Subject: Re: Cyclic, Cygnus, and Sendmail: Open Source business models
From: Paul Rohr <paul@abisource.com>
Date: Fri, 25 Jun 1999 12:30:02 -0700

At 10:55 AM 6/24/99 -0600, Larry McVoy wrote:
>In fact, in 100% of the customers I have so far (which is small, probably
>less than 50 users), the reason they insisted on getting the software
>early was the business model (aka the license) and NOT because of the
>innovations.
>
>Customers really care that you have a model that looks like it will be
>successful.  When they buy (or use for free, it doesn't matter which)
>your software, one of their fears is that you won't be there tomorrow
>to support/enhance the software.  

Exactly.  This is one of the reasons MSFT [1] has been so successful in 
fending off proprietary competitors.  As soon as a business decides to 
compete on the same terms -- product category, business model, license, etc. 
-- with them, that business has trapped themselves.  The competition 
devolves into a pure feature race, where it takes an incredible amount of 
talent to beat the combination of talent plus a *lot* of money.  (Note that 
these same dynamics work the other way around for MSFT when they attack the 
dominant proprietary provider in a category they don't already own.)

Competing head-to-head on a "level" playing field with a much better-funded 
opponent rarely works, if ever, and customers "know" this.  And if they 
forget, a little helpful FUD will surface to remind them.  :-)

To compete at all in a market with a dominant proprietary provider, you've 
got to find ways to tilt the playing field at least temporarily in your 
favor.  

By their very nature, FSBs have a permanent "tilt" (the license) from day 
one, so the real challenge is to make sure your customers understand this 
and find ways to translate this innate advantage into a credible business 
model. 

By contrast, proprietary companies have few lasting ways to tilt the playing 
field.  For example, hiding in a niche that's too small to be a threat to 
MSFT is a classic strategy, albeit one with absolute limits on a company's 
growth.  It's thus no accident that Corel or Applix or Star continue to soak 
up as much revenue as they can from the Linux market, while they can.  

Those companies are all relying on the fact that MSFT has two cash-cow 
franchises to defend -- Windows and Office -- and for the moment, at least, 
MSFT can try to protect their Windows franchise (against the Linux threat) 
by forgoing Office revenues on that platform.  Does anyone really believe 
that if Linux's growth rates in server space also extend to the desktop, 
that MSFT will keep its products off the platform indefinitely?  Then what 
happens? 

The conclusion I keep coming to is that there are only two viable 
alternatives, long-term, to a dominant proprietary provider:

  - another, even more dominant, proprietary provider
  - a pure-play FSB who offers a credible alternative

I don't know how this analysis applies to other FSBs, but I know what it 
means for me.  

It's no accident that the AbiSource brand we're building is positioned 
squarely in the latter camp.  In many ways, that positioning is as important 
as the quality of the feature set we're building, or the size of the user 
and developer communities we're gathering.  To thrive, we have to continue 
to execute on all three fronts.  

Paul

[1]  The usual disclaimers apply.  This is an argument about the dynamics of 
markets dominated by proprietary companies.  MSFT happens to be a very 
convenient example.  However, if MSFT didn't exist (or wasn't relevant to 
the product category you're studying), another comparable company would fill 
that role.