10 May

Giving away the Store ...

Bill Burhnam notices the upcoming endgame of tactical open source business

In Indian Outsourcers: Open Source's Best Friend or Worst Enemy, Burnham describes the latest chapter in the open source story as the battle between outsourcers and Open Sourcers over support profits.

Having myself been part of what he describes as the first chapter, I'd wish that he (and others) go back and recall some of the early discussions of Open Source business models, before the support side was anointed as the One True Model with Redhat - there was tactical AND strategic sides both at that time.

But what he's describing is the endgame for the tactical side - read more...

Burnham writes of an outsourcer who not only integrates open source solutions on contract, but then will support them including the open source elements together for $10/hour, cutting out the open source creators support revenue stream as well. He suggests this means that following the obvious example of Oracle eating RedHat's support lunch, outsourcers will take an increasing cut of the support profits away from open source products.

Open source has long been cannibalistic, with less aggressive ones having been eaten by more aggressive ones - just the law of the jungle. Some have even obfuscated products intentionally to make it more difficult to support by other parties. Ironically, its often the clarity of open source over proprietary ones that allow them to outmaneuver and win accounts, because its easier to integrate.

The scenario of support being undercut, either by a megacorp (Oracle), an outsourcer, or even a channel partner, was long understood as a vulnerability to this business model.

Yes, this can be done competitively or cooperatively, but in the end tactically it boils down to who owns the customer owns the revenue, and who supports the support business owns the scalability of the revenue. Those that try to do both run the risk of driving up costs and becoming non-competitive to specialists.

Open Source is a horizontal business that tends to fragment as it matures, as it is perfused into the broader market. When you try to "verticalize" it, you lose many of its competitive advantages, allowing the instant opportunity for a rival to spring forth. Burnham is right to be wary of predicting futures here, but not for the reason of choosing which of two paths here.

The problem is bigger - you can't simply pursue a pure support business model for open source. You must consider the strategic side of open source - which has far greater revenue opportunities anyways. But that's a topic for another essay.

Posted by william at 22:37 | Comments (0) | Trackbacks (0)
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Re: Giving away the Store ...

Hi William,
Great post. I am looking forward to learning more about the strategic side of open source. I think a lot of open source companies have not reached the conclusions you have with regards to the unsustainability of a maintenance model, at least the ones raising money from VCs don't appear to be heralding this change :-)

Posted by: Bill Burnham at May 11,2007 17:46
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