

Ask YC: What are the downsides of open source? - volida

What is the challenge to make open source software successful in terms of making revenue?<p>Has anyone from here done it before?
Would you make the same decision again to go open?
What problems did you come across?
======
cperciva
_What is the challenge to make open source software successful in terms of
making revenue?_

In discussions about open source software, I'm frequently reminded of the
following PG quote:

 _To be a startup, a company has to be a product business, not a service
business. By which I mean not that it has to make something physical, but that
it has to have one thing it sells to many people, rather than doing custom
work for individual clients._

Open source is inherently not a product -- at least, not in the sense of being
something you can sell to many people. The frequent cry of "but we'll make
money selling support" ignores a critical fact: There aren't enough hours in
the day to get rich by selling support contracts.

The one "open source" company which was successful at making lots of money --
MySQL -- wasn't in fact an open source company: They made their money selling
a commercial product, and they just happened to use releasing a GPLed version
as a cheap advertising mechanism.

I strongly support open source software; but a startup which builds open
source software? It ain't a startup.

~~~
tptacek
SourceFire circa 2002, purveyors of Snort via OSS and hardware appliance, now
IPO'd? _Not a startup_.

Sleepycat software, purveyors of Berkeley DB under dual GPL and commercial
license, acquired by Oracle? _Not a startup_.

Splunk, purveyors of Splunk, open source core and proprietary commercial
extensions, with over 20MM in VC funding? _Not a startup_.

Hyperic, purveyors of Hyperic, which is OSS end-to-end, with a 6MM B from
Accel? _Not a startup_.

Zimbra, purveyors of OSS Exchange clone Zimbra, acquired by Yahoo!? _Not a
startup_.

Astaro, purveyors of one of the top 5 "UTM" (IPS+firewall) boxes, now
profitable? _Not a startup_.

 _None_ of these companies are services businesses.

Your characterization of MySQL is laughable, too. The "cheap advertising
version of MySQL" you mention accounts for 99% of the real-world usage of
MySQL in the marketplace, and anybody on Hacker News _wishes_ they had the
market power MySQL did.

So, my response to you: name an equivalent number of companies any of us has
heard of with an open-source product that is services-driven that isn't Red
Hat or IBM.

~~~
bayareaguy
You could add TrollTech, purveyors of Qt, to that list as well.

------
lux
To be honest, open source doesn't really benefit the company doing it nearly
as much as it benefits the users. Most of them essentially get something for
nothing. And nowadays, it's no news story to be open source, so the extra
marketing you get for being open is much less than it was 5 years ago.

Unless you reach a certain level, external developer contribution will be
minimal as well (compared to what's done internally), so you can't depend on
that for benefit either. And as for selling support, forget it. If your
product is stable, 99% of people will opt for the "we'll just call you when we
need you" option and take the hourly billing rate (even a jacked up one for
emergencies), because they'll only need it maybe once a year.

I've run a successful albeit very small open source company for 7 years, and
we're gearing up to release another major version by end of summer
(www.simian.ca). I really don't mean to come off cynical or unappreciative of
certain users (we have a number of users who have been amazingly helpful, and
those are the users that make it all worthwhile), but as a model for a new
business you have to look at the reality of how well it can work and grow into
a _sustainable_ model. Open source is a big risk for little potential gain
these days.

My advice, start a company that offers a subscription-based service or boxed
product (closed source). You can always provide APIs for 3rd parties to
interact with, and you can open source libraries and other useful but non-
essential bits. But giving away the central thing that defines your company is
a difficult sell.

~~~
bayareaguy
I think it matters who your customer is and the value they derive from your
product.

Open source makes a huge difference when your product is intended to be
embedded in your customer's product. When their business depends on yours it's
obvious they need to pay you or ultimately suffer the higher cost to them of
having to maintain your code-base themselves.

When you're talking about some dinky utility a non-technical end-user may use
then you're probably smarter to go the shareware route.

One thing to worry a little about is how to protect yourself from competitors
that may try to compete with you using your own code. If you're the sole owner
of your core technology and there isn't any significant secret factual
information in it then you're probably safe going open source with the
appropriate licensing.

~~~
lux
We do have a number of companies that depend on our software for some pretty
core processes within their businesses. Still, because our software is stable,
over time the value of an under-used support contract goes down in their eyes.
In several cases, they simply haven't renewed support because the product
didn't need it. So we only really hear from them when upgrades are available
for them. So I'm hesitant to recommend a support-based business model for that
reason (unless they're making unstable software ;), and for the fact that most
software falls outside of the "core business process" category, which would
likely make support a really tough sell.

There's where subscription-based services shine, because support is expected
with it, but it's distributed over exactly one installation instead of
hundreds, so fixes are made once and apply to everyone. This way you're
essentially selling access to the software plus support over time, making
residual income, and cutting down the amount of effort it takes to support
many customers.

While that's not the right model for every type of software obviously, many
companies have shown it can be made to apply to a surprising number of cases
you wouldn't think it suitable for at first :)

------
SwellJoe
I've written at length about this in the past:

[http://inthebox.webmin.com/open-source-and-business-a-
precar...](http://inthebox.webmin.com/open-source-and-business-a-precarious-
partnership)

And here at HN:

<http://news.ycombinator.com/item?id=131662>

<http://news.ycombinator.com/item?id=81351>

And many more. I'm on my second Open Source based business, and I think we've
found a combination of factors that's going to be successful this time around:
Huge and rapidly growing market, our Open Source offering is uniquely capable
of filling niches that have never been served before, and...we offer a
proprietary product on top that makes it really clear (to investors, to our
customers, to our Open Source contributors) where and how we make money.

------
secorp
We decided to write our new architecture from scratch as an open source
project to support our commercial business offering (online storage and
backup). There are several factors to consider, roughly in order of importance
(according to me): * target audience * marketing advantage or disadvantage *
peer review importance * publicly enforced project management * contribution
from open-source community

Our target audience is composed of consumers who want a simple product to
backup their computers and a more sophisticated audience that wants to design
and maintain their own distributed backup service. For the consumers, open-
source isn't necessarily a plus or minus (see marketing below) but for the
more sophisticated users (enterprise IT folks) open-source is great if they
need to make modifications for their special needs.

Similar to above, marketing your project/product/service as open-source may be
very attractive to some audiences (enterprise IT, hackers who want their own
storage grid), irrelevant to some (consumer PC user), and negative to others
(some investors, some potential buyers).

One very strong benefit that we've received is peer review by experts in the
field. Because our system must securely and robustly store sensitive
information, the more people who read through our design and implementation
and comment on it the better. Several design and implementation suggestions
have helped us fix or improve our system immensely.

Because our project is open-source the peer pressure placed upon good design,
documentation, and code is much higher than in my previous experiences with
proprietary software. Though not perfect, it means that our team has worked
hard to make the system usable and not pushed off important items that might
not be visible to a busy project manager.

Code contribution has not been a major focus of our project, though we have
received several very good additions to our project. I believe (but not backed
up with data yet) that our particular project does not lend itself to large
amounts of people coding on it as it is not (yet) a platform.

Hope this helps, Peter

------
dmoney
LiveJournal seems to have done well by open sourcing their product and
charging to host it. Even though a lot of baby LiveJournals have sprung up, LJ
still has 15 million users. The social aspect has probably helped a lot by
making it harder to leave.

Are there other companies that have succeeded with this model?

~~~
tptacek
If I was going to be devil's advocate, I'd point out that LJ is an also-ran in
their category, and that LJ didn't open source until way late in the game.
WordPress was open source from day one, and Automattic scored 25+MM in
funding.

~~~
dmoney
I seem to remember it being open source at least as early as 2001.

------
natch
Usually the success stories are products built on top of, or around, open
source software. Suites that include support, integration services, and add-
ons. Often these companies contribute back to the open source projects, while
also keeping some of their own work proprietary. Then charge on a subscription
model.

------
bbgm
The key is not to remember that Open Source should not be a central business
model. It can be part of a broader strategic platform.

To make open source work, you need to either (a) believe that opening up
source is not a big competitive disadvantage, e.g. your customers will still
come to you for services, consulting etc (the kind of business you can build
on top of an open source platform) or (b) have enough of a community where you
can go the MySQL route. There you need to be part of the community as someone
else has pointed out.

~~~
tptacek
If you sell to large companies, open source is an awesome business model.

The #1 and #2 problems you have with large businesses is lead generation and
qualifying prospects, so that you aren't wasting $5,000-$10,000 of time and
expenses on sales leads that don't pan out, or $50,000 going to conferences
that won't result in a single sale.

With open source software, the geeks that infest every Fortune 1000 company
bring your software in house just to play with it. If you get them to register
their email addresses, and you follow up with them inside-sales style, and
just 10% of them love what you built, you just converted 100 Fortune 1000
companies to customers.

This is exactly the model SourceFire used. It's not a "strategic platform";
it's a go-to-market plan, pure and simple.

------
petercooper
It's not quite "software" (you've already been provided with answers covering
that) but Ruby on Rails is open source but still makes lots of money for
people, whether in writing books, doing consultancy, and the creator of Rails,
David Heinemeier Hansson, could (and probably does) make tons of cash from
RailsConf, speaking engagements, endorsements, etc.

Just because Rails costs nothing doesn't mean a big economy can't surround
it.. and if you were the creator of the technology, you get first dibs on
making that cash.

------
snowbird122
Anyone care to comment on SugarCRM? They have taken on $46M in funding and
have a current valuation around $134M.

~~~
alexk
Actually they are not truly open source - their license is just called "open
source", but the open part of their CRM is just a Demo without reports and
lots of other neccessary features, so their "open source" is just a marketing,
not the reality.

~~~
SwellJoe
That's a new aspect of SugarCRM. In the past, all of their code was available
under an Open Source license...and that Open Source code worked well for a lot
of people for a lot of purposes. Just because you need or want the stuff that
isn't Open Source doesn't mean they aren't building some "true" Open Source
software (and some plugins that are not).

Open Source is a license and a community, and SugarCRM has both. It also has
some extensions that are not Open Source, and the fact is, extracting money
from Open Source fanatics is like getting blood from a turnip...so they will
never be a customer anyway. So, it's about the only model that works for a
large class of problems.

However, you still get a lot of benefits of Open Source from SugarCRM: Open
data formats and no possibility for them to lock you in; as long as the core
always remains Open Source you can never be "stuck" with your business based
on an end-of-lifed product, as with some of the mergers in that field over the
years, because it can fork if SugarCRM stops being developed for some reason;
community of helpful users and developers means that the level of expertise
available is high and affordable.

Over 10 years of building businesses based on Open Source software, I've grown
to be pragmatic rather than ideological about how best to produce Open Source
software and make money with it. I still prefer to produce and use Open Source
tools...but I also know that a thriving business-backed OSS project can build
thoroughly kickass software at a rate that a purely community-backed project
rarely can. It's not impossible, of course, but it's rare and requires several
factors to converge: one or more smart developers who _need_ and _use_ the
software being developed and who can devote significant time to it, small core
of useful functionality that can be implemented and launched quickly, and a
large community of users to help support the product so the developer doesn't
burn out.

~~~
alexk
I agree that its'a subject to discuss, however it may be you can find this
article interesting: <http://www.opensource.org/node/163>

------
xenoterracide
I've been wondering about open source software as a service. Could you make
web software, theme it, and offer it as a pay for service. Think amazon or
maybe ebay. What would happen if they opened their software.

~~~
aaronbrethorst
This is exactly what Wordpress does.

I doubt anything very interesting would happen if Amazon or eBay opened their
source, because their internal applications are likely such a rat's nest of
interdependencies. It would take 6 mo - 1 year of full time study (i.e. the
amount of time it takes a new hire to ramp up) for anyone to even begin to
understand exactly how the systems fit together.

Even with the time and energy to learn how their code works, you'd still need
to replicate their internal environments to be able to run their apps.

------
boomshine
> What is the challenge to make open source software successful in terms of
> making revenue?

Acceptance in enterprise.

