Sustainable software, part III: The anomaly of Commercial Open Source

Previously, on Sustainable software:

Viability of license-based business models is challenged by basic rules of economics. A proprietary software model is still possible, but it requires a barrier to entry based on customer satisfaction rather than fences and lock-in: in a collaborative world aggressive and predatory tactics motivate alternatives, making barriers weaker, not stronger. There is still room, however, for a proprietary licensing model focused on customer satisfaction, constant reality check and openness.

So what about Open Source? We will see shortly why it still matters and how it makes for an excellent set of business models, but this post is dedicated to long overdue rants about what goes by the name of Commercial Open Source, something I believe we will consider as a transitory anomaly in a few years from now.

Definitions, first: I know there is no common ground here, but allow me to define Commercial Open Source in this post as a business model based on customers paying a fixed or recurring fee to a vendor to use software that, give or take a few details, is also available for free and as Open Source. The value proposition, and I know I’m oversimplifying but I believe most readers know the drill anyway, can be based on FUD (warranty, indemnification, support), ease of use (better packaging, faster updates), more functionalities (widget frosting) or enabling of aggregates (avoiding the non-permissive licensing reciprocality).

I believe this model is not sustainable (from Wikipedia: “Sustainability, in a general sense, is the capacity to maintain a certain process or state indefinitely”), that is it doesn’t work in the long run as it fails to build barriers to entry to maintain artificial scarcity. The FUD argument is an insurance model with no defense from competition: anyone can provide warranty, indemnification and support, regardless on their actual role in creating or maintaining the software. Moreover, as insurance is a virtual good with no duplication cost, competition is likely to spiral prices down. Ease of use or better functionality require a good dose of what Fabrizio would call funambolism: the barrier to entry is challenged by the “good enough” on one side, and by itches the community itself will scratch on the other. Enabling aggregates might work a tad better, but it is, really, a niche.

As the intrinsic challenges were not enough, Commercial Open Source is committing suicide by failing to deliver, getting the worst out of traditional proprietary software predatory tactics and overall falling flat in building a durable relationship with customers. A structural reason for that is the role of capital, as most Commercial Open Source companies are VC-backed and their sole goal is paying back investors in the shortest possible timeframe: when exit strategies become the real mission of the company, customers are in for a rude awakening.

Weakness of the business model does the rest: to start with, a large number of Commercial Open Source vendors are tricking customers by renting instead than selling software. That is, if you buy the premium version you actually haven’t bought diddly-squat:if you fail to renew the subscription, you have to downgrade to the Community Edition or whatnot. Consider the irony: if you decide to “support” Commercial Open Source, you find yourself in a situation that is potentially way worse than with proprietary licenses where, at least, you get a perpetual Right to Use. And don’t get me started about the big hit and miss of support, as I stopped counting the horror stories I’ve been through with customers: that will make for a nice book when I retire.

Then what about RedHat? MySQL? The next Open Source company going for the mythical 1B (someone will for sure get there, my bet is on Funambol)? Exceptions, coincidences, anomalies. Sometimes planets do align, and the choice of the right product for the right market at the right time will make a recipe for success of the oddball. That’s far from being a sustainable and reproducible business model, though, something I’ll try to address in the next posts.

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