Finding a Viable Open Source Business Model

Finding a Viable Open Source Business Model -
The SOFA Statistics Experience (so far)

Dr. Grant Paton-Simpson
Lead Developer, SOFA Statistics

The Puzzle

At the heart of this post is a puzzle. We have:

  • A seemingly successful open source application (SOFA Statistics)
  • A substantial number of users in a range of business and research institutions
  • And a business model based mainly on modest payments for support
  • But … the business model hasn’t been working at all.

And this seems counter-intuitive – surely project popularity and revenue should go together. Perhaps the project isn’t sufficiently popular? Well let’s look at that part of the equation first.

Project Popularity

SOFA Statistics has over 65,000 downloads so far, and while there is a difference between downloads, installations, and users, that is still a substantial number for a fully-fledged application. And based on feedback solicited by the project from first-time users, ratings given on Sourceforge, and comments from users interacting with the project, the application does seem useful to a wide range of people.

SOFA Statistics is easy to use and a very pleasant experience, and I’ve quickly found it’s simply the easiest way to access and query all sorts of databases. With the attractive charts and reports available, I would expect SOFA will take off quickly in terms of popularity and fandom. I think this has potential to be a revolutionary product in several ways. There are no other products quite like SOFA, and it represents a breakthrough in making statistics accessible to everyone. It’s easy enough to be used by the business analyst who doesn’t need SPSS, SAS or other systems — or who just doesn’t feel like spending thousands of dollars on a piece of desktop software. As such, it has potential to bring the benefits of statistics to a whole new population of business intelligence and academic users.

James Jackson
Gannett Co Inc

A recent review in Linux Journal was especially encouraging:

My hope is that this program becomes an adopted industry standard of sorts, mentioned in everyday conversation by organization workers the world over. And, given its free and multi-platform nature, … this hope of mine may not be an unrealistic one.

John Knight
Linux Journal

There are other positive signs as well. I liked this tweet suggesting that SOFA is “kinda like R for mere mortals”. AND BioPubMed thought SOFA “sets you free from your psychiatrist. At least, if it were statistics which was driving you crazy.” Blogger Boltgirl was especially enthusiastic:

SOFA, bitchez. My heart flutters ….

And now I found SOFA, and my life has changed. It is an open-source online stats package that evaluates your data and walks you through the process of selecting tests. It cranks out graphics. It produces results I can use. I understand, finally, and now I still weep, but this time in joy and relief.

Oh, science. We’re on again.

Unrepentant Geekery, Part Deux *UPDATED*

So SOFA seems popular enough. And it seems reasonable to expect an associated revenue stream if the right business model can be found. But no-one ever said it would be easy.

The Struggle for Revenue

It may seem that project popularity will inevitably lead to financial success. But there are indications that this may not be so. As Dave Kellog, a technology commentator and former CEO of MarkLogic notes, “when you play the role of market spoiler it’s much easier to be famous than rich.”

The sad fact is that making money from software applications is not straight forward, whether a project is open source or proprietary (or hybrid). If you’re proprietary you are competing against existing proprietary vendors – some with large reputations and marketing budgets – or you’re competing against free. And if you are free and open source, you may not be able to get people to pay you. Furthermore, the market is global, fast-moving, and fiercely competitive.

There’s heaps of people out there that have said “Wow, the app store’s a goldmine. I’m going to get on this”. Reality is a bit harder. Knowing what will work and what won’t is just as hard as it is for any other business. Perhaps more so, because there’s so much competition.

Just look at how much duplication there is out there in the app market. I’ve got a friend who sends me ideas for apps every now and then. In almost every circumstance, somebody already has something that does it, and I just send him the link back.
Featured App: NodeDroid

So what would be a realistic expectation based on other people’s experiences? According to Taylor, conversion rates (into actual paying customers) of 0.5-2% are common for single-vendor commercial open source firms such as the company underpinning SOFA. Jacob Taylor. “User to Customer Conversion Rates.” Personal communication, March 2009. Cited in The Single-Vendor Commercial Open Source Business Model. Unfortunately, revenues for SOFA thus far have fallen well below these levels and there are no signs of improvement (assuming the current business model remains unchanged).

At this point it might be useful to elaborate on how things are meant to work. An interesting model I came across is called the Beekeeper Model (from http://jamesdixon.files.wordpress.com/2009/04/the-bees-and-the-trees-v2-draft-1.pdf).

Beekeeper model

In this scenario, the commercial open source company is like a Beekeeper – their job is to provide the bees what they need, keep them healthy and happy, and let them get on with making honey. The Beekeeper then sells the honey to customers. The bees are presumably the “community”. The SOFA Statistics problem so far has been that I write almost all the SOFA code and almost no users pay for it. Or, to follow the metaphor, I make nearly all the honey by myself, there are a few bees, and what honey there is the bears scoff! Before I offend what bees I do have I should make it very clear that I very much appreciate the efforts of all the people who have helped in various ways – e.g. translations, bug reports, encouragement etc. And I am not criticising people for using open source software for free. I have only contributed money to a handful of the many open source projects I rely on. The point is that the status quo for SOFA Statistics is not working from a business point of view. Something is going to have to change. Maybe a new business model is required.

Why an Open Source Business Model?

The reasons will vary for different people but for me the main reasons for going open source are as follows:

  • The satisfaction of making a positive contribution to large numbers of people across the planet. SOFA is used everywhere from well-funded corporates and universities to aid agencies in the developing world.
  • The challenge of designing, producing, testing, packaging, and distributing a full-fledged open source project.
  • The ability to gain a global profile on top of which a business can be built or other sources of revenue achieved e.g. contracting, employment, commercial partnerships.
  • The ability to operate with very low expenditure – and the low risk of losing money. Marketing tends to be much cheaper because of the open source channels available – generally speaking there is a “reduced cash burn rate” The Single-Vendor Commercial Open Source Business Model.
  • And finally, an ethical preference for openness and sharing generally.

Having expressed a strong preference for an open source business model, which are the most likely to succeed?

Successful Open Source Business Models

There are many different schema for describing different business models (e.g. Business models for open source software, The nine revenue streams for Open Source companies, and 11 open source business models) but here are some current exemplars of successful open source business models:

  • Android – Google supports Android because it helps its broader business goals. This is the same rationale which saw IBM heavily supporting Linux. It is hard to know what to call this one. Perhaps it should be called the Terraforming model – where the goal is to make a friendly environment for the sponsor.
  • Red Hat – the Enterprise Support model:
    Red Hat makes its money from enterprise clients who want guarantees that the (mission critical) software will be supported.
  • Mozilla – the Sugar Daddy model:
    Google funds Mozilla to achieve its broader goals of an open web at the centre of everything. Getting funding from a foundation may be another example of this model.
  • Moodle – the Partnership model:
    Those officially listed as a Moodle Partner, contribute ten per cent of sales to continue the progress of the Moodle project.
  • Eclipse – sponsors support this project because it reduces their costs and keeps strategic technologies safe from hostile competitors. Maybe it could be called the Gang of 100 Pound Gorillas model (think about it).
  • Acquia – the Founder Expertise model:
    Acquia provides Drupal-related services and promotes the fact that it was founded by the Drupal creator.
  • ForgeRockVulture model:
    This is where open source customers feel abandoned by a company that has rights to the software they use and others step in to provide them with services Open Source Identity With No Lock In.
  • MySQLDual Licensing and then the Strategic Buyout model.

Note that I haven’t included the Donation-Ware model in the list as I am unaware of many successful examples (Calibre ebook management may be one exception). Whether the payments are micropayments (e.g. Flattr) or not I have not gained the impression that many projects will raise significant sums of money from this. Even the excellent OpenShot video editing project (which I have donated to) has only had 18 donors ever (as at Sept 2011).

There are other options as well, each holding variable levels of promise for the SOFA project.

  • Selling books – Apparently this does not return much money compared to the effort. See Do Not Buy This Book
  • Selling merchandise e.g. SOFA t-shirts (“SOFA Statistics for the Statistically Significant Person” perhaps)
  • Customisation/Bounties – This business strategy could work but there has been little interest in that so far.
  • Integration – There may be possibilities here but the main purpose of SOFA is to let people explore their data in an ad hoc fashion. It is not primarily designed as a library, even though the ability to automate complex reports is designed into the architecture.

And if the idea of earning money from the business is abandoned altogether, there is the option of Charity-Ware e.g. using Kiva:

“Kiva is a non-profit organization and website that allows you to lend as little as $25 to a specific low-income entrepreneur in the developing world. You choose who to lend to – whether a baker in Afghanistan, a goat herder in Uganda, a farmer in Peru, a restaurateur in Cambodia, or a tailor in Iraq – and as they repay the loan, you get your money back.”

http://www.kiva.org/

This is not strictly a business model but it is worth mentioning.

Exploring New Options

OK – so the existing business model being used by the SOFA Statistics project hasn’t been working. Is it a case of refining the existing approach or trying something completely different? Either way there has to be a spirit of perseverance and experimentation. Joel Spolsky has a superb piece on the importance of persistence and morale. In How Hard Could It Be?: Start-up Static he compares an entrepreneur to a kid playing with their first shortwave radio.

He takes it home and turns it on, and what does he hear?

Nothing. Static.

This might be demoralizing. So he tries a different frequency.

Nothing. Static.

And this might be demoralizing again. Until his mom wanders by and plugs in the antenna on the radio, and suddenly, he picks up the ghost of a station! It sounds like it’s far away, and they seem to be speaking — what is that language they’re speaking? Never mind, it’s a station! …

Experimentation is also crucial:

As the business progresses, you start trying to turn all the various knobs on your fancy radio set in order to get better reception or to find a station you like. And fortunately, in business, we founders have a lot of knobs to play with. There’s price. Location. Employees. Marketing. Advertising. Return policies. Trade shows. Products. Search-engine optimization. …

At this moment, a founder who is incapable of careful morale management will think to himself, Maybe a career in HR management isn’t so bad after all. Meanwhile, the determined founder will start playing with the dials — rethinking the menu, trying new promotions, and adjusting prices. And what he’ll find is that, just like the tuner on a radio, certain aspects of a business can be off by only a little bit and then, one tiny adjustment, and BING! The thing starts working.

Returning to the SOFA project, numerous experiments have been tried with the precise wording and tone of messages, graphics, inclusion of free bonus themes etc. But, so far, there has been no significant success at all using the existing support/donation models. After two years the conclusion has been reached that it is time to give users a more compelling reason to pay the project money. Which brings us to the Open Core model.

Considering an Open Core Model

Matt Assay, formerly of Alfresco and Canonical, reluctantly reached the conclusion that open core might be a necessity and made the following recommendation:

Add closed extensions to the core, still 100 percent open source project. Customers get full access to the source code to view and modify it. The user community loses nothing, but the company adds a compelling reason to pay it money for those … that otherwise won’t or can’t.
A time to reap, a time to sow: A phased approach for open-source businesses

If this approach is taken, the plan is to keep the existing version of SOFA 100% open source and to keep supporting and maintaining it. But any significant new features will probably be restricted to the proprietary version. This emphasis on the “pro version” would not be at the expense of the community though – the brutal fact is that without an ability to generate income from SOFA any significant extra work almost certainly wouldn’t be happening at all. It won’t be possible to justify working without an income when money is required to run a family. So the paying customers will be the people who keep the project going.

It is recognised that this is controversial to many (see Open Core Is Bad For You and Open core is not open source). Open Core is even labelled by some as fauxpen source (The Fauxpen Source Definition). Here is some anonymous feedback on the SOFA plans:

This is not a good idea, you have to choose another business model …. SOFA is an excellent tool. But pro version will kill the project, because free users fall on a second-class citizens category. Sell statistics books based on SOFA, or t-shirts, but don’t sell the software.

I am more inclined to agree with James Dixon of Pentaho fame:

[V]ery few people who complain about the open-core model have actually tried building a business using any of these models. I suggest you go and try it for yourself.

There are no guarantees that the approach being proposed will work but it is surely worth a try. Time will tell.

SOFA – A Unique Project with Unique Possibilities

Each open source project is unique – with its own user base, community, and potential to generate revenue. Software which is simple, well documented, easy to install, and easy to use, for example, is going to provide less scope for revenue (assuming it is popular) than software which requires skilled support for installation, integration, and maintenance. And software which is used for mission critical tasks will similarly have more potential for a successful business model than software which performs a less critical task. Beyond the product itself, a lot depends on the surrounding context – are there other open source alternatives? And what is the price of competing proprietary products? So following advice based on projects with different characteristics may not work for your project and it is important to experiment and adapt. The overall experiment currently being pursued for the SOFA project is Open Core and there will be sub-experiments around the implementation of that strategy. Hopefully there will be good news to report back.


Based on a presentation made to the New Zealand Python Conference (Kiwi PyCon) in Wellington, NZ August 28th 2011. Thanks to Francois Marier for additional suggestions.

6 thoughts on “Finding a Viable Open Source Business Model

  1. Pingback: SOFA Statistics and Open Source Business – Misc « Statistics Open For All

  2. Sad to hear that SOFA has funding troubles. So far I have not really used it, but am observing the development. In future I might use the software in my company and then if it is useful for our projects, I am quite sure I could organize a donation. Of course this won’t be anywere near the amount you need to keep your family “alive”. ;-)

    From the post it is quite clear that you put a lot of thoughts in this. I am not overly surprised that donations won’t help you to survive. I was always wondering about how many donations come in at open source projects. I am a total fan of open source software for various reasons. But I have also to admit, that I haven’t donated money so far to any of the projects I use. What I have done so far is helping out in 2 of the projects I find most important and where I feel I have something to contribute, as I am not really a programmer (translations, support in the user forums, etc.).

    Like many others, I would prefer SOFA to continue as it is. But of course all the work you are putting in, needs to have something coming back on the long run.

    I am wondering who the main users are of your software. I guess there are a lot of universities out there using it. They should be able to make a donation once a year for SOFA, as the alternatives might be quite expensive.

    I can also understand that private persons won’t make a donation, as they also don’t earn money with the software and might use it quite sporadically, but companies that use the software on a regular basis should be able to make a donation.

    A problem with the open core model that I could see is, that the number of persons who are willing to pay for the professional version might be as high as the number of people who so far were willing to donate. And when there is a “professional” version and a free version, users of the free version maybe won’t be willing to donate anymore. But that you will only know, once you tried.

    Maybe “extensions” could also be an interesting model. So there could be an extension for specific calculations and analysis, which you pay for, if you want to add it. This might even attract some other developers to get in the boat. There could be a charged a fee for every sold extensions, which is going to the core development. I guess developers would be find with it, because without the core there would be no extension anyway. I don’t know the potential of this of course. It is just a thought.

    I don’t know if it is possible, but maybe you can offer SOFA also as SAS? I think some members of the Limesurvey project are doing this. I don’t know how successful this is though, and if you can apply this to SOFA. By the way: I guess that Limesurvey and SOFA would be a great team. Integration of Limesurvey with SOFA would have a lot of potential. Maybe SOFA could do on the fly analysis of the data collected by Limesurvey and offer the reporting backend. I think Limesurvey has quite a user base and there are quite some overlaps in the target group, without any cannibalism for both projects doing something totally different.

    Then an additional income source would be courses. Statistics in general with the use of SOFA. You seem to be someone who can make Statistics “simple” (based on my impression of SOFA). There your location might be them main problem. The market in New Zealand is probably too small. Would you be based in Europe, things for courses might be easier, as you could travel around for relatively cheap, or people could reach you relatively cheap.

    I hope you find a good solution to keep SOFA alive and if you think the open core model is the only way to go, then be it. Better an open core SOFA than no SOFA I guess.

  3. Thanks for your thoughtful response. Like yourself I am an advocate of open source software and my contributions have included bug reports, “publicity” in the form of blog posts and comments, and open source code to share (SOFA of course, plus a couple of PHP5 libraries I wrote a number of years back). But I have only donated money to a handful of projects, typically as one of the very few donors listed. I think we can safely conclude the Donation-Ware business model is not viable except in rare cases.

    My experience also suggests that business models based on paid support do not always work well. A lot depends on the product (complexity, installation needs, integration issues), users (students? enterprises? people used to getting all their software for free or people used to paying?), usage pattern (mission critical? downtime costly? heavily relied upon?), and the community/organisation behind the product (already with paying customers? credible international sales and support network?).

    Your point about potential customers for the pro version is sobering and a friend has suggested the same. I guess I will find out. But it would be hard for donations to dry up as there are so very few anyway ;-). At least now there will be a reason for Universities, companies and non-government organisations to make payments. If the income is worthwhile then I will keep the community and pro versions separate and probably continue development. If not, I will reluctantly shift my attention elsewhere. I suspect there will be little ongoing development after that point unless the contracting based on SOFA as a reporting tool starts to pick up. There is some promise in that direction so you never know.

    I considered extensions but it gets quite complex in terms of setting up the infrastructure to make it all work and to create the market for it. I can’t afford to sink that much time and effort on a gamble. At least with a simple two version model I will soon find out how much users are willing to pay.

    As for Software As A Service, and integration with Limesurvey, those could also work but the amount of development time I would need to put in would be considerable. And once again, it would be a gamble as to whether it paid off.

    I am hopeful that the pro version approach will generate more income than the existing donation/support approach and allow the project to continue. The amount of work required to trial this approach is manageable so I will get started soon. There have been over 80,000 downloads of the free version so there is reasonable potential here.

  4. “SOFA Statistics is easy to use and a very pleasant experience”

    That’s your problem right there.

    If a user can easily understand and learn the app then they aren’t going to pay for support. Especially if it’s being used at the desktop where organisations aren’t scared of external-facing failure.

    Financially successful open source needs to be obscure, complex and under-documented. Preferably, it should run in a business critical space where problems turn quickly into crises. That way even when customers don’t pay for support (and books, (un-)conferences, etc) at the start, they will when things turn bad.

    I’d recommend destroying much of your doco, or changing the system so it doesn’t match. Then write an expensive book with the lost information buried in it. Also, build a network of extreme geeks who can charge $$$ to implement the package and hence are ultra keen on it.

    Cynical but true.

  5. Hi Rich,

    I totally agree you have to have something to sell that users value. And it has to be something they value reasonably highly and that they can only get by paying. I am currently setting up the infrastructure for selling extensions. Time will tell if this strategy works where selling support or seeking donations failed.

    I am toying with the idea of writing up what I call the TOAST test (The Open source Application Suitability Test) (see http://lists.nzoss.org.nz/pipermail/openchat/2012-February/009316.html). Are you interested in collaborating? Even though I have ideals it is important to be realistic.

    All the best, Grant

  6. Re: donationware as an open source business model, I have just encountered yet another professional-looking open source project which hasn’t been able to raise much in the way of donations (http://www.ganttproject.biz/ **). About $1500 in a couple of years i.e. not even enough to pay for a small fraction of the programming time. My point is not that they have done anything wrong but the opposite – from the appearance and content of the website they seem to have done it all right and still struggled to attract donations.

    ** It is not assumed that donationware is their actual business model. The point is that their experience casts doubt on the viability of that model.

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