Packaging Technology Creates Value

By eliminating the artificial scarcity of software, open source software forces businesses and technology developers to think differently about their business models. There are a few ways that people have traditionally built businesses around open free and open source software. There are pros and cons to every business model, but to review the basic ideas are:

  • Using open source software as a core and building a thin layer of proprietary technology on top of the open source core. Sometimes this works well enough (e.g. SugarCRM, OS X,) and sometimes this doesn't seem to work as well (e.g. MySQL, etc.)
  • Selling services around open source software. This includes support contracts, training services, and infrastructure provisioning. Enterprises and other organizations and projects need expertise to make technology work, and the fact that open source doesn't bundle licensing fees with support contracts doesn't make the support (and other services) less useful or needed for open source.
  • Custom development services. Often open source projects provide a pretty framework for a technology, but require some level of customization to fit the needs and requirements of the "business case." The work can be a bit uneven, as with all consulting, but the need a service are both quit real. While the custom code may end up back in the upstream, sometimes this doesn't quite happen for a number of reasons. Custom development obviously overlaps with service and thin-proprietarization, but is distinct: it's not a it doesn't revolve around selling proprietary software, and it doesn't involve user support or systems administration. These distinctions can get blurry in some cases.

In truth, when you consider how proprietary software actually convey value, it's really the same basic idea as the three models above. There's just this minor mystification around software licenses, but other than that, the business of selling software and services around software doesn't vary that much.

James Governor of Red Monk suggests a fourth option: Packaging technology.

The packaging model is likely just an extension of the "services" model, but it draws attention to the ways that companies can create real value not just by providing services and not just by providing a layer of customization, but by spending time attending to the whole experience, rather than the base technology. It also draws some attention to the notion that reputation matters.

I suppose it makes sense: when businesses (and end users) pay for proprietary software, while the exchange is nominally "money" for "license" usage rights, in reality there are services and other sources of value. Thus it is incumbent upon open source developers and users to find all of the real sources of value that can be conveyed in the exchange of money for software, and find ways to support themselves and the software. How hard can it be?

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