Subject: Re: Cyclic, Cygnus, and Sendmail: Open Source business models
From: Russell Nelson <nelson@crynwr.com>
Date: Thu, 24 Jun 1999 12:52:16 -0400 (EDT)

Michael A. Olson writes:
 > Cyclic has not been, primarily, a product development company.  Jim
 > has financed his activities by selling support contracts, with
 > occasional consulting.  I don't know what his balance sheet says,
 > but I expect that his recent announcement means that Cyclic hasn't
 > been making the kind of money he would need to continue operating
 > the business.
 > 
 > I suspect that there are two reasons for this.

When I talked to Jim at Linux Expo, I rather more got the impression
that he was tired of doing sales.  I tried to talk him about of
closing the business, but I can also appreciate how he feels.
Sometimes being a one-man shop just sucks, and if you can't grow the
business to the point where you have specialized people to do
specialized jobs, you have to do everything yourself, badly.

 > The moral of the story, from my point of view, is that even Open
 > Source companies need to sell software to be successful.  If you're
 > considering starting a business to support an Open Source project,
 > you need to think about your goals.  You may make enough money to
 > feed the cat and pay the mortgage, but will you have a business that
 > is viable for the long term?  Why will people pay you enough money
 > to grow?

Well, growth is good, but if you don't *mind* doing everything
(sometimes badly), then the rest of the time being a one-man job
doesn't suck.

 > At the other end of the spectrum is a company like Sendmail.  Sendmail
 > does sell support and services, but it's fundamentally a product
 > company.

I've heard tell that half their revenue comes from configuring and
installing the open source sendmail (so it works right, but that gets
to the Keithian objection of service companies shipping broken but
nonetheless popular software).

[ Disclaimer: most of Crynwr's income comes from qmail.  qmail
competes with sendmail.  qmail has no bugs.  qmail is not Open Source. ]

 > All the Open Source companies I can think of that are making appreciable
 > money right now are selling software.  Red Hat does.  Cygnus does, if
 > you buy my argument that their ports are really software sales.  Sendmail
 > does.  Certainly our business model at Sleepycat counts on revenue from
 > Berkeley DB, and not just services.

I've said it before, and I'll say it again: you have to have something
proprietary to sell, and its revenue has to exceed its costs, the more
so the better.  You might wish to make the case that a product has
lower costs than a service, but you should make that case, not presume
it.

-- 
-russ nelson <rn-sig@crynwr.com>  http://crynwr.com/~nelson
Crynwr supports Open Source(tm) Software| PGPok | Government schools are so
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