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Problems With Open-Source Business Models

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Re: Problems With Open-Source Business Models

#61

Post by niftich »

zjaffee wrote: post #51
niftich wrote: post #38

This post raises a lot of good points about the futility of this new wave of split-restriction licenses, but misses fairly obvious one. Entrepreneurs think they want to have an "open source business model" because they have marketshare-scaling problem: they want their software distributed to a wide audience such that it gains usage and mindshare, but not wide enough where AWS is selling their work as a managed servic…

I have to disagree with your premise. Entrepeneurs who are starting these sorts of companies were often engineers at larger employers and were on teams where originally built these platforms that had become open source and relatively successful while they still worked there. Then they realized they were able to raise funding to start their own company around the software they previously built and then decided to do s…

I don't disagree with your post; but I think we're talking about different things, because the article talks about multiple kinds of companies. You're right that the companies that are now relicensing are ones that were born from a tool they built first, before monetization was visible goal. I am addressing companies in a more general sense, when entrepreneurs search for market opportunities. That's where the article notes that some see "open source" as a market strategy on its own.

And really, the dichotomy contributes to the situation.

The ones who built useful tool and years later realized it may be monetizable are hemmed in difficult choices. Do they reneg on open source and go proprietary from this point forward, effectively forking their own product and leaving the gratis, libre one -- the one most people will have exposure to -- stuck on an old version? Do they split into an open core and proprietary enhancements? Do they write a novel license and hope consumers will self-select into tl;dr harmless amateurs and very handsomely paying corporations? And if SaaS providers take their old version, and that fork gains ground?

Meanwhile, the ones who used 'open source' chiefly as a customer acquisition lead will face the same set of challenges. In the end, any artifacts published under an open source license are forever -- as long as the interest is there, a sufficiently dedicated party can take it, use it, enhance it, try to build a business around it, and the like. And any past version is a potential competitor, so your business models must be tolerant of that fact. They rarely are.

Re: Problems With Open-Source Business Models

#62

Post by ChrisCinelli »

john_moscow wrote: post #41
tinyvm wrote: post #34

I strongly disagree with the hypothesis raised in the article. First , most open source companies these days are Ventured Back ( Elastic , CockroachDB, MongoDB etc..) meaning the core of the issue isn't "AWS" not paying license fees or people creating tech on top of Open Source , it's VCs who want their money back times ten. Companies like MongoDB/Elastic have raised hundred of millions and yet are still not profitab…

VCs don't care about profits anymore. Their bet is on getting hockey stick growth using tricks good enough not to spook the uneducated retail investor (that often involves selling dollars for cents) and then dumping the hot potato into the public market. It isn't long-term sustainable and it will result in a major correction one day, but that's the game currently.

That most of the VCs care is making attractive the company between their investment and their exit, it is completely true.

That is also why quite often they bring in (and sometimes replace founders with) "professional" executives before the IPO. Some of these people are not usually the best people to maximize the long term trajectory of the company but they bring more confidence to IPO investors.

If you want to have a successful relationship with them, you had better know their motives and timelines and make sure your company is one in the fund that looks is going to return enough for their game.

Re: Problems With Open-Source Business Models

#63

Post by ChrisCinelli »

cryptonector wrote: post #43

The best open source business model I've seen yet is SQLite's. That business model goes as follows: 0. produce something very widely useful 1. wait for it to become essential 2. create a consortium and profit from the dependence bred by #0 Granted, bootstrapping that is really really difficult.

What are the main ways for the consortium to extract value from #0 ?

Re: Problems With Open-Source Business Models

#64

Post by cryptonector »

stingraycharles wrote: post #45
cryptonector wrote: post #43

The best open source business model I've seen yet is SQLite's. That business model goes as follows: 0. produce something very widely useful 1. wait for it to become essential 2. create a consortium and profit from the dependence bred by #0 Granted, bootstrapping that is really really difficult.

The problem with this model is that quite a few of these open source companies are funded by VCs. In this case, a “consortium” is just never going to cut it, revenue-wise. The most profitable way appears to be to offer a cloud-hosted solution, and herein lies precisely the problem with AWS et al providing these services by taking the OSS software for free.

I don't see the problem.

First, SQLite's developers are not an open source company funded by VCs. I don't know what funding they had originally, but they've leveraged their success into a well-funded consortium. Does it matter if it could or could not work in combination with VC funding? No: what matters is that the developers got funding, end of story.

Second, I don't see why a company (regardless of funding source) couldn't spin off a consortium to fund further development of some open source created by that company.

Your goal seems to be "profit", which is a fine business goal. Open source is a fine business tool, but not so much a fine business _goal_. It can help you profit, but it can also hinder. Open source is a business tool to be applied on a case-by-case basis.

Open source is not easy to use as a core business value. That's because the most important core value to any public corporation is profit, and open source does not intrinsically lead to profit. Building a for-profit business around open source projects with open source as a core business value is undoubtedly difficult. Indeed, the example I gave is of a non-for-profit organization that funds development of one project.

Open source is a tool with following costs and benefits (and risks), some of which are:

  - cost: loss of confidentiality for "secret sauce"
    embodied in open source
  - cost: the cost of opening a code base and keeping it open
  - cost: dealing with a community
  
  - benefit: good will
  - benefit: mind share (this is the big one)
  - benefit: quality (hopefully) contributions from
             the community
  - benefit: credit (especially for developers, which
             functions as a form of compensation and
             recruitment incentives)
If for some project open source is a tool whose costs exceed the benefits, then don't open source that project. It's that simple.

Re: Problems With Open-Source Business Models

#65

Post by sonnyblarney »

tinyvm wrote: post #34

I strongly disagree with the hypothesis raised in the article. First , most open source companies these days are Ventured Back ( Elastic , CockroachDB, MongoDB etc..) meaning the core of the issue isn't "AWS" not paying license fees or people creating tech on top of Open Source , it's VCs who want their money back times ten. Companies like MongoDB/Elastic have raised hundred of millions and yet are still not profitab…

" it's VCs who want their money back times ten"

Keep in mind that this is the market speaking, not a 'specific need of some group'.

If it costs money to productize and support something, and it's risky, it's going to be VC and there will be terms that take that risk into account.

Another way of saying it is that '10x' requirement is a function of the risk of the business model of those taking the money. (Which by the way, as you point out, might involved 'over estimating the worth of something)

Most VC's are not successful and even the 'obscene' amounts of money made by some actually don't make up for losses elsewhere. [1]

Also, it's a very risky proposition for most folks to do a 'true' open source project and as you say make it 'profitable' via sponsorships or whatever.

" it's VCs who want their money back times ten"

Keep in mind that this is the market speaking, not a 'specific need of some group'.

If it costs money to productize and support something, and it's risky, it's going to be VC and there will be terms that take that risk into account.

Another way of saying it is that '10x' requirement is a function of the business model of those taking the money. (Which by the way, as you point out, might involved 'over estimating the worth of something)

Most VC's are not successful and even the 'obscene' amounts of money made by some actually don't make up for losses elsewhere. [1]

Also, it's a very risky proposition for most folks to do a 'true' open source project and as you say make it 'profitable' via sponsorships or whatever.

[1] https://techcrunch.com/2017/06/01/the-meeting-that-showed-me...

Re: Problems With Open-Source Business Models

#66

Post by ChrisCinelli »

tannhaeuser wrote: post #60
MrTonyD wrote: post #3

I've been working in Open Source for a long time now - decades. The problem I see is that so many rich and wealthy companies (and their billionaire owners) are the big beneficiaries of open source. Look at Spark, Hadoop, Linux, gnu tools and others - who uses them at a large scale? It is the wealthy companies who avoid paying salaries for the development of those tools. So I've become convinced that we should disting…

The situation we have now -- that no ISV can make a living -- is precisely the result of decades of making software Free and Open such that it has become a commodity. The only money to be made left is in services, and that market is increasingly captured by AWS, Azure, and Google Cloud Services, leading to centralization, stagnation, and self-referential pseudo-innovation a la Docker (and increasingly, the web). I wh…

What do you mean by "solving today's problems" ?

Re: Problems With Open-Source Business Models

#67

Post by spectre256 »

eruci wrote: post #58
spectre256 wrote: post #53

Earlier quoted context omitted.

We talked about running a Pelias geocoder AMI back at Mapzen, and it still might make sense today. I'd be really interested to hear how it works out for you. My personal feeling is that developers are irrationally averse to paying for someone else to set up and reliably run software for them, but that it's usually a massively good deal to pay for that service. Even a simple software project that takes an hour a month…

It has worked out relatively well. (Mostly due to the fact we have no competition on geoparsing ) There are a few geocoding AMI's on AWS Marketplace. ( https://aws.amazon.com/marketplace/search/results?searchTerm... ) Some big companies on the list (Pitney Bowes, Mapbox, Here) I've always held Mapzen in high regard as one of the best geocoding APIs to come out of the opensource camp. Mapzen would have been a nice add…

Oh wow I didn't realize there were so many! And yeah, geoparsing is a huge challenge above and beyond "standard" geocoding. Specialization like that is a great asset.

For us, we've really been focusing on the customization of Pelias for people who have specific needs. We have Elasticsearch under the hood which is perfect for that sort of thing, and the nature of customization is that an AMI probably can't do what our clients need. But probably someday it will make sense.

Re: Problems With Open-Source Business Models

#68

Post by jopsen »

spectre256 wrote: post #53
eruci wrote: post #49

I was pondering this very question as I just launched an open source reverse geocoding/geolocation name service API ( https://3geonames.org/api ) whose business model consists upon selling a nicely packaged server AMI on AWS. It works well both ways, in the sense that those who are capable coders may download and configure/install the software themselves. Some others will just skip the hassle and buy the Marketplace…

We talked about running a Pelias geocoder AMI back at Mapzen, and it still might make sense today. I'd be really interested to hear how it works out for you. My personal feeling is that developers are irrationally averse to paying for someone else to set up and reliably run software for them, but that it's usually a massively good deal to pay for that service. Even a simple software project that takes an hour a month…

Developers don't want to pay that's true.. I hate a adopting a anything I can't setup myself or get cheap with a pay-as-you-go model.

But as soon as I'm deploying anything in a corporate setting, I would always prefer to pay rather than asking IT to setup and maintain a service. Or worse do it myself..

The combination is good. Because I would rarely try out something I couldn't run myself. But I would also never put it into production.

Re: Problems With Open-Source Business Models

#69

Post by tannhaeuser »

ChrisCinelli wrote: post #66
tannhaeuser wrote: post #60

Earlier quoted context omitted.

The situation we have now -- that no ISV can make a living -- is precisely the result of decades of making software Free and Open such that it has become a commodity. The only money to be made left is in services, and that market is increasingly captured by AWS, Azure, and Google Cloud Services, leading to centralization, stagnation, and self-referential pseudo-innovation a la Docker (and increasingly, the web). I wh…

What do you mean by "solving today's problems" ?

Monopolization, privacy invasion/attention economy, and the demise and weaponization of the web as a medium for misinformation
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