Open Source Revenue Models: Pay for What You Really Use

Matt Asay's recent posting on Open Source revenue models prompted me to pen some thoughts on the difference between the traditional license model (where many costs are hidden/paid for by the up-front software license fee) and the typical Open Source subscription model where customers pay an annual charge but with no up-front license fee.

One of the things companies using an Open Source model need to do is make sure they get paid for up-front costs up-front. For example, in the more traditional model a software vendor would get paid an up-front license fee. That license fee would help defray to costs of sales (including extensive pre-sales technical support for evaluations or pilots) and the extra support costs during initial deployment.

A subscription-based Open Source model does not include that up-front license fee. So to the extent that a customer wants pre-sales technical support or technical support to run a pilot they have to pay for those services. To the extent that a customer needs extra help in deployment they need to pay for those services. This can be a benefit to customers as the costs are explicit (not hidden in a license fee) and incremental (you can pay hourly for what you use as opposed to a big license fee that may or may not align with your actual resource usage).

Part of the challenge is educating customers about this different model. The Open Source company needs to explain to the customer that they can pay for consulting services to support their pilot, and then pay for the subscription service as opposed to getting the pilot for free from the proprietary vendor but now having to pay a large licensing fee when they deploy.

Ultimately I think the explicit and incremental pricing structure of the Open Source model is better for customers in the long run. But it will take some time before more customers are used to buying this way.

Comments

[Dirk]

I am surprised that you think that there's still so much need for education. From talking to customers it seems to me that a broad majority has understood and appreciates the subscription model.

[lma]

I'm not sure how much need there still is for education. I think that's a good open question. It would be interesting to see how many CIOs understand that the buying model is different. I know that I still give talks at CIO events explaining how the buying model is different and that many CIOs in the audience still seem to be getting their heads around the model. But I don't have anything other than anecdotal experience.

[georgia hanias]

Hello, my name is Georgia Hanias and I am working closely with the Open World Forum 2009. I just wanted to let you know that there is an upcoming event in Paris in October 2009. Here is the press release- I thought you might want to post it on your blog:

OPEN WORLD FORUM AND OPEN SOURCE THINK TANK TO BRING TOGETHER KEY PLAYERS FROM THE WORLD OF FREE, LIBRE AND OPEN SOURCE SOFTWARE IN PARIS, September 28th - 2nd October 2009.
Developer communities, business and policy-makers to attend event to ensure open software plays an active role in the digital recovery.

Paris-San Francisco, 4th June 2009. As the leading global forum for free, libre and open source software (FLOSS) worldwide the second Open World Forum will welcome all the key global players to Paris on 1 and 2 October 2009, in partnership with the Open Source Think Tank. The event will aim to cross-fertilize initiatives around the issue of 'Free, Libre and Open Software at the heart of the Digital Recovery'.
''Computing – along with green technologies – is the key driver for the growth of our economy. Free, Libre and Open Source Software is now its essential foundation and source of innovation,'' commented Jean-Noël de Galzain, Chairman of the Program Committee for the Open World Forum 2009 and CEO of Wallix.
Since early 2008, the founders of the Open World Forum felt that it was necessary to create an event on a global scale where the decision-makers in innovation, community leaders, political leaders, CIOs, and other players from the world of open software could get together. Last year, over 1,200 delegates came to take part in the 17 associated seminars, and hear 160 speakers from 20 different countries. This year, in partnership with the Open Source Think Tank, the Open World Forum will make its mark as the essential global event for Open Source decision-makers. Our aim for 2009? To ensure that Free, Libre and Open Source Software is one of the key drivers of the Digital Recovery.
“We are excited to partner with the Open World Forum and host the Think Tank September 28th – September 30th. As the industry's only by-invitation event for global open source business leaders to gather and discuss the opportunities and challenges facing commercial open source; the Think Tank is a perfect complimentary event to the OWF,” said Andrew Aitken, Managing Partner of Olliance Group and the founder of the Open Source Think Tank, now in it's fifth year.
The aim of the Open World Forum is to bring together players from information technology and Open Source, to share ideas and initiatives, to stimulate competitiveness and innovation, and finally to build business relationships within and through open software.
The forum is an open event, and welcomes new conferences proposals.
For more information on the Open World Forum, visit: http://www.openworldforum.org
For more information on the Open Source Think Tank, visit: http://thinktank.olliancegroup.com
PRESS CONTACT
Martha de Monclin
Page One PR Europe
Tel: +44 (0)1494 837608
UK Mobile: +44 (0)777 168 2434

[georgia]

Hello Larry,

Would you be interested in participating at the upcoming Open Source Forum in Paris 2009? My name is Georgia Hanias and I am helping to promote and organising this event- now in its second year.

If you are interested please let me know your contact details and i would be very happy to provide you further information either via phone or email.

Regards,