Attention corporate IT customers – this blog post is for you. If you haven’t already had an “open-core” software vendor knocking on your door you probably will be soon. It’s important that you’re able to separate the hype from the substance when you hear them talk of their innovative business model.
Open Core, if you’re not aware, is being pushed by many start up companies as a new approach to delivering products combining open source and proprietary software. There may be others nodding in agreement that this in fact a dazzling new business model. Regardless of the way that vendor struts, you should trust your instincts. You’ll soon realize that the fabric making up the garb of their stated innovation is a fabrication. They’ll then be exposed for exactly who they are – a good old fashion software vendor. Just like every other one you’ve come to know.
The open-core emperor has no clothes.
Let’s keep in mind that when we start talking about business models, what matters is not how a vendor generates incremental revenue but how you generate incremental value. In order to understand whether that’s going to happen or not we should start with the foundation of the open-core model – the distinction between a full-feature proprietary version and a free, open-source functional subset of that offering.
Now, if this sounds familiar to you then you’d be correct. That’s called “freemium” in the consumer world. In the corporate market, attempting to broaden the appeal of a software solution by parring back the functional footprint into a low cost alternative has been a staple mid-market strategy of enterprise software companies for over a decade. Just think of IBM’s Express product portfolio or Siebel Professional Edition. Unfortunately, these product strategies have largely fallen well short of expectations. By and large, organizations want products that represent a nuanced understanding of their needs rather than a product manager’s arbitrary functional pruning process.
And arbitrary is the operative word. A couple of years ago I looked at a number of open-core providers (if you’re a Gartner client you can refer to the research note – “Commercial Open Source – Is All That Glitters Usually Sold?”) and found that none of them had a consistent decision framework in place nor any publicly available covenants that explain to potential users the criteria they use in determining which new capabilities will be made available only in their commercial version. Furthermore I have personally been told by one such open-core provider that the reason a new feature, which was clearly of value to all users, was only being provided in the paid-for, proprietary version was that they “had investors they needed to satisfy.”
Besides, what you already know is that this type of functional separation creates what Gartner refers to as a “super-size trigger.” The minute you require a feature only available in the full version then the entirety of your commitment needs to be scaled up and re-costed to the full-cost offering. If you’re like most corporate IT customers I speak to – at least the ones considering solutions from open core providers – then chances are you’ll be starting your assessment based on their full version product rather than the free open source offering. But on the outside chance that you’re considering starting off with a a community-supported open source version than you should realize that you also face a relationship super-size trigger. Should a functional disparity between what you need and what’s available drive you to the full version, you’ll then be linked to the provider through a proprietary license agreement. Either way, any direct value from an open source license is lost to you.
This is where the hype starts to creep in. The idea that a functionally complete, proprietary solution is somehow unique because it was built atop an open source base fails to recognize the fact that many proprietary solutions are being built using open source components. Open-core providers deserve no brownie points from you because ultimately the end result is the same. You’re licensing a proprietary solution from an organization which builds it with fee open source components. The direction that happens – either open-to-proprietary or proprietary-to-open – is meaningless to you.
That is, of course, unless you are prepared forgo the benefits of the proprietary solution and opt for the open source offering. This entails committing to that projects community for support and code contributions while reciprocating yourselves. But that’s highly unlikely for most corporate IT users. The occasional piece of community supported assistance is common and a code contribution every now and then is not unreasonable. But what we know is that corporate users prefer having a vendor provide support and code maintenance services for things like operating systems, databases, business intelligence software, enterprise content management and other key IT solutions. As of 2006, 97% of Linux users were under a service contract from an external service provider. Of course, these types of support and maintenance agreements are available from open core vendors – all as part of the paid proprietary offering.
Even the very definition of “community” is being adapted to suit the open core narrative. What has largely interested the corporate IT world is the concept of a community as a collection of code contributors working outside a normal project/company structure. But now open core providers are extending the term community to include users and even resellers. That, of course, is what we’ve all been calling a software ecosystem for the last twenty years. Same old, same old – just co-opted terminology used to describe it.
You see, when you start peeling back some of the value propositions being attached to open core business models what starts to appear is a picture of a bog standard software provider trying to use the latest phraseology to cut through the noise of a crowded marketplace. Be clear, there’s nothing nefarious going on with open core. It’s just that there’s just nothing particularly new or innovative going on either.
I’m pretty darn sure that most corporate IT users will figure this out quickly, if they haven’t already done so. And when that reality starts sinking in with the open core providers I have a feeling we’ll be hearing a whole lot less about this business model.
Category: The Future of Ownership - IP & IT Industry Tags: