Customers Not Thrilled with Open Source Business Models Preferred by Many VCs & Open Source Companies

  

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The “best” open source business model is a topic that has generated lots of discussion.   Unfortunately a lot of the generally accepted conclusions on the “best” business models aren’t in sync with what customers prefer.

In many cases, venture-backed commercial open source companies are gravitating towards open-core models where the core code is available as a community edition under an open source license and the “non-core” items are made available through a subscription to an enterprise edition.  In addition, many COSS companies own the copyrights on all of the code, employ most or all of the committers, and contribute almost all of the code – essentially creating a “company-owned” community. 

However, companies that use open source aren’t thrilled with these business practices and models.  In a recent survey that we conducted, respondents told us that they are least likely to use open source is that backed by a single vendor and their least favorite business model is “open core”.  These survey results align with what we hear from our customers at OpenLogic as we work with them to select open source projects offered under a variety of business models.

Projects that are backed by a single vendor with an open core model start to look a whole lot like proprietary software companies.  Customers feel like they are being locked-in just as they are with proprietary software.  There often isn’t a competitive market for commercial support and they must buy the proprietary enterprise edition to get critical features.

The question then becomes, why would COSS companies gravitate to these business models and practices that customers don’t like?  The answer is that vendors often believe that pure support models or dual license models aren’t viable as a way to build a business.  COSS companies fear that giving up the proprietary code and closed communities by which they create lock-in means that customers can just walk away – or go elsewhere for support.

And they are right.  With pure support models or dual license models, customers can go elsewhere.  If you don’t deliver a valuable service at a good price, the customer can easily switch to another vendor.  However, the solution to this isn’t to revert to the familiar practices of proprietary software companies.  Rather, COSS companies need to think about new ways of doing business.   In industries where there is no opportunity for lock-in, value and service are the levers that businesses use to attract, grow and retain customers.  The COSS vendors who can leverage those models will be the most successful.

COSS vendors need to find ways to develop successful, profitable business models without the security blanket of locking customers in with proprietary technologies.  At OpenLogic, we’ve developed a business model with that in mind.  I’ll blog about the lessons that we have learned in a future blog post.