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Stuart Cohen, writing on Business Week, declares
that Open Source business model is broken (See Techmeme discussion).
For anyone who hasn’t been paying attention to the software industry lately,
I have some bad news. The open-source business model is broken.
He argues that Open Source companies are struggling because they could not
add proprietary kind of value on top of the open source software. He, then,
debunks open source as a pure play business model and goes on to argue that Open
Source, instead, adds value to businesses through collaboration.
In fact, I agree with him about the latter part but I think he is wrong to
consider Open Source as a business model. I wrote about it almost two years back
in my personal
blog. I have argued that pundits are wrong in considering Open Source as a
business model and, then, went on to argue that Open Source is a philosophical
platform which adds value much like how Science plays a role in this world. I
had argued that various business models can dance on top of the Open Source
platform. Any talk of Open Source as a failed business model is meaningless and
it is better to argue that entrepreneurs failed to come up with viable or
innovative business models on top of the Open Source platform.
Mr. Cohen was right on target when he pointed out how Open Source adds value
to businesses in the form of collaboration. He argues that businesses needs
software with the same “ingredients” as other businesses and they can share the
costs and work together in the development of open source software. The
importance of this statement can be seen in today’s SaaS world. Cloud Computing,
in general, and SaaS, in particular, could bring down costs mainly due to the
widespread use of Open Source software in their platform stack. Vendors could
transfer the cost savings they achieve with the use of Open Source software to
customers. In turn, vendors could offer their resources to the development of
Open Source software. Google is a perfect example of this. Google leverages Open
Source to its fullest potential and, in turn, recruits Open Source developers as
employees and allows them to spend considerable amount of time to work on Open
Source projects. This kind of collaboration is a win-win situation which can
only be possible in the world of Open Source.
Another area where Open Source can add value in the SaaS world is in building
the confidence of the customers. There is definitely a huge risk in the SaaS
world when customers put their data on the hands of third party vendors. There
is always a possibility that a SaaS vendor can go out of business putting your
data at risk. Not only the customers have to get the data out of the outgoing
vendor, they also need to find a compatible SaaS application to keep going.
Unless the old vendor is offering an option to export the data in an open
format, the customers are in for a big trouble. Plus, many customers may want to
stick with the same application due to various reasons. This is the kind of
scenario where releasing the SaaS application as Open Source adds value to the
customers. They could just install the app in one of the cloud infrastructure
available and keep going as if nothing changed in their world. Mindquarry, a
collaborative software, is a perfect
example for this kind of scenario. I have emphasized
this kind of value
addition for a long
time.
Instead of spending time arguing if Open Source is a viable business model or
not, it is important for us to understand the true nature of Open Source and use
it innovatively to add value in areas like SaaS, SaaS’ next iteration called
Enterprise 2.0, etc.
A point missed here is the positive PR that developer discussion can bring to a company. (I have lifted this point from the slideshow about Google that is floating around). Google Code brings Google a lot of good attention from the discussions of the developers on the open source projects hosted there.
Smaller companies like 37 Signals also benefit from similar PR they got from developers using their Ruby on Rails.