Opening OSCOM panel: "You can't make money on open source"

Prof. Charles Nesson is moderating a panel on business models and the open source movement. 

* Ed Boyajian of Red Hat, who says they’re in the black, talked about the enterprise solution opportunity and the good news of getting support from the capital markets at the right moment. 

* Gregor Rothfuss of Wyona (a service company, not a product company) says they’ve been in the black since its founding.  There’s been no local v.c. community in Switzerland to speak of for Wyona to work with.  But they’ve benefitted from going open source which he says gives them a competitive edge.  Open source product companies — shrink-wrapped — can’t work.  Wyona sells consulting services.  The pitch for standards should be made as effectively as possible.  XML itself is not the answer.  You need a strong and viable community.  Wyona has joined the Apache bandwagon as a way to join such a community.  The pitch that’s working for financial players in Switzerland: the long-term security of their code base.

* JT Smith, CEO of PlainBlack, also runs an open source company in the black.  Active State, O’Reilly, lots of others are making money at Open Source.  IBM and Sun also produce open source software and are profitable.  Yes, you can make money making open source.  Don’t worry about talking techy, focus on what your customers want and develop multiple revenue streams.  There’s a myth out there that open source community’s software is lousy — we need to overcome that myth.  The open source community needs to be all about marketing.  There are 604,000 users on SourceForge and 140,000 on FreshMeat.  If you’re not using them, you’re making a mistake.

* Ed Kelly of Ropes & Gray, (“batting clean-up,” says Charles Nesson) has been a coder, a business executive and is now a leading intellectual property lawyer.  Ed’s playing devil’s advocate, talking truth about what Venture Capitalists are looking for in investments.  Right now, VCs are saying that it’s tough to make money doing anything, so making money from open source is just another tough thing.  VCs are generally disposed against open source because it gives up a key revenue stream (licensing) and are against those who stumble into open source or are philosophical zealots.  VCs will listen, though, if you’re using open source as a marketing approach to increase other sales.  Important also that you retain the ability to release things under a proprietary license.  It can work to have open source as part of your business model, but not the whole thing.

Hypo, from Professor Nesson: Dudley Dooright stumbles into an open source business model and distributes wonderful software that makes them famous.  But they have no money.  So what do they do?

Ed Kelly: That’s the MySQL story.

Dave Winer, from the audience: Just getting VCs to invest is not a business model with revenue and other good things.

JT: They have multiple licenses.  And no one is doing it better than MySQL.

Mike Olson, of SleepyCat, from the audience: Beg to differ.  MySQL is on the edge of a cliff.  No one realizes they can get the same thing for free.  Uncertainty is what’s allowing them to charge for their software.  But without that uncertainty…

Ed Kelly: First, it’s a common mistake that open source just means the GPL.  You use a copyright approach that lets you release some of the code base open source and then charge by contract for other parts of the code.

Denise Cooper of Sun, from the audience: Lots of stuff is not in the GPL, which is really just a copyright notice.  Troubling: the GPL is undermined when developers want some work to be sequestered and then edit the GPL for their own purposes. 

Ed Kelly: The primary point of GPL is to disclaim liability.  (Denise: I so disagree.)  Most users are trying to protect themselves from catastrophic damages.  Academic research institutions can release code without fear of liability.

Prof. Nesson: So you’re saying that Dudley Dooright should just hold some back and make money from proprietary licenses.  Is that right?

JT: You can release the code and then charge for other things, like support.

From the audience: I run a small company doing open source.  It’s taking weeks to hash out a license.  Mr. Dooright has the same problem I have. 

Ed B.: Open source isn’t a business model, it’s a development model.  The contract issue is routed into the business model question.

Larry Rosen of OSI, from the audience: There’s a lot of money to be made in open source.  IBM and HP and Sun are the ones making the money, and it’s because they’re devoting lots of money and staff to the work.  Is there any way for open source companies to compete effectively and to prevent the open source development to be co-opted by big rich companies?

Ed B.: If you’re just an individual, then you need to act differently than a company would think.  Big mature markets, like content management, is too tough for small players to compete.  But there are plenty of smaller markets where enterprises are spending money and are turning to proprietary companies to get it done.

Dave Winer: Of course you can make money selling open source.  You just have to keep some of it and charge for it.  That’s even the MSFT business model.  We shouldn’t get technical about what license, etc.  There’s nothing wrong with selling something unique and giving something away.  You can make money setting a standard, too.

Mike Blonder of IMB Enterprises: If you’re trying to market open source — whether your code or services — it’s a business.  You need to focus on this business.  I disagree with Ed B. of Red Hat, 100%.  Dudley Dooright needs to leverage the contact list of SourceForge.  That’s the Microsoft-Netscape story.  Just provide good service.

Derek Senior of GWS, distributor of coffee services: His confidence has gone up.  Are you a coder or a business person?  There’s money to be made here.  It’s not so much about the code but about providing good customer service.  How do you handle and solve people’s problems?  You need to listen to customers, not talk about the code.  [Dave Winer has been making this point to me repeatedly: listen to users, listen to users, listen to users.]

Question: Can we enhance usability and maintenance by the means of releasing code open source?

Gregor: Newspaper companies in Switzerland are agreeing to share their code and make it compatible on an open source platform.  All major players will contribute.  60% of the market for newspapers are involved, so we expect that the rest will follow.

JT: Depends on what the code is doing.  There are security reasons, or Sarbanes-Oxley reasons (or, say, public company concerns re: shareholders), for non-release sometimes.

Professor Nesson: Dudley pulled back some of his code, packaged it up, put it out with proprietary licenses.  But he got flamed.  What is that about?

Joseph Reagle: There’s a commitment to a commons and if someone pulls out, then there’s someone leaving that commons.  I’m not excusing the flames.

Prof. Nesson: Can you be a commons contributor and make money?

Reagle: You live with it.  It’s the culture.  You’ll get flamed if you tend away from commons and toward money.

Dmitri from Minsk, Belarus: We’re discussing the wrong question.  You can’t make money with software, it should be called.  You make the money with support and other things around it.

Larry Rosen: You need to learn to be a business person, not just someone focused on trying to make money.

Carl Hacken, a sociologist studying open source developers (applause, laughter!), talking about his growing field.  Emperor has no clothes questions: Why are you talking about making money, when you should be talking about either generating wealth or generating revenue?  Can you generate wealth off of open source?

Bob from U-Dub: Generating wealth from a CMS is not the issue.  You need to link people.  CMSes succeed when you’re linking people who have information with people who need information.  Focus on the problem that CMS purports to solve.  Plenty of examples of people generating wealth from CMSes.  It increases process efficiency.

Vanessa Lane: CMSes generally don’t succeed at what they’re setting out to do.  If you do succeed, it’s El Dorado.

Denise: Companies are hiring sociologists to solve this problem.  And the hybrid model isn’t going away.


JT:  You can make money off open source if you think like a business, not a developer.

Ed K.: Make money by selling a product or a service.  Despite the margins on product, you’ll probably make your money on service.

Ed B.: Start with pain, and the closer you stay there, the more money you’ll make.  Minimize risk to your customers.

Gregor: Switch from software to social engineering.  

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