The Business of Selling Free Software

© 2011 Tasktop Technologies

EclipseCon 2011 – March 22 14:30 – 15:10

Neelan Choksi@neelanneelan.choksi@tasktop.com

CurrentlyPresident & COO of Tasktop Technologies – manage business development, sales and marketingMentor at Capital Factory, incubator in Austin, TX

PreviousCEO at Lexcycle – acquired by Amazon in 2009

Makers of Stanza, the most popular eBook reader for the iPhone and iPod

COO at SpringSource – acquired by VMware in 2009Company behind the popular open source Spring Framework

President at SolarMetric – acquired by BEA Systems in 2005Open sourced Kodo at Open JPA (Apache)

Andersen Consulting (now Accenture), Exxon Research & Engineering, MIT Blackjack Team

Who Am I?

Company who created and leads Eclipse MylynTop level Eclipse project – de facto standard for ALM IDE integration1.2 million downloads per month (incl. in 90% of Eclipse distributions)1 million users including majority of Global 2000, top 10 banks2010 Eclipse Community Award

Thought leadershipBoard member, Eclipse FoundationHelped IBM define OSLC standards for ALMInnovation and delivery partner for VMware’s Code2Cloud initiative

Headquartered in Vancouver, BC with offices in:United States, Germany, UK

ALM InteroperabilityALM / IDE Interation50+ integrations including RTC, HP QC, OSS, etc.

Tasktop Technologies: Overview

2011 - Anso Labs - ??? by Rackspace2010 - CodeSourcery - ??? by Mentor Graphics2010 – Sopera - ??? by Talend2010 - The Marrionette Collective - ??? by Puppet Labs2010 - Rabbit Technologies - ??? by VMware / SpringSource2009 - SpringSource - $420M by VMware2008 - MySQL - $1000M by Sun Microsystems2008 - TrollTech - $150M by Nokia2008 - Hyperic, Covalent - ??? by SpringSource2007 - Zimbra - $350M by Yahoo! 2007 - XenSource - $400M by Citrix2006 - JBoss - $350M by Red Hat 2006 - Sleepycat - ??? - by Oracle2005 - Innobase - ??? by Oracle2005 - Gluecode - < $100M by IBM

Open Source Acquisitions

… but are there any successful open source companies who are profitable other than Red Hat? Maybe SugarCRM, maybe Novell?

“There are two types of people, those who will spend money to save time, and those who will spend time to save money”

- Mårten Mickos (former CEO MySQL)

“We sell knowledge”

“This is a future where JBoss Group will also get its fair share of the ‘peace of mind’ market”

- Marc Fleury (former CEO JBoss)

Open Source Business Models

“We make money by:Providing world class support and services. This includes dependable 24×7 support, outstanding training and consulting services and indemnification for enterprise customers who are understandably risk-averse. Adding subscription products that deliver value to complement the Spring Portfolio. Selling subscriptions to enterprise editions of our full-stack products.”

- Rod Johnson (former CEO SpringSource)

Open Source Business Models

HardwareIn this model, the software is open sourced and given away for free to help drive sales of hardware

Dual licensingCommon with GPL and AGPL allows customes to purchase a proprietary licenses if they don’t like the open source license

AdvertisingCase Study: Mozilla Foundation

Other Open Source Business Models

DiscoveryChallenge today is not just building a great product; it is making sure your market knows about the great productFree and open source – is a great way of being discoveredRazor / Razor Blades Reduced Barriers to Adoption / Usage

No registration for product evaluation

Easy to get basic / installation support on forums

No cost to use

No involving legal / procurement in many cases

Support grass roots adoption – create opportunities for beachhead

Or is Open Source Just a Tactic?

Marketing and EvangelismOpen source evangelism is not usually limited to company boundaries. Viral-nature of open source drives growth.How many marketing dollars do you need to get a million users worth?

Quality Assurance and Corner CasesCommunity plays with products and provides feedbackSupport extensions to product so corner cases can be addressed by community

Or is Open Source Just a Tactic?

No longer good enough to just commoditizeMust innovate

Back to basicsClear delineation between open source value adds and commercial offerings

Free for up to X users or free to talk to other open source products

Free for academics and non-profits (and personal use)

Segment / Segment / SegmentFind the product’s “Saturday Night Stay Over”

The New Open Source Business Model

Return to basics is critical as open source is simply viewed as just another solution in the product category. Value is the key driver.

Open Source has a history of strong leaders and colorful personalities

Marc Fleury, JBossGavin King, HibernateRod Johnson, SpringLinus Torvalds, Linuxwhurley, Qlusters/BMC/Chaotic Moon

The Cult of Personality in Open Source

Larger than life personalities were critical to driving open

source adoption but…

Professional leaders who are more comfortable in the board room than creating controversy

Marten Mickos, formerly MySQL, now w/EucalyptusLarry Augustin, formerly VA Software, now with SugarCRMJim Whitehurst, Red HatMike Olson, formerly SleepyCat, now with Cloudera

Maturation of Open Source

As open source as matured, its leaders have matured as well.

CommunityLed by a communityMost code is contributed by community and most individuals are not paid to work on itCommunity also provides governance, code, etc.Examples:

Apache Tomcat

Eclipse

Ruby on Rails

Two Types of Open SourceCommercial

Led by a companyMost code is still contributed by company who pays employees to work on itGovernance by companyCommunity provides feedback, users, QA, marketing, revenueExamples:

SpringSource

JBoss

Tasktop Technologies

Open Source Faced Problems Generally Not Faced in Closed Source World

Proprietary software world:Few downloads / evaluation

100% contact info for everyone who downloaded

Open source software world:Massive amount of downloads

No idea who downloaded your product

Generally lower ASP (Average Sales Price)

Sales and Marketing Challengesin the Open Source World

Closed Loop Marketing

Website as main marketing

vehicle

Low costsales

matchedlower ASPs inopen source Accessibility

of low costCRM tools

Opportunitiesfor Closed

LoopMarketing

Technologies

Integrated (marketing, sales, support) interactions driving contacts to leads to prospectsIdentify and prioritize best leads to maximize sales efforts:

Score each activity done on the website, other marketing programs to provide prioritized lead list every morning to sales team

Measure… tweak… measure… tweak… measure…

Benefits of Closed Loop Marketing

The nature of open source lends itself to the principals of bootstrapping / “lean startup”:

“Demo – Sell – Build” very similar to open source philosophy of “release early and often”

Partner with the customer

Feedback is critical

Incorporate feedback and re-test

Venture money early can make you rigid, tied to a particular goal

Open source needs to take a life of its own allowing “inmates to run the asylum”

The journey to find a compelling value proposition is critical

Venture money can be a catalyst once you have that product / market fit and value proposition / adoption

Venture Money Too Early Can Be Bad

The Business of Selling Free Software

© 2011 Tasktop Technologies

EclipseCon 2011 – March 22 14:30 – 15:10

Neelan Choksi@neelanneelan.choksi@tasktop.com