How Do You Make Money from Open Source Software?

David Skok, a partner at VC firm Matrix, sketched out the options at a recent Mass. Software Council session, “Open Source -- Is it Entering the Mainstream?” Matrix was the lead investor in JBoss, with the sole investor board seat, so he knows whereof he speaks. Let’s face it: VCs spend more time than the average bear on the making money topic.

Skok cited four models:

Paid support (e.g., Red Hat and JBoss) -- If you follow open source at all, you are probably familiar with the Red Hat and JBoss models, where most of their revenue derives not from selling software, but from varying levels of support packages.

Dual license (e.g., MySQL) -- The approach taken by the popular open source database company MySQL offers the software under the General Public License (GPL) for open source developers. The catch with the GPL license is that if you bind closely to GPL code in your application, you must also GPL your code. For companies that decide they want to sell their application that incorporates MySQL, the organization offers a traditional paid license. Visit their site for a detailed explanation.

Upgrade to proprietary software (e.g., SourceFire and Sun) -- I’m most familiar with this approach, as Sun uses this model with its tools line, offering an entry point with the open source IDE NetBeans. From there, if developers want all the bells and whistles, they can move up to Java Studio Creator or Java Studio Enterprise. The same holds true for OpenOffice.org; users who want support and advanced features buy StarOffice.

Offer a hosted service (e.g., SugarCRM) -- Skok noted that not long ago he’d felt application software would not be a likely area for open source to prosper, but he now feels that this startup may be onto something, with its hybrid model.

Skok noted that when a Forrester survey survey asked respondents about the benefits and concerns associated with open source software, 57% cited lack of support as a key concern. This explains why Red Hat and JBoss are doing well with their model. Skok says JBoss is getting 10,000 leads per month.

Another interesting point -- it’s a given that lifetime sales and marketing costs for a software product are high (up to 55% of the expenditure). Skok estimates that if you have a successful open source development community contributing to the software, you can cut maintenance costs by up to 20%.

According to an Evans Data Corp study, more than 1.1 million developers in North America are spending at least some of their time working on open source development projects. So it seems that there are plenty of developers out there willing to invest the time.

More on open source next time…

A Full Measure

From CHEN PR Veep Randy Wambold...

The days when marketing was to some extent insulated from the same bottom line accountability of every other group in an organization are long behind us. An IDC conference held yesterday in snowy New York, "IDC Marketing Performance Measurement Summit for Business-to-Business Marketers," drove home the point.

In today's competitive climate, marketers are obligated to show ROI like everybody else. The challenge is, unlike other areas of the business -- say operations, or finance of course -- where well-understood, widely accepted industry standard metrics exist, marketing lacks these measurement tools.

Of course, if the problem was easy to solve, some 100 or more people from around the world wouldn't have felt compelled to travel to New York yesterday for a day of meetings on the topic. So in many ways yesterday's event was about intelligent, thought-provoking discussion on the topic more than coming away with all the answers.

Some particularly interesting points emerged from the discussion:

• Marketing is being held to financial accountability in a way that was never the case in the past in the tech market.
• Consequently, if marketers want to have relevance and "a seat at the management table," they must learn to think and talk in business terms. The "I'm creative so it's hard to be accountable in that same way" mindset ain't gonna cut it any more.
• Though this increased accountability will cause some short term pain -- in no small part due to the lack of measurement metrics that were the focus of the conference -- longer term, this will help garner marketing the respectability it has lacked in many circles. Or, as one panelist memorably put it, it will help get marketing "out of the ghetto."
• Brand awareness is paramount. It was a hot topic for all of the companies represented.
• Marketing needs to become integrated and compatible with other areas of the business such as sales and finance. The historical skepticism and friction between marketing and other disciplines has hurt marketers. As one panelist nicely put it, "It's time for marketers to get over our victim mentality."
• The customer is king. I'm reminded of the fact that when Scott McNealy of Sun sat on stage with Steve Ballmer of Microsoft in 2004 and answered the question of how two staunch rivals had come to make peace, the gist of his answer was: "Our customers asked us to do it, and the customer is in the driver's seat." This same mentality prevailed yesterday. A marketing program that doesn't rely on customer-focused data will fail on the face of it.
• Your metrics are only as good as the data they rely on. In the afternoon we broke into small groups to discuss measurement, and my industry colleagues and I talked almost the entire session about the great need and the great difficulty in getting good data to use as the basis for good metrics.

On a more positive note, conference chairperson and IDC analyst Richard Vancil perceptively points out that there is a silver lining in the measurement challenge clouds for marketers. In the boom times of tech, the role of marketers was limited, he argued (rightly, in my opinion). Sure, marketers helped provide sales support and competitive positioning and increase brand awareness, etc. But at the end of the day, companies didn't really, truly need expert marketing because demand was so strong and capital so plentiful. In these post-boom days, with demand neither nearly as strong, nor capital nearly so plentiful, tech companies truly, urgently need marketing in a fundamental way that they haven't before. For those of us in tech marketing, this is a real career opportunity. And at a more macro level, it can only benefit the tech market long term to have the industry more marketing-focused.

On a separate note, I applaud IDC for donating $5 to the Make-a-Wish foundation for each evaluation survey turned in by an attendee. Classy move.

And finally, on a more personal note, the hotel in which the conference was held was a stone's throw from the World Trade Center. Though I have been back to New York since 9/11, this is the first time I've been back in that immediate area. I took the opportunity to walk over to Ground Zero on lunch. Though of course the area does not resemble the pile of rubble that is in many of our mind's eyes from the coverage immediately after the event -- in fact very early work has already begun on foundations for the new buildings -- the sunken crater was still a vivid, stirring reminder of the tragedy of that day that will be with all of us for the rest of our lives.

Pew Project Nets it All Out

A post of Pew pearls from my partner Chris Carleton...

Have you had time yet to peruse the recently released Future of the Internet Report issued under the auspices of the Pew Internet and American Life Project? If not, it's a must-read for high tech PR folks.

In fact, it's a must read for just about everyone, since the Internet and related technologies affect us all.

The report is based on a broad-ranging survey of technology leaders, scholars, industry officials and interested members of the public. The 24-question survey was emailed out in September and generated responses from nearly 1,300 individuals.

In addition to the Grandpappy of All Things Net, Vint Cerf, respondents ranged from folks like Ethernet inventor, tech VC and all-around industry icon Bob Metcalfe to uber-journalists/industry pundits Esther Dyson and Dan Gillmor. Some, preferring to shield their identities, came from such institutions as MIT, The Federal Communications Commission, U.S. Department of State, Harvard, Google, Microsoft, AOL, Disney and IBM. And still others imparted their wisdom, but neither their names nor their affiliations.

The survey finding that has generated the most attention is that 66% agreed with the prediction that at least one devastating attack will occur in the next 10 years on the networked information infrastructure or the country's power grid. Most media outlets covering the report jumped all over that, since it has the F.U.D. factor that grabs eyeballs. That's not to say it didn't warrant the attention. We expect the majority of us find this prediction as likely as it is frightening.

News and publishing organizations are expected to incur the most profound level of change. Proof of that pudding is perhaps reflected no more strongly than in the Blogoshere. Others trailing closely behind are educational institutions, workplaces and healthcare institutions. The least amount of change is expected in religious institutions.

The report contains lots of other goodies that deserve airtime:

• 59% believed that more government and business surveillance will occur as computing devices proliferate and become embedded in appliances, cars, phones and even clothes.

• 57% agreed that virtual classes will become more widespread in formal education and that students might sometimes be grouped with others who share their interests and skill levels rather than just their age.

• 56% think that as telecommuting and home-schooling expand, the boundary between work and leisure will diminish and family dynamics will change because of that.

• Half believe that anonymous, free music file-sharing on peer-to-peer networks will still be easy to do a decade from now.

'Vette Coup or Snafu?

Musings from my colleague Randy Wambold...

I'm always curious about the lives of PR people in industries other than tech. Are their day-to-day jobs roughly analogous to mine? Or is, say, PR for the automobile industry so different from tech PR that it might as well be a different profession?

An article in the Wall Street Journal on Friday entitled "GM's AWOL Corvette; How Car Maker Lost Control Of Its New Model's Rollout Shows Power of Web Fan Sites" shed light on this question. (WSJ.com is a paid subscription site so I can't link to it, but those of you with access will find it on-line.)

The article concerns the announcement of the new Corvette Z06. GM's communications planned to announce the car at the Detroit auto show this week. They placed media under embargoes accordingly. Trouble is, unauthorized photos of the car began appearing a couple of months ago. GM tried to stem the distribution, but as we know in this age, once the chain reaction gets started, it's near impossible to stop it. The unspoken question of the Journal article seems to me to be whether the actual announcement next week won't be a bit of a yawner coming on the heels of all the pre-announcement coverage.

I had several observations about this story from the perspective of a tech PR professional:

• Like in tech PR, automotive industry PR has been reliant on media embargoes as a form of message control.

• Like in tech PR, broken embargoes are a constant occurrence, and what to do about them a constant issue.

• Like in tech PR, the embargo's effectiveness -- and to some extent its feasibility even -- in our current age is very much in question. New ways of thinking about communicating a message to the marketplace are called for. "The Z06 snafu is a high-profile illustration of how Detroit's decades-old tactics for generating buzz around a new model don't always mesh with the realities of the digital media universe," the article notes.

• A reaction to an unplanned media event is sometimes as important as the event itself. After the photos began appearing, GM chose to try to finger the culprits and limit the "damage," by means that some interpreted as heavy-handed. This appears to have exacerbated the situation, alienating some of GM's most loyal customers ("GM should probably find a better use of their time than p-----g off current and future Corvette owners," the article quoted one fan group Web site manager as saying.)

Easy for me to say as a Monday morning quarterback, but perhaps if GM had embraced and tried to leverage the interest the digital community was showing in the new Corvette, this might have been a PR coup rather than a PR snafu.

Covert Propaganda

Today's Washington Post includes a chilling article. It details a story by Mike Morris that aired early last year on local TV news stations across the country about the dangers of drug abuse. The catch: "...Morris is not a journalist and his 'report' was produced by the government, actions that constituted illegal 'covert propaganda,' according to an investigation by the Government Accountability Office."

It's always a bit frightening to think about the number of government employees who must have been involved in this little venture. Didn't someone (with warning bells blaring) ask his/her colleagues: "Isn't this morally wrong? Isn't this what they mean by the manipulation of the media?"

There's comfort in the fact that checks and balances work, and the GAO stepped in. But it's cold comfort. It doesn't bring back our $155,000.

Thanks to Terri Molini at Sun for flagging this story earlier today.

"Life was simple before World War II. After that, we had systems."
-Rear Admiral Grace Hopper

Pubs and PR

Here's another guest entry from my colleagues Chris Carleton and Randy Wambold, based on their December London trip.

Part of the fun of traveling abroad is being reminded just how much of what we take for granted in the U.S. is specific to our culture. Stereotypes in both directions end up making for some entertaining exchanges.

For example, many of our industry colleagues presumed that we Americans would be less than willing to share a Guinness or two with them. We were told they thought that because of our country's often-over-the-top focus on health and diet and abstinence from most things enjoyable. We were only too happy to disabuse them of that notion!

On the flip side, we arrived back on U.S. soil with some of our British stereotypes held firmly in place. Their command of English, for example, really does make you want to dig out and dust off your grammar and usage handbook.

But, there are stereotypes and then there is plain fact.

With regard to the latter, we're here to tell you that Brits really are as incredulous about our president's re-election as you hear reported in the news. Combine that with the fact that mixing business with politics is less taboo in the U.K., and we found ourselves talking about taxes and Texas at least as much as technologies and trade pubs.

On the business front, we were struck by the similarities between tech PR in the U.K. and the States. It's not that differences don't exist, though. For example, after our meetings, our sense is that while the U.K. definitely got caught up in the tech boom hype of the late 90s, it wasn't to quite the same extent as in the U.S. In particular, there doesn't seem to have been as much of a VC spending spree. So when the bubble burst, as a generalization tech PR firms in the U.K., like the market on the whole, might not have had as far to fall.

Conversely, the U.S. market seems to remain a bit gun-shy as a result of the still-raw wounds from that rapid rise and equally rapid descent. Not so for our friends in the U.K., who bring an enthusiasm to the table hearkening back to the days when sock puppets were for fun in preschool classes rather than icons of failed on-line ventures lacking that little ingredient called a business model. Their enthusiasm was a shot in the arm coming as it does at a time when our own sense is that cautious optimism continues to grow in the U.S. tech market.

Also on the differences front, and perhaps indicative of the market dynamic just mentioned, there seems to exist a professional collegiality between tech journalists and PR professionals in the U.K. that may have waned in the U.S. We're talking in general terms here. But, whether it be due to U.S. journalists' own experiences getting "dot-bombed," or to the fact that during the boom in the U.S., any bloke with a computer and a press release template was billing himself or herself as a "strategic PR pro," sullying our profession in the process, in the U.K. market journalists and PR professionals seem to have a little more mutual respect and a little less of a wary eye for one another.

But as we say above, we were struck as much by the similarities between tech PR in the U.K. and tech PR in the States as by the differences.