Blog post

Open-Core: The Emperor’s New Clothes

By Brian Prentice | March 31, 2010 | 14 Comments

The Future of Ownership - IP & IT Industry

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.

The Gartner Blog Network provides an opportunity for Gartner analysts to test ideas and move research forward. Because the content posted by Gartner analysts on this site does not undergo our standard editorial review, all comments or opinions expressed hereunder are those of the individual contributors and do not represent the views of Gartner, Inc. or its management.

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  • Tarus Balog says:

    Wow. I’ve been saying for years that open source is not a marketing term. As someone who has run a successful pure open source services company for years, these new “fauxpen source” players not only are no different from traditional software vendors, they muddy the market for the services we provide.

    It is wonderful to see an organization as respected as Gartner to “get it” and to explain it in such a no-nonsense fashion.


  • It’s no secret that the open source offering in the portfolio of a open-core software vendor is the maybe most important marketing instrument for that type of vendor. Such an open source offering creates awareness and opportunities a smaller vendor with limited ressources would never be able to create with a traditional marketing&sales model.

    A commercial open source vendor therefore can spend much more money on the product management and engineering side instead of spending most of the ressources into Sales&Marketing. I’m convinced that with an open-core strategy an enterprise software vendor can go to market faster with a superior product portfolio at lower operational cost and sell more easily than ever before. And this isn’t bad for the customer side at all because this new kind of competition creates better products and more choice…

  • James Dixon says:

    Here is my response:

    The Analyst’s New Confusion –

    Stefan – Good response
    Tarus – Disagree as usual.

  • Brian Prentice says:

    My response here to James Dixon’s blog post:

    Hi James – Brian here.

    I think you missed the broader point of my blog post. The thing is that I don’t really care about the cost structures you face when running your software company. What I care about is whether your business model creates incremental value for your intended customers. Those are the people I spend most of my time speaking to. And those are the people who clearly understand the value that Gartner provides in an increasingly open-world. What they want from us is to put vendor claims to the test – and that’s what I did in my blog.

    Believe it or not James I actually do understand the dynamics around S&M costs. I spent a good part of my career in product management, marketing and sales roles at software vendors. Those managing software companies should be concerned about these costs. But the nature of those cost structures are far more complex and entrenched than advocates of open core models make out. And the jury is definitely out whether the open core approach will create a lasting impact. I personally think it won’t.

    But again James – so what? If you can lower your S&M costs you’ve increased your profit margin. Where’s the value to your clients? I think you should be spending more of your time blogging on that topic. What is about open core that makes companies like Pentaho uniquely valuable as a potential supplier. And there’s the rub – there isn’t. That doesn’t doesn’t detract from your company or product. It just means you’re like every other software company out there vying for people’s business. Therefore you should be treated by those potential customers no differently.

  • Brian Prentice says:

    Hi Tarus – “fauxpen source” – that’s actually quite funny. Hope you don’t mind if I use that in the future 🙂

    I’m of the view that the primary value of open core is as a strategy to tackle the cost structure typically found in software companies. And to quote Jerry Seinfeld, “not that there’s anything wrong with that.” At the end of the day that’s more likely to resulting in more profitable software companies. That’s if this model is successful. That, however, doesn’t mean that customers will see any value from this. And that’s my point. The whole open core discussion is a bunch of software people trying to figure out how they can make more money. It’s not about how they can deliver much greater value.

  • Brian Prentice says:

    Stefan Waldhauser – well you said it. The open source offering in the open core model is primarily a marketing tool. I couldn’t agree with you more. But marketing tools don’t generate customer value.

    Your theory is that this can lead to more money allocated to R&D. OK, maybe. Or it could just lead to a bigger bottom line. Who’s to say which one? Of course, given the interest by the venture capital community I’m willing to wager that the bigger bottom line is the real objective.

    Stefan, I think you and I have a very different view of the choice that customers are after. I really don’t think they want yet another small vendor flogging them a product that 100 other vendors are flogging them. I think what they want are whole new categories of products or products in existing categories that fundamentally alter TCO or radically reduce the complexity and overhead of managing an IT portfolio. Open core does absolutely nothing to enable the latter scenario.

  • Tarus Balog says:

    Brian: I didn’t come up with the term “fauxpen source”, a friend of mine did. I was hosting a party and trying to explain to him the difference between OpenNMS (our open source services company) and the open core crowd and he came up with it. We went out and registered since these days it ain’t a party until someone registers a domain name.

    Your post really stuck a chord with me (I did blog about it). I spent over ten years working with commercial network management solutions from the likes of IBM, HP and CA and we decided there had to be a better way. The “benefits” described by the open core crowd could just as well describe the environment around HP’s OpenView product in the 90s. With their APIs, they had a huge ecosystem built around their commercial software and a large user community in the OpenView Forum, but they were as closed about the heart of the product as these so called “commercial open source” vendors are.

    With OpenNMS we have a truly open source solution that is innovative and disruptive. Our clients don’t have to pay a “software tax” as they grow and since we run our business profitably we can focus on their needs and not those of investors wanting to flip in five years. This has earned us some top notch customers and partners, including such telecom giants as BT with whom we are hosting a catalyst at the Telemanagement Forum in Nice, France in May.

    Your post was dead on and I think you have done more for our cause in one post than I have accomplished in 500.

  • Ian Skerrett says:


    Great post. The entire software industry has moved to using open source technology as one part of their product strategy. Customers benefit in many ways from a companies use of open source but basing a purchasing decision on the fact a company calls themselves ‘open source’ seems to be misguided.

  • James Dixon says:


    You repeatedly say that open core companies add no value.

    You really think that providing an equivalent product with $0 license fee is of no value?


  • Brian Prentice says:

    James – you need to properly read what I’m saying. I say that open core provides no “incremental” value. The point being that open core software providers are just like every other software provider.

    So, does the provision of a $0 license fee provider value? Well James, I thought it was the community that was providing that product – not the vendor. Why should the benefit of a free OSS be considered a value tied to the vendor?

    Of course what we all know is that the vendor in an open core model provides so much of the code in the open source version that it means the client is as reliant on the vendor as they are with a proprietary product. Unless of course they never need support or updates. And how often will that happen with a product like Pentaho? And the minute they need either then POW – there’s goes the free open source version.

    I don’t need to explain this to you James. You know this. The primary objective of the free open source version – therefore the essence of the open core model – is to lower S&M costs. You said it yourself. That’s great for your business and I don’t begrudge you that. But it’s ZERO value to your clients.

    Seriously, I think you need to focus on your product and where it fits in the market rather than trying to convince your prospects and the market that your company somehow deserves some higher order of consideration because you provide a free open source which they would never seriously consider as a long term commitment nor which you would want them to make a long term commitment to.

    Just accept the fact you’re a good old fashion software company. There’s nothing wrong with that.

  • Eric Barroca says:

    Hi Brian,

    Brilliant analysis. Very happy to see great mind demonstrating what I’ve learned / intuited running my business. 🙂
    I am really convinced that open core is fundamentally flawed on the long-term: it does not deliver more value to the customer while removing important assets for the vendor (to make his model work). Overall, open core is less competitive than a proprietary approach.

    I’ve started a comment here and on Matt’s blog but morphed it into a blog post because it was growing and overlapping.

    Full read here:



  • Brian Prentice says:

    Thanks for your comments Eric. I’ll take a look at your post and if the mood overtakes me I’ll add my comments there.

  • Great post! Open core is not the way to go, but let’s be careful not to dismiss the great value open source is to your customers. My thoughts here:

    Jeroen Verberg
    CEO Hippo