As we prepare our new Enterprise offering around the OpenGeo Suite (PostGIS, GeoServer, OpenLayers, GeoExt), I have been researching open source business models. The more I read, the more I am convinced that the problem is not one of the open source company providing value, it is one of convincing customers that they are in fact receiving value.
The best discussion of open source business I have seen is the beekeeper model, written up by James Dixon of Pentaho software. It is well worth reading the whole article, but the idea is neatly summarized in this diagram:
The open source community is the bee hive. The company provides care for the hive, and processes the results into the kinds of products that customers expect. In open source, as with bees, customers are not really interested in the details of production (they may even find it kind of frightening), but they are interested in the final product.
The problem with this model, and really with all open source business models, is that customers don’t perceive the value in the non-software activities. And the reason they don’t perceive value is that the proprietary software model has conditioned them to believe that the only thing of value they receive from a vendor is the software. The documentation, the packaging, even the marketing information they show the boss, these are all perceived as zero-value wrapping to the item with real value, the software.
In fact, if you look at the expenditures of public software companies (and annual reports spell out this information) you’ll find that less than 20% of expenses are for actual software development.
When you take that attitude and transpose it to open source software, there’s a problem, because the software is free. And the extra services provided by the open source company are perceived to be, if not zero value, of very very low value relative to the software. This leads to a chicken-and-egg problem I have mentioned previously, where customers can’t use perfectly good software because it is perceived as “risky” without a professional-looking corporate entity behind it, but where they also won’t pay for the value-added service of providing that professional-looking corporate entity.
“Why should I pay so much money for free software?!?”. Why indeed. Imagine the feel of an unprocessed honey comb in your hand, the honey dripping down between your fingers and the bees still alighting on the frame. Open source companies provide value beyond bits and bytes, and that value is what shows up in the price tag.