commentary, products

Dear CIO Mag: 2005 called, wants its article back

I can’t believe that journalists still, despite a wealth of resources at their fingertips, continue to get the story completely wrong about building a business on open source software. I’ve never met Paul Rubens, but he should never be allowed to write on the subject again. Witness his article “How to Make Money From Open Source Software“.

But how easy is it really to establish an open source startup that makes money? For every success story like Red Hat there are companies like Cyanogen that fail to thrive  and projects that are abandoned.

That’s in the opening paragraph and is a pretty unsatisfactory way to begin an article. He comes out assuming that making a business or product on open source software is somehow different from any other effort to create a business. Spoiler alert: it’s hard. There’s a reason most startups, open source or otherwise, fail. It’s just not an easy thing to do. This is why we worship the successful founders and their companies (sometimes undeservedly). Because they succeeded where so many other smart, capable people failed. And then he immediately goes to a comparison between Red Hat and Cyanogen, 2 things which couldn’t be more different and weren’t using the same product or business model.

I’ve said it before: this idea that Red Hat is some magic unicorn whose success cannot be repeated is entirely fallacious. It’s not that Red Hat’s model can’t be repeated, it’s that no one else has even tried.

Rubens then goes on to quote Sam Byers from Balderton Capital (Why? We’re never told why we should listen to this person, other than he’s a VC dude. Balderdash, I say):

It’s tempting to believe that the Red Hat business model, which is based around selling subscriptions for support to a maintained and tested version of Linux (or a closely related model that offers consultancy and customization to an open source software solution as well support and maintenance), is the most viable way to make money from open source software. But Sam Myers, a principal at Balderton Capital, a technology venture capital company, says that most open source startups are unlikely to succeed using these business models.

Here is Rubens setting up the non-point that Red Hat is a magic unicorn, unseen in the wild. What’s wrong here? He gets the model entirely wrong. Red Hat doesn’t sell “subscriptions for support”. Red Hat sells a product, of which one feature is risk reduction and support. This is a common mistake, and it’s very irritating that it’s still made in 2017.

“Despite Red Hat, it is actually quite challenging to make money selling customization, support and consultancy,” Myers says. “Why? Because it is head-count driven, the model doesn’t scale, and you get low renewals. And you have competition from other consultancies.”

Newsflash: this is not what Red Hat sells. Again, Red Hat sells a product, that customers buy. Because it delivers value to them. They are not consultants. Can these people read? Do they actually talk to Red Hat customers? But wait, it gets worse:

Myers admits that the subscription model can occasionally be successful, but asserts that a more promising business model is to build a product line around an open source core. This can involve developing premium software modules that add features to the core open source software or, alternatively, building supporting applications that complement the core.

Dear God. This is the open core model. It is a highly unsuccessful model, despite repeated efforts over the years to try it. Most sane people came to understand its limitations years ago. Unfortunately, some VC’s still push startups to this approach because it allows them to maintain tighter control over the IP, because they make the mistake of equating code to product. Incidentally, it’s the failure of the open core model that has led some VC’s to simply not invest in open source startups, which is a tragedy.

Rubens does manage to get in a quote from Allison Randal, which is the only intelligent part of this article:

…there is no “best” open source business model, and Allison Randal, president of the Open Source Initiative, says that open source startups should avoid searching for one. “The mistake people make is thinking about an open source business model. They should be thinking about a business model and how open source software fits into that,” she says. “VCs are only beginning to understand open source and how to make money, but the way is the same as for any other business: by offering better value and making customers happy. “

This is what you call “burying the lede.” This is the only takeaway worth taking away from the entire article. Unfortunately, Rubens sets it up as the secondary source. He would have done much better to base the majority of the article on her years of experience building open source communities and products. Randal went on to note the difference between upstream communities and downstream product management:

Randal says that while most communities don’t mind a company trying to monetize a project, it is key that the community still has a life of its own — in the way that Red Hat has fostered the Fedora community. “What drives a community away is when you take the wind out of its sails and it feels taken over,” she says. Randal adds that little things can make a big difference:  if Cyanogen Inc. had chosen a different name (in place of Cyanogen OS) for its commercial product, which was based on the Cyanogen Mod project, then the community may not have felt so offended by it, she says.

Exactly. This isn’t hard. On the other hand, there must be something very counter-intuitive about it, because very few actually get it.

My question to Rubens would be, there are many many people who have spent many years in the trenches building open source products and processes. Why didn’t you base the article on their experience? It’s 2017 for Pete’s sake. Why can’t we discuss this intelligently?


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