Finding a Viable Open Source Business Model -
The SOFA Statistics Experience (so far)
Dr. Grant Paton-Simpson
Lead Developer, SOFA Statistics
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.
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.
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.
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.
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).
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.
- ForgeRock – Vulture 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.
- MySQL – Dual 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.”
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?
This might be demoralizing. So he tries a different frequency.
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.