Building an open source business


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In 2002 I was working for Oculan, a company that founded an open source network management application platform called OpenNMS. Oculan used this platform as the basis for a network management appliance, but my job was to create a services and support business around the platform itself.

In May, just after the release of OpenNMS version 1.0, Oculan got new investors, who decided to focus on the appliance and to stop working on OpenNMS.

I knew that without at least one person dedicated to OpenNMS it would die, and I wasn't ready to give up on it. So I went to the CEO and asked to become the administrator of the project. We talked for a bit, and then he looked at his watch and said that if I was off his payroll by Friday, he'd give me a couple of servers, the OpenNMS domain names, and his blessing to continue on with OpenNMS.

That was the easy part. Explaining to my wife that I had quit my job was much, much harder.

You might think that I was motivated by some sort of idealistic love of open source software. Nothing could be further from the truth. At the time, I was still running a Windows desktop. I undertook the OpenNMS project because I believed one thing: in the area of network management, open source represents the best business solution.

This is important. I don't want to denigrate the efforts of those open source volunteers who work on projects because they enjoy it. I feel a strong attachment to OpenNMS, so I understand. But there is a difference between doing something for love and doing it to make a living.

When I was working with commercial management products like HP's OpenView, I would attend sales training for Value Added Resellers (VARs). In those sessions, HP would point out that for every dollar spent on software licenses, a VAR could expect eight dollars in services revenue from software implementation. In my experience this was true, if not a little on the low side. At one job, I worked for a company that did nothing but provide services on commercial management products, and they refrained from selling any software licenses at all on the grounds that they wanted to remain vendor neutral.

The following scenario was unfortunately not unusual: I'd schedule a week at some far off client, and I'd fly out on Sunday. On Monday I would install the software, and that usually went pretty smoothly. But then sometime on Tuesday, I'd find a bug that would bring my entire project to a halt.

I'd call the vendor who, more often than not, was aware of the issue. Great! When can I have the patch? Their answer: four to six weeks.

(Sigh.)

Another scenario that was even more common is that the client would have some sort of unique business process that needed to be monitored, but the default monitors that shipped with the tool couldn't handle it. Instead of being able to tweak it as needed, we were stuck trying to fit the business process to the tool.

Enter open source.

My early experiences with OpenNMS caused me to understand that open source offered a better alternative. Since the code was available, patches could be applied immediately. Also, this enabled me to fit the tool to the business process and not the other way around. Both of these things would radically reduce the time to deploy and, without licensing costs, clients could even save more money.

The reason I decided to start an open source business came down to providing a better solution—nothing more. Instead of paying a dollar for the software license, the client could keep their dollar. Instead of spending eight dollars on services, the client could deploy a solution for, say, half as much. I got to do something I loved, get paid well for it, and still save my clients money.

As I thought more about this, it dawned on me how revolutionary open source could be in the enterprise software market. Here's a little thought experiment:

Suppose one could divide a software market—say network management—between two products. One did everything possible and cost $1 million, and the other only did 10% as much, but was free and open.

The price tag of the commercial solution would automatically filter out a large number of users, and those people would have to turn to open source. But some users would be satisfied with the 10% functionality and choose it outright.

For example, I have an original Macintosh computer on my desk. It runs a word processor called MacWrite. It does everything, with the exception of spell check, that I need a word processor to do. I can format paragraphs, choose fonts, make text bold or italic, and even paste in pictures and graphs. All in a "what you see is what you get" user interface.

It takes up 76K of disk space. That's "K" as in "kilobyte."

Compare that to Microsoft Word. I think the last time I installed just Word it was around 30MB, many times larger than MacWrite, but I don't use it for much more than I use MacWrite. Like me, many users are happy with basic functionality. They don’t need all the bells and whistles.

But back to my analogy. In the beginning, the commercial company would probably ignore the open source project. It represents no threat to their revenue stream, so why should they pay attention to an upstart?

If this project is healthy and sustainable, however, in a year or so perhaps it does 15%-20% of what the commercial product does. This should bleed a few more users from their business, and maybe now they start to pay attention.

Most likely, this attention would take the form of marketing against the project. They would claim it is too small or too underpowered to take seriously. And in the short run this would probably work. But the mere fact that they acknowledged the project would pique interest. Some people would determine for themselves that it was neither too small nor too underpowered and would start using it.

Another year or two goes by and now the project is up to 50% of the functionality of the commercial product. People start joining the project in droves. The commercial company now has to do something. What do they do? They add more features.

Remember, the commercial product already did 100% of what people needed. So what kind of features could they add? Unnecessary ones. They might change the look of the user interface or add features outside of network management. In any case, this development will cost money, and that will start to eat into the company's margins.

Finally, with a healthy community and this influx of new users, the open source project will eventually approach 80%-90% of what the commercial product does. Having exhausted all avenues of generating revenue, the commercial company still has one final option: put the screws to their remaining customers. Find ways to charge them more, to eek out what they can from their investment, which ultimately will drive their clients away.

Farfetched? I don't think so. There are only two main requirements:

First, find a market where open source provides a compelling alternative, such as network management.

Second, build a sustainable community around the open source project.

This latter bit is not easy. I'll write more about that in my next two articles.

In conclusion, I should add that the first year I spent as the admin of OpenNMS cost me $5,000 of my savings. I've made money every year since then, and currently the commercial arm of the project has a dozen employees in three countries and seven-figure revenues. Oculan closed its doors in 2004.

Open source isn’t just a good design philosophy; it’s good business.

This is the first in a series of articles that will explore starting and running an open source business.

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10 Comments

Michael Tiemann's picture
Open Source Evangelist

Tarus,

Welcome to the club! As an open source entrepreneur myself (see my article in Open Sources: Voices from the Open Source Revolution), I love seeing success stories like this. And welcome, too, to opensource.com!

I think that the key to your success was the key to my sucess as well: identifying a real business need, finding a robust solution to today's problem that also has the adaptability to solve tomorrow's problems. Many people mis-read the theory of Charles Darwin and believe that his theory of evolution is about "the survival of the fittest", but that's too myopic. How did the fittest become the fittest? By being the most adaptable. True, multi-generational survival is about adaptability, not fitness at a moment in time.

Your story speaks to the wisdom of open source as a model of perfect adaptability, and your success is a result of your willingness to adapt. And it's good to see that our capitalistic system still can pay rewards to those who are willing to adapt rather than trying to lock in the status quo.

The structure of world peace cannot be the work of one man, or one
party, or one nation...it must be a peace which rests on the cooperative
effort of the whole world. -- Franklin Delano Roosevelt

Lyle Estill's picture
Newbie

Tarus,

Nice work. I learned a lot about "community building" during my time with OpenNMS. I think a lot of it has translated well into non-software undertakings.

I hope to contribute to opensource.com as soon as I get some free writing cycles.

Keep fighting the good fight.

Lyle Estill
Piedmont Biofuels
http://www.biofuels.coop

derrekcooper's picture
Community Member

I'm inspired by your success.. The part that is a bit gray is who was your OS community? Clients?

Meaning, you supplied OpenNMS and, I assume, were paid for implementation services?
So, what community accessed and altered the code? Other clients?

Seems to me, the key to open source is to have a solution with a wide enough community of contributors.

Jeff Gehlbach's picture

I'll let Tarus answer your question in the broader sense, but as part of the OpenNMS community I'll tell you how I became involved.

Similar to Tarus, I used to work in the commercial network management sector, only I worked for a software vendor rather than a VAR. When Computer Associates gobbled up my employer and put me on the street, I went to work for BellSouth, where my boss was excited to have somebody with network management skills on his team. There was no budget for tools, so they had put together a partial solution by "duct taping" together Nagios and several other open-source point tools. Having just come from working on a scalable, integrated management platform, I knew what the right solution would look like. I also knew that the piecemeal approach would always struggle to get the job done and would actually become harder to maintain and extend as it approached its goals. I found OpenNMS by Googling "open source network management", installed it on an aging Solaris server, and hopped on the IRC channel. The community drew me in right away and helped me with my deployment; I wasn't really a Java developer, but I knew enough of the language to give back by fixing a few bugs. I found myself invited to the 2006 OpenNMS Dev-Jam, where I wrote a piece of unit-test infrastructure that has helped improve the quality of the project. Later that year the Order of the Green Polo (http://www.opennms.org/wiki/OGP) voted to induct me.

I now work for the company that Tarus started. It was an easy transition for me; you'll still find me on the OpenNMS IRC channel (my nick is jeffg). If I don't answer right away, I'm probably heads-down helping a customer on a support ticket or a consulting engagement.

awdunstan's picture

I think there's a 3rd requirement you've missed. What if the TCP/IP (or whatever network protocol) specification wasn't freely and cheaply (free-as-in-speech and free-as-in-beer) available?

If you have to spend a large amount of money just to see the standard you might never get started. If the standard is only available after signing a non-disclosure agreement you might be severely limited in what you can do and who can work on it.

"Open source" only works to the extent that the ideas, protocols and specifications behind the source are also open.

Sortova's picture
Open Minded

Oh yes, most certainly. When talking about open source I often use the line from The Matrix that there is a difference "between knowing the path and walking the path". Having walked the path, I have no doubt that, in time, all software will either be open source or have a large open source component.

The biggest threats to open source business will be artificial ones. Things like ACTA and overly broad software patents, coupled with some sort of "metered" internet, could spell the end to businesses such as mine.

Multichannel Amplifiers's picture

I have been sticking to your blog for quite a while now yet never commented as a result of my very lazy persona but seeing this post I simply cannot stop myself and had to write a opinion.

Stereo Amplifiers's picture

Although last but not least I realize pretty much everything at this point.

madnanmoghal's picture

Dear Fellow,
Please do help us in our study. It is very important for us to have feedback from you (who is using OpenNMS). I bet I would not take you more than 5 minutes, all questions are multiple choice and on a single page. We will be highly thankful to all the participants.
Please click on following link to answer this survey.
http://www.kwiksurveys.com/online-survey.php?surveyID=KBINNF_9b336176
Regards

madnanmoghal's picture

Dear Fellows,
Please do help us in our study. It is very important for us to have feedback from you (who is using Nagios). I bet I would not take you more than 5 minutes, all questions are multiple choice and on a single page. We will be highly thankful to all the participants.
Please click on following link to answer this survey.
http://www.kwiksurveys.com/online-survey.php?surveyID=KBIOLF_a8c769c3

Regards