Hugh MacLeod started a discussion about open source and it’s impact by asking question “How well does open source currently meet the needs of shareholders and CEO’s?”
One of the conclusions Hugh was reaching was that Open Source may not have made a big time impact yet. If it did, you would have seen a lot more famous billionaires in the open source world.
Having been one of the founders of an open source solutions company in late 2000 – CIGNEX, I am passionate about open source and hope to provide my viewpoints on most points raised by Hugh in the article sometime soon. In this post though, I want to offer my $.02 about open source business people not getting insanely rich.
The basic premise: For someone to strike it ultra-rich in open source, the open source company they are involved with should make boatloads of money. Here are some reasons why it’s not easy:
First, we all know that the enterprise software and the open source business are very different. Open Source is typically developed by the community members almost forming virtual organizations (there are many exceptions, of course) Most contributors don’t get paid for their contributions. They are in it for the passion. You can make a business out of these contributions but since there is no licensing fee per se, you need to come up with some other reason to charge the customers (there are a number of business models that are becoming mature now)
However, the price points have to be lower than enterprise software so that volumes have to be very high to make serious money.
2. Competition from other open source software
Generally people think that open source software competes with enterprise software. While it is true, the bigger competition for open source software comes from other open source software. Barrier to entry to create new open source software is low unlike creating a new enterprise software company. In fact, one way for the enterprise software company to kill an open source company would be to fund a competing open source company and confuse the marketplace completely 🙂
3. Getting the right people to manage an open source company is hard.
Open Source companies have a constant battle to get the top talent to fill the top spots in the company. Think about it – who is the RIGHT person to run an open source company? You can’t hire someone from a VERY successful (of the order of a large enterprise software company) open source company as there is none. If you bring someone from an enterprise software company, the person will have to unlearn a number of things as things are done very differently in the open source world. I am not saying that there are no great leaders in the open source world. For the opportunities available today, there is definitely a lack of talent at the top.
4. It beats logic.
If open source is license free, the costs have to be low to work with open source. If cost is one of the reasons for a customer to embrace open source, he or she will pay less than what they would have paid to a comparable enterprise software to do the same job. An open source company would have to therefore work twice as hard to a comparable enterprise software company to make the same or less amount of money. This means that they have to have a lot more resources than the competing enterprise software company. How can you have a smaller pie but feed a lot more people and still keep everyone happy?
I can go on but the point is – there is still a lot more to happen before people in the open source business can become ultra-rich. More about the same and related topics in the future.