Establishing a revenue stream out of Open Source projects or free community networks (particularly those in the social networking) is a challenging endeavor even for some of the most successful ones.
Well known and successful l projects with huge adoption such as those included in the Apache Community, typically demonstrate commercial value in support of other commercial activities undertaken by a company. Some great examples of creative work coming out of Apache community are projects such as Apache Http Server, Tomcat, Maven, Ant, Active MQ, Struts and Hadoop. According to the latest Netcraft statistics, Apache Http Server has over 50% of the Internet market share when it comes to Web Server platform implementations on the Internet. And yet, no company became rich providing services for Apache Web Server.
Latest January 2010 statistics by comScore Inc, puts number of Twitter visitors above 75 million (including both direct twitter.com and users that come through applications using Twitter API’s). Yet it’s publicly well-known the dodging challenge Twitter founders are having in coming up with a suitable business model to create a revenue stream out of Twitter.
Establishing clear strategy
An upfront clear strategy that describes the financial motivation in launching an open source or free community style software is key to creating a strong plan of execution. Some questions that need to be asked from onset are:
Are you pursuing an open source or free community approach to cut into the revenues of a competitor? An example here would be Google Apps/Gmail that directly competes for the consumer demand for popular office applications offerings by Microsoft. Another example is the arrival of Android as the free alternative to other licensed based handset OS’s including MS Mobile, Blackberry, Symbiant, etc.
Trying to establish a new product that you plan to monetize by generating a significant developer community interest and hence supporting products around it? One example would a company like IBM providing strong support behind open source projects such as Linux even though IBM still markets its traditional Unix variant AIX. This is not because of specific love affair IBM has with open source community but a clever strategy to be perceived as an open source community friendly organization that not only influences future project direction but also capitalizing on the huge industry adoption of Linux by developing value-add services around it.
Are you trying to increase the adoption of your commercial products by offering an entry-level community version, and use it as a launch-pad for your commercial products? An example here would be Novell who is the sponsor of openSUSE community which provides the baseline for its popular commercial product, SUSE Linux. Another example would be one of the most popular open source eCommerce platforms, Magento. Magento provides two versions of its products, one the community version and its enterprise version with a very impressive development community that provides rich portfolio of free and licensed versions of extensions to both versions of its software.
Is your intent to generate critical mass (both on consumer and developer community sides) for your free offering in order to position yourself for a buy-out? Examples of some lucky ones are YouTube (by Google), MySpace (by Rupert Murdoch), Hotmail (by Microsoft), and lets don’t forget MySQL who is now owned by Oracle via the SUN acquisition.
Is your strategy to build a commercial product built on open source stack in order to offer a low cost but innovative feature rich product or service offerings? A great example is Amazon. Amazon has built one of the most impressive Web Services offerings on the planet supported by a massively large cloud computing framework with a technology stack that is almost exclusively built on open source stack that includes MySQL, Perl, Mason and Hadoop (a Java framework for massively data intensive distributed applications). Amazon has one of the largest fee-based cost-effective offerings for cloud based computing today.
Or is it your intent driven by offering functional but free software that is designed to create opportunities for service offerings around it. We all know the monetization marvel that followed the immense popularity of the Google Search engine. Facebook is now generating enough ad revenues that cover the cost of its day-to-day operations.
Having a clear motivating strategy for the end-game is paramount to the success of an open source or free community based software as it sets the groundwork of driving both the business and design principles for the execution stage. It’s also key that one narrows the focus so that there are not too many and hence potentially conflicting motivating drivers for monetization. As such, one should typically focus on one or at most two motivating factors.
Tags: business strategy, Innovation, Open Source
