Friday, March 03, 2006

Solving for the Open Source Variable

Digesting all the open source commentary over the last month has been like trying to solve a multivariate equation. It’s difficult to solve for x when everyone is talking about y, z & w …different frameworks, different assumptions and different variables. Because it was difficult to get a bearing, I’ve pieced together the following open source framework … feel free to fork it.

Open source is not a monolith. It’s a category definition for beliefs ranging anywhere from Stallman’s belief about open intellectual property to MySQL’s business model. As such, any discussion about open source is meaningless without context.

Open source doesn’t have one business model; it has many. At least four different models; Companies built around providing services to GPL companies, companies providing duel GPL and traditional licenses, companies open sourcing existing products as a loss leader, governments funding open source to sow system wide benefits. Probably more.

Open source is not a strategy. With the term thrown around so much, I always go back to Porter’s definition: “Strategy is the creation of a unique and valuable position, involving a different set of activities.” Open source is part of Porter’s “different set of activities”, not a strategy in and of itself

Open Source is an “activity” businesses can use to help monetize industry trends. Open source itself isn’t worth much. It has to be used against an existing trend. For example, if the trend is the importance of the SMB market, open source can be an activity that lowers your sales and marketing cost and makes this segment profitable. If the trend is platform development, than open source can be an activity you use to drive community and acceptance.

Open source has to be linked to revenue generation or costs reduction to be considered a legitimate “activity”. I don’t mean that revenue needs to be immediately booked. Perhaps you are laying the groundwork for 3-5 years down the road. Or perhaps open source is being used as a loss leader to get people to trade up to a traditional license. Regardless, you should be able to voice how open source activities will impact net income at some point down the road.

Open source activities can be co-opted. You don't need to use a strict definition of open source to realize benefits. You can co-opt those traits that are important or use some type of hybrid model. Microsoft is doing this with its shared source initiative.

Bottom line: Start from the trends in your industry and look at how open source can help you monetize them. Don't respond to the open source trend itself.

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