Subject: Re: Cyclic, Cygnus, and Sendmail: Open Source business models
From: Ian Lance Taylor <ian@airs.com>
Date: 24 Jun 1999 14:19:12 -0400

   Date: Thu, 24 Jun 1999 09:29:43 -0700
   From: "Michael A. Olson" <mao@sleepycat.com>

   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.

You can actually see Cyclic's balance sheet on the web:
    http://www.cyclic.com/cyclic-pages/rep1998.html

   I don't know what fraction of Cygnus' revenue is from support, as
   opposed to consulting, but I suspect that consulting revenues dominate.
   That is, Cygnus is, in a sense, selling product, not services.  Companies
   pay for the software that runs on their chip sets.

I don't quite follow your terminology here.  To me, consulting is a
service, not a product.

   The moral of the story, from my point of view, is that even Open
   Source companies need to sell software to be successful.

I'd say they need to sell a solution to a problem.

   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'd say that Red Hat sells a brand, like Coke, and convenience.
Cygnus sells consulting and support.  Sendmail sells ease of
installation and an escape from understanding a notoriously complex
program.  I don't know about Sleepycat.

   Working with freely redistributable source code isn't, by itself,
   a business plan.  I don't think that Open Source changes the rules
   for companies much.  You still need to plan revenues and expenses.
   Open Source is a strategy you can adopt for competitive or other
   reasons, but it's not the answer to any business questions, by itself.

Well, yes.

I think Cyclic might have succeeded by selling people a complete
revision control solution: software, installation, training, support.
Even better would be to step up to a complete configuration management
solution.  After all, I assume Rational makes decent money selling
ClearCase--they certainly charge enough for it.  Mind you, it would
have helped to have a better product in the first place--CVS has some
real problems.

Ian