Show me the money... | Opensource.com

Show me the money...

Posted 24 May 2010 by 

Jim Whitehurst (Red Hat)
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Every day I come to work, I get excited about the possibilities of the power of participation: to solve complex problems, to share knowledge, to bring people together. Opensource.com has been a great vehicle for me to learn and participate in a dialog about the power of open source principles–-especially when applied beyond software.

I believe together we can solve many of the most complex problems our world faces. I also believe strongly that we, as a society, will never fully realize the full potential of the power of participation unless and until we find vehicles for individuals and institutions (both public and private) to directly profit from it.

So, while it might sound strange, I believe one of Red Hat’s most valuable contributions to the open source way is our profitability. We have clearly demonstrated that a company can be a good steward and catalyst in open source and be a profitable enterprise as well. I hope this serves as an example and inspiration to others to enter and participate in open source.

In order for the open source way to thrive, there must be ways for individuals and institutions to make a return on investments made in participation. For most, these returns are non-monetary or are derived from the later use of the end product of that participation--IBM’s and Intel’s participation in Linux are good examples of the latter. But there still needs to be catalysts in communities to start, foster, and grow collaboration. These business models are less common, but, I believe, vital to accelerating communities of participation.

Red Hat is an example: our mission is to be the catalyst in communities. Our community/enterprise model clearly works, but we need to find more business models to encourage others to play catalytic roles and foster their own communities of participation.

I’d like to start a conversation. Do you agree with this premise? Do you have examples of other business models that are working for catalysts? Do you have new ideas of what next-generation business models might be? Let me know.


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11 Comments

Colonel Panik

@Jim Whitehurst, Well said sir.

Now is the time for all the Open Source Companies to get in the face of the business world. The executives and workers at every level have to tell the story. You have to say "This works." "This is how we did it." This effort at OpenSource.com is a great start.

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Sankar

News is coming in that Mandriva is bankrupt and Novell is up for sale attracting more than 20 bidders. RedHat sure is an inspirational company. But leaving away RedHat, the fate of the rest of the companies in open-source does not seem promising (like the state of Sun which touted itself as the biggest contributor to opensource).

I strongly believe that open-source is the right way to do programming but from a business perspective I could not find success stories except RedHat (leaving aside the consumers of FOSS like Google) . If you could share your esteemed opinion on this, it will be nice. Thanks.

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quaid
Open Minded

The evolution of Red Hat as a company has strong roots in a "pure source" philosophy that means that the organization has never worked on any significant codebase that was not developed in a radically transparent way.

The companies you give as examples are a bit mixed. I'm not qualified to speak about these businesses in the business sense, but I know that Novell is not steeped in the history that Suse was. Sun had a similar challenge, trying to mix two different developer cultures.

Google practices a lot of the open source way internally, from what I can tell, and does so in many ways externally. Yet everytime they don't start and run a project 100% in the open from the very start, it counterbalances that and creates a situation where they haven't lowered the barriers enough to create community participation.

Who is exciting? Automattic, makers of Wordpress. Acquia, significant contributors to Drupal and the vendor behind WhiteHouse.gov and our own opensource.com. StatusNet, makers of identi.ca. The WikiMedia free and open empire. These groups not only have found ways to make money themselves, they have created awesome ecosystems that allow so many others to make money or profit in other ways.

These are companies who really get the open source way, and they do it by having the free and open radical transparency in place from the very beginning.

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Giovanni Tirloni

Sun tried to reap the benefits of both proprietary and open source business models at the same time and got lost in the journey. Its open source projects had proprietary hooks (eg. OpenSolaris closed binaries) and the company didn't really open the processes involved in creating the final product (eg. bug tracking, website team, etc). If you compare the OpenSolaris ecosystem to, for instance, Fedora or FreeBSD, it's miles away from coming near the level of community involvement.

That alone creates an atmosphere of doubt and uncertainty. People are always stepping on some toes when they call for more openness. If they are in favor or closing it up, the community gets furious. It's not an easy situation if you aren't clear about your intentions and provide a clear path for communication.

IMHO, it's not easy to shift from proprietary to open development and it requires much more than good intentions. Unfortunately for Sun and their projects, I don't see Oracle having any intentions of being a reference in the open source world (they fail on open source 101 every day).

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moondowner
Open Enthusiast

As you can read on their official blog:
http://blog.mandriva.com/2010/05/12/about-mandrivas-current-situation/
"We want to stress out the fact that Mandriva has not been bought by anybody."

Plus, you only mention the Linux-as-a-product oriented OpenSource companies, what about those that make web frameworks and other software? :) What about the Apache Foundation for example, RedHat also makes lots of quid with their JBoss division, VMware has SpringSource, Google has a ton of OpenSource projects, Cloudera is going great with Hadoop, Vyatta is a strong OpenSource competitor to Cisco, etc etc..

Even Microsoft is starting to OpenSource stuff piece by piece, I think that that's a strong sign of things to come.

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dragonbite
Open Source Evangelist

The other model I have seen is paid-for plugins and enhancements to open source projects. For example, the for-pay modules for Joomla, and the Mono-Touch add-on to the Mono project.

Making money FROM open source is different from making money USING open source, and currently I think the latter is more successful.

Making money by using open source is still significant as it means open source is a viable alternative other than just a free ride. This includes setting up systems or developing a products using open source tools, e.g. developing a Drupal website for a company, whether or not the actual product is open sourced or not.

The more businesses can develop profitable models from open source, the more open source projects will get funded and the more time will be spent developing and improving not only the project but, due to the transparency of open source, benefiting the community as a whole!

It is going to be easier to build a business up from the bottom with open source at the core than establish businesses that need retrofitting and re-aligning it's employees' thinking.

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heather
Newbie

Dru Lavigne from the BSD community talks about the 'maturity' of open source projects. Often people think of the maturity of the code, but she talks about the maturity of the community. One of the factors is the involvement of people who are not coders, per se. They bring expertise from other realms. How well the community is accepting of and open to their contributions, she argues, is one of those factors in measuring the community's maturity.

Entrepreneurs, ideas people, are changing these communities. I do sense there is a zeitgeist. I see this conversation happening in other OSS communities, but I know the Drupal community best.

Dries from the Drupal community posted some articles about business models:

- http://buytaert.net/on-business-models-for-drupal-distributions
- http://buytaert.net/joomla-vs-drupal-business-models-and-commercial-ecos...

And, coincidentally, Liza Kindred from Lullabot (a large Drupal shop) posted an article with this same title: Show me the money!
http://www.lullabot.com/blog/show-me-money

There has to be a way to make this work, while still maintaining the quality of the community at the core, for contributions. It has to be sustainable.

I was pondering this today, while listening to Jim Corbet of the Linux community talking about contributing to Linux. He specifically addresses companies in his webinar: *managers* need to understand open source and the processes of communities. It's fundamental.

I took some notes from his webinar here:
http://heather.drupalgardens.com/content/bootstrapping-developers-drupal

I'm keen to understand this from the perspective of an educator, as I see some of this as a learning gap that can be traversed.

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Kim Weins

At OpenLogic we've expanded the "power of participation" beyond the development model to a paid support model. With our OpenLogic Expert Community we pay open source developers to provide support in an on-demand mode.

http://www.openlogic.com/community/expert-community.php

OpenLogic finds the customer, provides front line support 24x7, and ensures SLA's are met. The open source developers choose what issues they want to work on and we pay them for that help. OpenLogic acts as an intermediary between the customer that needs SLA support and the open source developer that wants to offer support services without the overhead of finding customers and answering the phone 24x7. We've had this model in place for 4 years and it works amazingly well.

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Luis Ibanez
Open Source Sensei

I partially disagree with the premise of this post.

Namely that:

"Profitability of a given FOSS company is a measure for the success of peer-production"

When peer-production is successful we restore the equilibrium of the market. When the market is in equilibrium, profits should tend to zero since a healthy diversity of offer and demand should create the right conditions for competition in a Free Market.

The fact that profits should tend to zero in a Healthy Free Market (and that's Free as in Freedom) is a carefully held secret of our greedy corporate culture. Obviously that's not the kind of economic truth that a CEO would like to tell to her shareholders.

I certainly agree with the part of the premise stating that a successful FOSS-based business is good for the image and morale of peer-production. However, if we are going to measure the economic impact of FOSS we should do it not just by looking at the profits of FOSS companies, but by also including the savings from the many companies that have benefited from FOSS. More specifically by being freed from the control of Monopolies and the deadweight that they impose to the economy.

What FOSS has done is to create a way out of an "market failure" situation; where the conditions of the software market are too close to being dominated by a few players (dangerously close to being monopolies).

The "real" money, therefore, will be found in the many savings that so many institutions (both public and private) have achieved by not being subject to the traps of Market Failure.

How to properly estimate those savings ?

That's a project that probably will require to do crowdsourcing from many CFOs and CTOs around the country.

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Beth Lynn Eicher

My reply is in my blog post on what will we use dot com (no spaces) called Making Free Pay.

Basically I would like to see Red Hat get back into to the desktop game... and it can be done... at little cost to Red Hat.

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Will

Cutting to the chase: Kitware is a for-profit, open source company. We are approximately 70 employees, growing at a 33% clip the last couple of years (through the recession). Our revenues FY2010 are estimated to be towards the $20 million mark. We have two US offices and will soon open international offices. We have been profitable from our first year of business 12 years ago. I have put two kids through college (Duke and Michigan State) and paid for my daughter's wedding with open source profits . :-)

Our business model is mainly services: integrating our open-source systems into customer workflow and engaging in collaborative R&D (we have a lot of PhD's and highly trained software engineers). We also sell support products but these bring in much less revenue than our services.

I strongly believe that a service model is the way to go with open source software. It lends itself to agile, collaborative development which minimizes customer risk and results in better software

I have a six-part blog on "Why Open Source Will Rule Scientific Computing" http://www.kitware.com/blog/home/post/3. In particular the last part addresses the business model http://www.kitware.com/blog/home/post/20

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Jim Whitehurst is President and Chief Executive Officer of Red Hat, the world’s leading provider of open source enterprise IT products and services. With a background in business development, finance, and global operations, Whitehurst has proven expertise in helping companies flourish—even in the most challenging economic and business environments. Since joining Red Hat in 2008, Whitehurst has grown the company, and its influence on a variety of industries, by reaching key milestones—the

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