I was reading Colin Charles’ write-up of Does Open Source need to be “Organic”? (with Brian Aker, Rob Lanphier, Stephen O’Grady, Theodore Ts’o). I’ve been thinking about this a bit, and I’m going to put out a hypohesis here…. see what you think:
I think that overall, dual licensing as a large scale business model has failed. So, this is about either selling non-GPL licenses for certain uses, or having a “professional/enterprise” version of a product which contains more feature, one way or another. On a small scale, it has worked very well, and for decades. Think of shareware with extras for registered users. I used to run my business in The Netherlands along those lines for some products, and it was doing just fine, for years. But it was a “small” operation, not a huge growth business.
Mind you, “small” is relative. I’ll explain. For instance, Andrew Milner long ago wrote BBS software called RemoteAccess. It was hugely successful in the FidoNet world in the late 80s, and young Andrew made a bundle. He settled back in his native Australia, finished uni, started an ISP which he later sold to iiNet; look up the board there, he’s a bit older now and (iirc) a director there. So, plenty of money and success. But still, his RemoteAccess software business was a small operation, not a big company.
I think that there’s might be a ceiling to the viability of the dual licensing model. One reason might be that beyond a certain size, there’s generally more non-developer overhead in a business (sales, admin, etc) which changes the cost structure and therefore the revenue/growth need of the organisation. The bigger you are, the more hungry. These days you can use new marketing techniques effectively, have highly automated online sales and self-service (forums, etc), but again that means that in terms of manpower your company is smaller. So with small I primarily mean in terms of number of non-developer personnel, not financial size as such.
A related issue is that a more money-hungry business with sales people, they need to go after bigger fish. Bigger fish have different demands, so the roadmap gets tweaked in that direction. And the price of features rises accordingly or in any case the overall offering. That’s where the business model becomes incompatible with the marketplace, because the open source marketplace simply does not tolerate high prices. The natural pressure for pricing is downward (yes, towards zero and getting quite close, relatively). It’s ok to charge a bit, but not too much. It mustn’t appear greedy. Otherwise it’s a more difficult sell, which takes additional effort (and for that you need a sales person). Simple compelling offers really do sell themselves.
So, working our way back now, I’m suggestion that once you create a structure that needs a large non-development aparatus (particularly a sales organisation), you will no longer be able to operate (effectively) in the Open Source marketplace. The company will through these actions (not necessarily by choice) alienate itself from that environment. It really becomes incompatible. See this as an similar situation to The Innovator’s Dilemma where dilemma disruptors float upward in their market space until another disruptor pops up. The original company can live on quite succesfully in many cases, but they cannot operate downwards. Their cost structure doesn’t allow it, their management will naturally make decisions that prevent exerting energy in that direction. The simplest example of this is that if you have a sales person with a $1mln sales target, that sales person is not going to talk to a $1k customer, or even a $10k customer. He or she will be chasing the $100k customers, because otherwise there’s just no way they can reach the sales target at the end of the period.
By the way, this “greed” doesn’t scale on the client side either. The vendor will have to charge based on some arbitrary invented scale of “size” of the customer, so that a “bigger” customer has to pay more. With MySQL, which charges per server per year, this fails fundamentally because a large deployment with lots of servers does not mean the business is big, right? And even if the operation using MySQL is part of a big enterprise company, the division responsible for MySQL is commonly very small and will not have a large budget. So at least in the case of MySQL, the invented methodology for scaling the pricing is fundamentally flawed and thus has failed.
Similarly, others at OSCON (I’m not there this year, unfortunately, just tracking the blogs and talking with people!) have observed that non-OSS licensing does not work in a cloud or other rapid deployment environment. You simply cannot afford to even worry about the licensing, so anything not absolutely free (cost) at the basic deployment level cannot be used. In that realm, you cannot charge based on deployment “size”. It’s impossible.
So what’s the alternative? Well, first of all, I could be completely wrong. Who knows!
But if I’m on a reasonable track here… I already described a possible alternative trajectory above, namely structuring the business differently as it grows; by making use of new technologies, reducing the need for expensive people and thus not gaining the critical mass of overhead. Actually, writing about it this way gives me an idea; perhaps it’s possible to, using data from past and existing companies, derive a critical ratio nondeveloper:developer beyond which companies tend to not be able to make the dual licensing or shareware models work?
Another part of that alternative is of course to not do dual licensing at all, but wholly focus on services. This has a very important advantage, and a very serious challenge to it.
- The advantage is that the company has no leverage over the customer, and this creates an opportunity for a genuine trust relationship based on equality. If you have trust (or rather, no intrinsic mistrust), this makes a potential sale easier. So the viable pricerange might actually lie a bit higher in this case (contrarily, in a condition of less trust, you have to charge less; with no trust or active mistrust, the acceptable pricepoint is truly 0 or perhaps even negative; but you don’t want to pay your customers to make them use your stuff now do you
- The challenge is that the company has no leverage over the customer (sounds familiar? , so it must have a compelling offering that provides true value for the customer and not just for the company. Otherwise alternatives will have an excellent opportunity for competition.
Of course there’s the usual factors of marketshare, mindshare, level of annoyance with an existing vendor before customer actively consider switching, and so on. But fundamentally, it will be about true customer service, on an ongoing basis. KEEP the customer satisfied.