Money rolls, cars and code

IT Manager’s Journal gives seven open source business strategies for competitive advantage.

  1. The Optimization Strategy: Use open, modular and conformable architecture to drive optimized applications of greater value up the software stack. i.e. Oracle’s 9i database running on top of Linux.
  2. The Dual License Strategy: Give software away in public license. If users want commercial distribution rights, they can buy a commercial license of a “Deluxe” version of the same product. i.e. MySQL.
  3. The Consulting Strategy: Enterprise solution costs are 70% implementation. Consulting costs are all higher margin than licensing. i.e. 10X Software provides consulting and strategic analysis of open source software.
  4. The Subscription Strategy: Selling software as a service. Revenue comes from maintenance, training and support; Red Hat is most famous for pulling this off.
  5. The Patronage Strategy: Supporting an open source project to drive standards adoption, or to once again drive value up the stack to something you can make money off of. Execution is key, however: you have to contribute code, money, and guidance. IBM pushes Linux and Eclipse to get people to buy their middleware and DB2, not to mention IT consulting from their Global Services division.
  6. The Hosted Strategy: Using open source to reduce engineering costs and increase performance to your hosted services. Google delivers accurate and fast search results thanks to a titanic computer cluster of 100,000 Linux servers.
  7. The Embedded Strategy: Using Linux in embedded systems means less capital outlay, lower hardware expenses and standards compliance. It also frees up manpower to concentrate on value-added software. ie. Neoteris.

Will you make as much money going open source as you did with proprietary software? It’s not guaranteed, and many OSS-focused companies have shrunk or disappeared. However, the only sure thing is change. Tthis anonymous comment sums up my thoughts on the paradigm shift in the software market:

The point is that companies do not have the right to make money in any specific way. As long as they add value, they make money…Open source/free software does not make any difference in this. It is a sign that the market is settled. We know how to make an operating system. Do not try to make a living by incrementally optimising it – it is not profitable any more. Build something on top of it, or start potato farming.

Pragmatism and a clear business strategy is key.