMP stack.

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Best practices for the Linux Home Office

Linux has a great set of articles on the best practices of running a home office on Linux. Find Part One, Choosing an ISP, Part III - Protecting your data.

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Beginning of the End For Middleware Companies

"The Apache Software Foundation is expected to launch on Monday an open-source integration server project, part of a bigger effort to create a full suite of Web services infrastructure software."

Building upon the Apache project is a natural extension of web services. As Apache is the market leader on the web (63% of the total market, this will drive further adaption of Apache in the enterprise by moving up the value chain by commoditizing previously valuable parts of the software spectrum.

"Chappell said that the Web services "intermediation" capabilities of Synapse are not directly competitive with commercial integration products, which offer more features.

"This will provide the architectural components that could be used in the broader scope of an ESB or be used in Web services management products," Chappell said. "

This is the beginning of the end for typical middleware companies. These are companies like Tibco, SeeBeyond etc. Why? While the commercial products offer "more features" those features are largely unused. CIOs want a unified look on their data across disparate systems. By offering that functionality at a significantly lower price point (free beer, free speech), they will lose the lower end of the market first. Eventually the feature set of Synapse will be sufficient to allow them to be used where a typical Application Integration software package maybe used.

For more information on Apache web services
Synapse

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Blinding of the Giant

I was reading an article about Bill Hilf, Microsoft's Linux Lab manager, when several things struck me as strange. First off Bill Hilf was hired in January 2004 from IBM. Before that Microsoft had no Linux lab. I find this remarkably telling. For years MS has been waging a FUD war on Linux yet apparently had blinded itself in the process. They assumed their initial FUD would be stop Linux in it's tracks and a deeper understanding of linux and open source wouldn't be necessary. So they didn't even bother setting up a lab to see why their customers were using Linux.

Another telling quote from the CIO of Microsoft,

"As a policy, I don't run anything that competes with Microsoft," Microsoft CIO Ron Markezich said in a December interview with CNET News.com. "My goal is to make sure Microsoft products are the best products in the world. It's an easy choice for me, in that sense, to run Microsoft technology. We don't run Unix. We don't run Linux. We don't run Oracle. We're 100 percent Windows, SQL Server."

No offense but if you don't run your competing products, how on earth are you going to make your products the best in the world? If you don't know what your competition is doing, how can you make a strong case that your product is better. The Oracle example is quite telling. Oracle is the leader in databases. If I were a CIO thinking about moving my mission critical application to SQL Server, I would want more confidence that Microsoft is a superior product (just a equal product means why would you switch?)

It seems to me that INTENTIONALLY blinding yourself because it wasn't built here is a particularly poor strategy, especially in an environment where you are selling the superiority of your products over the competition.

Part of the problem is the MS philosophy of eating your own dog food. Through the use of the product internally, you can drive improvement of that product. There is however downside to that approach, namely you blind yourself to the potential advantages that your competitors may have.

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