The way ahead for SOFA Statistics from a business point of view is not clear at the moment and I recently wrote about some of the issues and options here: Finding a Viable Open Source Business Model – The SOFA Statistics Experience (so far). This post is a complement to that article and the purpose is to let me store miscellaneous ideas and links of relevance without having to integrate them into a coherent narrative.
Impact of cost of downtime on value of support
In my case we have three steel mills worth $10k+ per hour of downtime… Even more if downtime causes rework. If we have more than an hour down I have vice presidents in my bosses office!
Scale of Customers Matters
The company received a significant boost in late 2011 when it was contacted by Mexico’s largest telecommunications provider, Telmex. That company had been struggling to implement a network management system from another commercial supplier.
“The Telmex guys saw that MNIS was a commercially-supported product, then downloaded the free version and put it in,” Maher said. “Within a day they had it doing all the stuff that they hadn’t been able to achieve with the other product for the previous nine months. They then reached out to us and pre-purchased six commercial modules which we were yet to release, and support and our assistance for implementation.”
The initial contract is estimated as nearly half a million dollars in value, but could expand into a multimillion dollar deal for Opmantek. Maher said the deal had essentially underwritten Opmantek for the next year. Open source opens doors for Aussie start-up
App Stores not a silver bullet
And mobile apps aren’t the answer, even though the sector is growing like crazy. See section entitled “ABOUT THOSE APPS” in http://communities-dominate.blogs.com/brands/2012/02/the-state-of-the-union-blog-for-mobile-industry-all-the-stats-and-facts-for-2012.html
So the HP guy comes up to me (at the Melbourne conference) and he says, ‘If you say nasty things like that to vendors you’re not going to get anything’. I said ‘no, in eight years of saying nothing, we’ve got nothing, and I’m going to start saying nasty things, in the hope that some of these vendors will start giving me money so I’ll shut up’. [Quote supposedly from Theo de Raadt - verify]
Impact of different usage patterns
The conventional wisdom on how a business model works is sometimes completely wrong in a particular case. The freemium model, for example, which I am hoping to use with SOFA, was apparently not going to work for Evernote – except it did (Evernote: Company of the Year):
Evernote was being pitched as a so-called freemium service. In other words, people could either use it for free or upgrade to a paid premium version, which is how the company would make money. So far, so good; the freemium model was seen as a smart one. The problem was that, unlike virtually all other entrepreneurs relying on that model, Libin refused to cripple the free version, removing the incentive to upgrade to the paid version. You could pay $5 a month and get additional file storage, but why would anyone do that? asked the VCs. The free version was full featured and offered generous storage.
Libin explained his theory: The more stuff you put in Evernote, the more important the service would be to you. Who would begrudge $5 a month to a company that was storing your memories and helping you retrieve them? “Your notes, your restaurants, your friends, a year of your life, then years of your life,” says Libin. “That’s worth thousands.” The danger wasn’t that people wouldn’t upgrade, he argued; it was that they wouldn’t try the service in the first place or wouldn’t stick with it because the free version was skimpy and failed to impress. Get them to fall in love with the service, and they would eventually pay, because they would be invested in its success. “I want to build a 100-year company, and I’m serious about that,” says Libin. “I don’t need to squeeze money out of you. I’ll have the rest of your life to take your money. It’s my long-term greedy strategy. Our slogan is, ‘We’d rather you stay than pay.’ Basically, I wanted a business model that rhymed.”
Libin showed the group that the rate at which Evernote users were upgrading to the paid version within a month of signing up was half a percent. This was not good—and not surprising, given that the free version worked fine. But then Libin showed the upgrade rates over longer periods of time. Normally, this would be an even grimmer picture, because at almost all companies with freemium models, users who upgrade tend to do so pretty quickly. They sample the hobbled free version, and if they like it, they upgrade right away to get all the features; if they don’t like it enough to upgrade, they tend to abandon the service altogether or use it lightly. But Libin showed that Evernote users became more likely to upgrade over time. For those users who had been using Evernote for a year, the upgrade rate was an impressive 8 percent. If Evernote could get to a million users, explained Libin, sales would be close to $4 million a year. And, at the current growth rate, Evernote would reach 10 million users within two years.
Then Libin showed activity rates, or, roughly, how often an average user was actually using Evernote over time. For many software companies, that curve runs relentlessly downward. Most people who try an app abandon it pretty quickly or use it less frequently as time goes on. But for Evernote, the curve was a smile. There was a slight drop-off in usage after the first few months, but then it went up again—not only because active users were finding the service more and more useful, but also because customers who had stopped using the service were returning to it. People who left Evernote missed it.
Importance of finding your own business model which works for you
NB the value you add may be around the software, rather than the software itself. Notes that open core is very similar to proprietary models.
FOSS4G 2011 Keynote
One has to be careful about drawing conclusions from a relatively small and unverifiable data set. However the results certainly seem to support the much-quoted “industry standard” sales:visits conversion ratio of 1%. But there are huge variations between products.
The fact that the sales:downloads ratio is both lower on average and more variable than the downloads:visitors ratio implies that getting people to download is the easy bit and converting the download to a sale is a tougher challenge.
The average sales:visits conversion ratio is noticeably higher for Mac OS X products than Windows products. This is supported by anecdotal evidence and the author’s own experience with a cross-platform product. However the number of Mac respondents to the survey is too small for the result to be stated with any great confidence. Also remember that the Mac market is still a lot smaller than the Windows market before you rush off to start learning Cocoa and Objective-C.
The truth about conversion ratios for downloadable software
Desktop Apps – Harder Sales Funnel?
Someone visits your website, downloads your trial, and hopefully purchases your program. That process is called a funnel, and if you break it down into concrete steps, the shareware funnel is long and arduous for the consumer:
- Start your web session on Google, like everyone does these days.
- Google your pain point.
- Click on the search result to the shareware site.
- Read a little, realize they have software that solves your problem.
- Mentally evaluate whether the software works on your system.
- Click on the download button.
- Wait while it downloads.
- Close your browser.
- Try to find the file on your hard disk.
- Execute the installer.
- Click through six screens that no one in the history of man has ever read.
- Execute the program.
- Get dumped at the main screen.
- Play around, fall in love.
- Potentially weeks pass.
- Find your way back to the shareware site. Check out price.
- Type in your credit card details. Hit Checkout.
I could go into more detail if I wanted, but that is seventeen different opportunities for the shareware developer to fail.
- What features of your software are being used?
- What features of your software are being ignored?
- What features are used by people who go on to pay?
- What combination of settings is most common?
- What separates the power users from the one-try-and-quit users?
Tracking all of these is very possible with modern analytics software like, e.g., Mixpanel. You can even wrestle the information out of Google Analytics if you’re prepared to do some extra work. You can do it in a way which respects your users’ privacy while still maximizing your ability to give them what they want.
The Risk of a Starting a Business/Chasing a Dream
Selling Software is H.A.R.D
I can’t think of a way of guaranteeing that you can feed yourself whether or not you open-source your code! Making it as an independent software vendor is hard. Above you, you have big companies who like money and won’t hesitate to offer similar software, independently developed, if it looks like you’ve found a good market. Below you, you have FLOSS developers who won’t hestitate to offer similar software for free if it looks like your software offers useful features for users. (In some cases, these groups may overlap.)
That said, you haven’t given us anywhere near enough information to answer your question. Are you talking about highly specialized software for a niche market, or general purpose software with a potentially huge market? The edge-effects of open-source development are much more likely to be useful and beneficial to you in the latter case.
What do you get out of open-sourcing your software? Free publicity is almost certainly the biggest factor. How big is your advertising budget? Also, what about distribution channels? Remember, you’re competing with big companies and (if you go the non-free route) open-source developers/companies. How are people going to hear about your software, and find it if they do hear about it, and decide if they like it better than other similar software?
Making your code proprietary greatly increases your per-user income, but makes it much more difficult (and expensive) to get new users. Open-sourcing your code makes it much easier to get new users, but greatly reduces your per-user income. Independent comic artist Phil Foglio started putting his Girl Genius comic up as a free webcomic, and said that his readership grew tenfold and his sales quadrupled. But that may or may not be typical.
There’s also the possibility of hybrid models, like releasing the core as open source, but charging for add-ons, or, if you think other companies may want to adapt and sell your code, offering a choice between a restrictive free license (e.g. GPL) or a commercial for-pay license. Depending on what your program is and how it works, those may or may not be viable options–you haven’t given us enough information to tell.
Bottom line, though: all the cards are stacked against you no matter which way you go. And, while you’ve given us very little to go on, it’s quite likely that even if you gave us ten times the details you have so far, it still wouldn’t be enough information to make more than a wild guess. Going it independent is hard and extremely risky. There’s a reason that something like 90% of all programmers are employed developing internal software that never gets licensed or distributed outside of a single company–it’s one of the few ways to be sure you eat.
Staggered release open sourcing
I believe parent has nailed it.
Ethically you want to do what is closest to your heart if you will, but unfortunately you need to eat, and usually this involves doing the opposite of ethical (or at least far from what the ideal-ethics tell you)
So I propose this. How about you release version 1.0 and 1.5 for example (or 1.0 and 2.0 or something) as regular closed-source software, and then when the next version comes out, you release the previous one as open source (e.g. release 1.0 and 2.0 for pay, when you release 3.0 for licensing you release at the same time v1.0 as open source)
this is what trolltech, mysql and other companies did. it never goes down well. it’s _extremely_ unpopular, and absolutely guarantees that there will be no community *other* that paid-up staff members involved in the actual development of the software.
the reason is very simple: any person wishing to help make improvements to the software knows full well that they might as well not bother, because the free software version that they’re using is hopelessly out-of-date.
in the case of QT, what actually happened was that the version 3 of QT (QT3) actually developed into an independent fork. the trinity desktop team now have taken full responsibility for its maintenance. bit of a digression here, but that version is years old, _but_ it has the advantage that it’s much much smaller (faster, less code) than QT4 or QT5. QT4 is severe bloat-ware that performs extremely badly on ARM9 and ARM11 platforms.
anyway the point is: the “model” you propose only really works if you’re a large corporation with lots of resources and lots of money and are willing to piss people off and make even the free software community absolutely desperate and beholden to you. that works for things like mysql and qt but dude, your software had better be _really_ shit hot to make these non-community-inclusive options work.
More business models
Monthly subscriptions meet target or stop developing (Will You Help Change The Way Open-Source Apps are Funded?)