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Analyzing Your Goals for an Open-Source Project

What you need to ask yourself, as a company, is to what degree your products implement a new platform, and to what extent is it in your business interests to maintain ownership of that platform. How much of your overall product and service set, and thus how much of your revenue, is above that platform, or below it? This is probably something you can even apply numbers to.

Let's say you're a database company. You sell a database that runs on multiple OSes; you separately sell packages for graphical administration, rapid development tools, a library of common stored procedures people can use, etc. You sell support on a yearly basis. Upgrades require a new purchase. You also offer classes. And finally, you've got a growing but healthy consulting group who implement your database for customers.

Let's say your revenue balance looks something like this:

At first glance, the suggestion that you give away your database software for free would be ludicrous. That's 40% of your revenue gone. If you're lucky as a company you're profitable, and if you're even luckier you've got maybe a 20% profit margin. 40% wipes that out completely.

This of course assumes nothing else changes in the equation. But the chances are, if you pull this off right, things will change. Databases are the type of application that companies don't just pull off the shelf at CompUSA, throw the CD into their machine, and then forget about. All of the other categories of revenue are still valid and necessary no matter how much was charged for the OS. In fact, there is now more freedom to charge more for these other services than before, when the cost of the software ate up the bulk of what a customer typically paid for when they bought database software.

So very superficially speaking, if the free or low-cost nature of the database were to cause it to be used on twice as many systems, and users were as equally motivated as before to purchase consulting and support and development tools and libraries and such from your company, you'd see a 20% gain in the overall amount of revenue. What's more likely is that three to four times as many new users are introduced to your software, and while the take-up rate of your other services is lower (either because people are happy just using the free version, or you have competitors now offering these services for your product), so long as that take-up rate doesn't go too low, you've probably increased overall revenue into the company.

Furthermore, depending on the license applied, you may see lower costs involved in development of your software. You're likely to see bugs fixed by motivated customers, for example. You're also likely to see new innovations in your software by customers who contribute their code to the project because they want to see it maintained as a standard part of the overall distribution. So overall, your development costs could go down.

It's also likely that, given a product/services mix like the above example, releasing this product for free does little to help your competitors compete against you in your other revenue spaces. There are probably already consultants who do integration work with your tools; already independent authors of books; already libraries of code you've encouraged other companies to build. The availability of source code will marginally help competitors be able to provide support for your code, but as the original developers, you'll have a cache to your brand that the others will have to compete against.

Not all is wine and roses, of course. There are costs involved in this process that are going to be difficult to tie to revenue directly. For example, the cost of infrastructure to support such an endeavor, while not significant, can consume systems administration and support staff. There's also the cost of having developers communicating with others outside the company, and the extra overhead of developing the code in a public way. There may be significant cost involved in preparing the source code for public inspection. And after all this work, there may simply not be the ``market need'' for your product as freeware. I'll address all these points in the rest of this essay.

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Next: Evaluating the Market Need Up: Open Source as a Previous: It's All About Platforms

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Last updated: 1999-08-06