* The Business of Software

A former community discussing the business of software, from the smallest shareware operation to Microsoft. A part of Joel on Software.

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Andy Brice
Successful Software

Doug Nebeker ("Doug")

Jonathan Matthews
Creator of DeepTrawl, CloudTrawl, and LeapDoc

Nicholas Hebb
BreezeTree Software

Bob Walsh
host, Startup Success Podcast author of The Web Startup Success Guide and Micro-ISV: From Vision To Reality

Patrick McKenzie
Bingo Card Creator

Open source can be profitable after all

I know this has been asked before, but it seems it is possible if the project picks up steam.

Take a look at http://www.dotnetnuke.com It gets 6K downloads per day and seems to be generating revenue via sponsors and corporate services (sort of like mysql).

There sponsors are paying upto 15K/year! And they seem to have 10 of them...so it seems this project is really making a killing!

It can be done if you pick a product that has mass appeal.

Tuesday, December 04, 2007
 
 
You're saying they have an income of 150K/year from sponsors.

Have you seen how many staff/contributors they have:
http://www.dotnetnuke.com/About/DevTeam/tabid/698/Default.aspx

I would therefore conclude from your numbers that it isn't profitable.
Adrian
Tuesday, December 04, 2007
 
 
Who said Open Source can't be profitable?
Floyd Price Send private email
Tuesday, December 04, 2007
 
 
Yes, but not very. I expect there are plenty of mISV that turnover more than that per annum. And I bet some of the commercial CMS systems charge more than $150k *per installation*.
Andy Brice Send private email
Tuesday, December 04, 2007
 
 
Try this exercise:  List out the number of profitable open-source software companies you can find in one column, and then list out the number of profitable closed-source companies you can find in the other.

Is profitability for open source products the exception or the rule?  Would that indicate profitability is due to the business model or exceptional luck?
Tom Rath Send private email
Tuesday, December 04, 2007
 
 
Yeah, the others here are right. $150K is nothing. You can't even call that "profitable" because it wouldn't cover the bills if people weren't volunteering their time. And you could have taken that same product, commercialized it, and probably made several million in revenue a year.

When you think of it that way you have to wonder what some of these people are thinking when they give away their hard work for such a paltry amount of money. Open source is rarely profitable. And even when it is you could have taken the same product and made a fortune off of it. It simply doesn't make sense to me at all.
Johnny Bravado
Tuesday, December 04, 2007
 
 
If I got 6000 downloads per day, I'd be VERY disappointed with $150K per year.

6000 downloads per day = 2,190,000 per year

Compare a mISV: 

If you converted 1% of those to paying customers, and sold them on average $30 product, you'd turn over $657,000 per year.

If you converted 5% of those to paying customers, and sold them on average $100 product, you'd turn over nearly $11 million per year.

I'd guess that somewhere between those 2 figures would be a good target for an mISV.
Sunil Tanna
Tuesday, December 04, 2007
 
 
Having a sponsor listed doesn't mean they are paying the listed rates.
Me
Tuesday, December 04, 2007
 
 
I would be very surprised to find DNN getting even 1/2 of that per year from advertising. It is funny you bring up DNN as a success story for open source profitability because I would use it as an example of the opposite.  Can Shawn even pay himself and his brother a living wage?

People do OS for love not money.
Pete
Tuesday, December 04, 2007
 
 
"People do OS for love not money. "

That is usually true. But it is the fools who actually think that they are going to make money off of giving away free software that is the real crux of this thread. There is no doubt that there are many people who do it for love. And I take my hat off to them. But the one's who have been convinced by OSS fanfare and rhetoric that they should do it for money are the one's that you really have to feel sorry for.
anon
Tuesday, December 04, 2007
 
 
Yes, it is possible to make money with Open Source projects. However, as pointed out above, this is the exception rather than the rule.

The problem as I see it is that while the arguments for Open Source are strong and compelling from a technical point of view (although with caveats), they are much less so from a business perspective.
Jeroen Bouwens
Tuesday, December 04, 2007
 
 
One thing all the open source detractors here are neglecting to consider is that basing a business around an open source product is simply a tradeoff with some advantages and some disadvantages. Sure, a much smaller percentage of your downloaders will end up paying you for the product when your product is open source, but unlike with proprietary software,  you'll potentially have many more people download, test drive, blog about, and even recommend your software (if it's any good). Whether this makes economic sense depends entirely on the particular software, your market niche, and so on. But it can work out so that it's viable.

To say that an open source product could get $X million dollars if they were proprietary is no more than pulling numbers out of the air. Who's to say that the users of the product would still be even remotely interested in it if it were closed source? Even if a small percentage of the users were still interested, there will generally be another competing open source product out there that meets their needs without the vendor lock-in and huge price tag.
Dan Helfman (Luminotes) Send private email
Tuesday, December 04, 2007
 
 
If you want to learn more about it then listen to the following podcast...

http://www.dotnetrocks.com/default.aspx?showNum=292

It shows they are not making any real money at the moment and are trying to get to a point they can employ someone full time to act as project manager.
Phil Wright Send private email
Tuesday, December 04, 2007
 
 
I know if I were trying to sell $15K ads, I'd give away a bunch for free so people would think "all those other companies bought them, it must be worth it!"
Bob
Tuesday, December 04, 2007
 
 
> Sure, a much smaller percentage of your downloaders
> will end up paying you for the product

The OS user does not need to "end up paying" for the software since it is free. Thus it does not matter how many downloads since the conversion rate is 0%

There is definitely money to be made from OS, but you have to be in big business.

For example companies like IBM and Red Hat love OS, since it lets them greatly reduce their software development costs, while still maintain their consultancy and hardware income streams and that has got to be good for their bottom line.
Jussi Jumppanen
Tuesday, December 04, 2007
 
 
Jussi, The IBM/RedHat open source consulting business model is certainly more widespread (and potentially lucrative), but to suggest that the conversion rate for selling open source software is 0% is a bit misleading. If, for instance, you offer some sort of add-on with a paid subscription like a web-based service, additional ease-of-use/integration features, or really anything that makes a user's life easier, some people will be willing to pay for it even if the source code is available for free.
Dan Helfman (Luminotes) Send private email
Tuesday, December 04, 2007
 
 
The OSS product I was active on had a changing team of up to 10 developers working on it, for a period of several years, and produced an application which was the only one in its class, gets hundreds of downloads a day, and is the focal point of several communities with thousands of members.  (I don't mean focal point as in "CMS which runs their website", I mean "the community exists around interacting with the product").  On the other hand, Bingo Card Creator was made by one barely competent Java programmer in a week, has numerous competitors, and has roughly similar (but slightly smaller) download numbers.

Monetization for 2007:
Bingo Card Creator: $10,000
Open Source Product: $0.  Yep, nothing.  Nobody donated a dime.  (Sourceforge might have earned a penny or three off the advertising but us developers didn't see any of it.)
Patrick McKenzie (Bingo Card Creator) Send private email
Tuesday, December 04, 2007
 
 
> some people will be willing to pay for it

/may be/ some people will be willing to pay for it

and /some/ people who would pay otherwise will use it for free
Vladimir Dyuzhev Send private email
Tuesday, December 04, 2007
 
 
Patrick,

Was your business model with the open source product a sort of PayPal/SourceForge donation button, or were you out there looking for corporate sponsors? I've never had much success with the "click here to make a donation" model, although I think some projects do manage to get corporate or other sponsors if sustaining the project is in the business interest of the sponsor.

Psychologically, I think users like to feel like they're getting something in exchange for their dollars spent (even if that's just a digital download). So the admittedly difficult task is to give them something that they'd be willing to pay for despite the fact that the source is free.
Dan Helfman (Luminotes) Send private email
Tuesday, December 04, 2007
 
 
Hey Patrick,

Is that 10,000 net or gross if you dont mind me asking?
Christopher Bruno of n! labs
Tuesday, December 04, 2007
 
 
> One thing all the open source detractors here are neglecting to consider is that basing a business around an open source product is simply a tradeoff with some advantages and some disadvantages. Sure, a much smaller percentage of your downloaders will end up paying you for the product when your product is open source, but unlike with proprietary software,  you'll potentially have many more people download, test drive, blog about, and even recommend your software (if it's any good).

It's not about pro or anti open source. Stop being so over sensitive about your personal love. It's about that particular site's numbers are not very good.

My belief and experience is that you can probably convert getting on for 1% of visitors to almost anything into paying customers, provided you make a halfway decent effort, AND you don't start off by telling them that they don't have to pay.

Would a closed source product make more or less money than dot net nuke? Get more downloads?  Maybe it would get less downloads and less bloggers, but on the other hand, if the business was profitable, per download, it becomes profitable to advertise.  And advertising for a broad interest product, generally scales up well.

The last two paragraphs are incidental however.  Sure the programmers may have got satisfaction out of it, users may love the product, and the world may be a better place as a result - but let's not deny reality of this example. The reality is that from a purely business perspective, given the size of the team and the amount of man hours that must have gone into this particular product, it doesn't look like the dot net nuke example is a vastly successful business.
Sunil Tanna
Tuesday, December 04, 2007
 
 
>>
Is that 10,000 net or gross if you dont mind me asking?
>>

Gross.  Ask me about net after I close books for the year.  Or better yet, don't ask, just check the blog around January 3rd or so.
Patrick McKenzie (Bingo Card Creator) Send private email
Tuesday, December 04, 2007
 
 
I think Open Source is akin to closed source downloads that have no serial number or other protection system... there is just very little income potential for a business. People need a reason to pay... and OS does not lend itself to this model.
Trygve Inda
Tuesday, December 04, 2007
 
 
"you'll potentially have many more people download, test drive, blog about, and even recommend your software (if it's any good). "

1) People with money who pay for software don't read blogs anyway (at least not yet). The people who will actually seek out and find OSS software are programmers, techies, and college kids. And the sad fact of the matter is that these people either don't have any money anyway, or are now conditioned to expect all software to be free.

2) Contrary to popular belief, having more users is not always better. Each new user adds an incremental cost to doing business. And with low margins this cost can actually put you out of business. I'd much rather have 100 users each paying $10,000 for my software than 100,000 users each paying $10. But once again this goes back to the mentality of this forum. There are many more people here selling "clickware for the masses" than there are selling enterprise LOB applications. In my niche there is no competition from OSS. That doesn't mean that there aren't any OSS offerings. It just means that no business in their right mind would risk taking a chance on "Jimmy's Enterprise Application" knowing that if/when Jimmy loses interest they are SOL.
Johnny Bravado
Wednesday, December 05, 2007
 
 
And I agree with Sunil. It isn't that we believe that no company could be successful using an open source model. Clearly there are some companies that are doing well with OSS. But dotnetnuke is a pitiful example that actually does more to disprove what the OP is trying to say than prove it.

I'd love to see some real examples of companies that are doing well with OSS. But you never really hear about them. You get the common one's like RedHat and such but you could easily argue that these are exceptions rather than the rule.
Johnny Bravado
Wednesday, December 05, 2007
 
 
I'd love to write open source code all day long. If someone paid my mortgage.

That's really all there is to it.
The FairSoftware Guy Send private email
Wednesday, December 05, 2007
 
 
Didn't Joel once write about the law of complementary products?

The OP was right, of course you can make money off OSS... not from the software itself but by selling its complements.  In the case of OSS the complements are consulting services and hardware (exercise: can you think of anything else?)
FPR
Wednesday, December 05, 2007
 
 
Hosting the applications is another possible source, and is often done in the blogging community.
James C Send private email
Wednesday, December 05, 2007
 
 
Those of you talking about the profitability or non-profitability are completely missing the point, and you should be ashamed to call yourselves capitalists. 

Of course there's no money directly in giving away software.  Stating that and writing long tirades about it is about as useful as a peer-reviewed paper on whether or not the sun will indeed rise tomorrow.

The first lesson in most marketing classes is the classic example of giving away razors to get people to buy razor blades.  It's a great model, and the razor blade companies continue to use it (yes, they really do mail out free razors). 

It's the same with open source software.  Look at something like NSIS, a free installation writing tool.  They aren't making any money from giving away the tool.  But they had to write the tool anyway, to distribute a product that does give them money.  Now they release the source, other people use it, they extend it, and NullSoft gets an improved installer without having to invest the time.  That's good capitalism, a much better investment than trying to sell their product would have been.

Next time you decide to go on an anti-opensource rant, stop and think for a minute.  You've probably overlooked something important.
Clay Dowling Send private email
Wednesday, December 05, 2007
 
 
> Those of you talking about the profitability or non-profitability are completely missing the point, and you should be ashamed to call yourselves capitalists. 

No you're missing the point.  You look at the profitability or non-profitability of the entire business.  And guess what we all are - you're the only one who is not.


> The first lesson in most marketing classes is the classic example of giving away razors to get people to buy razor blades.  It's a great model, and the razor blade companies continue to use it (yes, they really do mail out free razors). 

That model only works if you sell enough razor blades to make an over all profit.  Just because it works _sometimes_, doesn't mean that model is always works..

Yes dot net nuke is attempting the analogue of this model.  They're giving away software in order to sell advertising. But the fact is that they are not selling enough advertising to make an over all profit, and probably never will.
Sunil Tanna
Wednesday, December 05, 2007
 
 
"you should be ashamed to call yourselves capitalists.  "

I would be ashamed in your case to call myself a capitalist if I didn't understand the concept of profitability. I can give away razors all day long in order to sell razor blades. But if the cost of making such products exceeds the amount of revenue I'm generating then I will not be profitable. So that would be an example of a poor marketing tactic.

The dotnetnuke folks have spent a ton of time (which equals money) creating a product that they are giving away for free in order to sell other products. And it does not appear that the revenue they are generating off of selling those other products is actually covering expenses. In other words, they need to have people working for free or the whole thing comes crumbling down.

But that's all part of the marketing approach isn't it? You get a bunch of poor schmucks all wound up about freedom and the God given right to have source code available and they will do your bidding with no questions asked. You see the same thing all the time with stupid, idealistic college kids standing out on street corners or knocking on doors on behalf of their local political organization. But how long can that kind of rhetoric keep you afloat? Eventually all of your volunteers either wise up or get bored and then you are left with no real business model at all.
anon
Wednesday, December 05, 2007
 
 
Dot Net Nuke is apparently a pretty poor example of making money off of an open source product.  But Apache is a good example of making money.

Nobody makes a dime from selling Apache so far as I can see.  But the core developers are all sponsored developers last I heard.  Why?  Because the sponsoring companies derive financial benefit from having a good web server that does what they need.  It's worth paying somebody to contribute code to that for those companies because they're getting more benefit than what it costs them.  It's an indirect action which is boosting their profits.

As for the free razor example, go ahead and debunk that.  But keep in mind that both Gillette and Wilkinson Sword have done it in the past, and both of those companies are still around, still profitable, and at least Gillette is still using the tactic.  So it would appear that as a marketing tactic there's some value to giving away free products.
Clay Dowling Send private email
Wednesday, December 05, 2007
 
 
(OP here)

Just as a side note, the total from sponsors is closer to 200K/year but anyhow.

To be honest, what I was really trying to say was that one could build a open source product and have the community support it, all the while you don't have to worry about support all that much (it is more like managing the direction of the product etc) and you still make a living out of it.

I guess my assumption was wrong that DNN's owner Shawn was pocketing all that $ from ads.

Wednesday, December 05, 2007
 
 
One more thing, another company by the name of Telligent (started by a former MS employee Rob Howard) basically took the Microsoft Forums Sample application, together with 2 other open source products (.Text blogging platform along with nGallery (a photo gallery product) ALONG with the original developers and created CommunityServer.org

They aren't open source by any means, but there source 'is open' meaning you can download the source code but there are licensing restrictions on using it for free.

I think this method sort of combines the 2 ideas, meaning, giving the source out so people can look at it, and having a free version, helps with the viral effect.

Wednesday, December 05, 2007
 
 
> As for the free razor example, go ahead and debunk that.  But keep in mind that both Gillette and Wilkinson Sword have done it in the past, and both of those companies are still around, still profitable, and at least Gillette is still using the tactic.  So it would appear that as a marketing tactic there's some value to giving away free products.

Well doh nobody says it can't work ever.  The point is it doesn't work in many cases, including THIS CASE. 

Why don't you try giving away airline tickets to exotic locations, and see if you can earn your money back by selling the passengers inflight snacks.
Sunil Tanna
Wednesday, December 05, 2007
 
 
You go ahead and do that, Sunnil.  Me, I'm gonna sell them expensive stays at luxury resorts and high priced tours once they get there.  Seems like more profit.
Clay Dowling Send private email
Wednesday, December 05, 2007
 
 
> As for the free razor example, go ahead and debunk that.

The razor example only works because the razor has a short shelf life (i.e. you might get the first one for free but you have to pay money for the rest).

Printer companies use a similar approach (i.e. you get a printer at or below cost, but you have to buy the ink cartridges).

So if you're not the IBM/Red Hats of this world who make their money selling hardware, software, technical support and providing consultancy to the Fortune 500, where exactly is the income from OS?

Sure there might be money to be made as a sponsored OS developer but that's no different to being on the payroll of a company.
Jussi Jumppanen
Wednesday, December 05, 2007
 
 
> You go ahead and do that, Sunnil.  Me, I'm gonna sell them expensive stays at luxury resorts and high priced tours once they get there.  Seems like more profit.

You'd think you'd be able to spell my name right when it's immediately before your post.

I'm glad to see your accepting the point, at last: giving away free stuff only works if you've got something more profitable to sell them.
Sunil Tanna
Wednesday, December 05, 2007
 
 
Sunil, I've never suggested that the actual revenue generating activity should be less profitable.  If you'll read up higher you'll see that it's you who suggested selling snacks on a free flight to make money. 

So I'm conceding nothing because there was nothing to concede.  Of course the revenue generating activity has to make a bigger profit than the marketing activity.  That's been my contention all along.  Give away one thing because doing so generates more money than it costs to produce that free thing.
Clay Dowling Send private email
Thursday, December 06, 2007
 
 

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