The Open Source Business Conference hosted in San Francisco this week provides an excellent opportunity to kick off my software sales and marketing BLOG, with some helpful data points about how companies can effectively monetize an open source software business.
I found the event to be very informative and useful, with some very lively sessions. The number of attendees, as well as their enthusiasm, certainly demonstrates how the industry is adopting open source as an accepted model for software development. In fact, several speakers mentioned that the success of the conference is a strong indication that open source software has "crossed the chasm" (referencing Geoffrey Moore's well-known publication).
Here are a few interesting facts collected from the conference:
OPEN SOURCE INDUSTRY STATISTICS
- Open source companies have received funding over $2B total since '97
- 80% of the Global 2000 are evaluating open source products (beyond just Linux)
USER COMMUNITY DATABASES: Several speakers commented on the importance of collecting information to build a user community database. The database can include a variety of information about users that will grow over time as the company develops a stronger bond, or affinity, with each user. In order to succeed, companies must implement the appropriate strategies and programs to collect and act on information that helps to identify commercial (revenue generating) opportunities. Dave Roberts of Vyatta mentioned that by requiring a registration on product download, his company measured a 50% decrease in the download rate. Yet for Vyatta, the value of having the registration information outweighs the decrease in downloads, because the company can better identify and develop revenue-generating opportunites.
DOWNLOADS: John Roberts, CEO of SugarCRM, commented that his business used to be all about the downloads, and they would model revenues based on the number of downloads they measured. While the model proved reasonably accurate, they no longer use the model to run the business. The focus on downloads today is to make evaluating and purchasing the product as easy as possible. In a subsequent session, David Skok of Matrix Partners also emphasized the importance of lead quality over quantity. According to Skok, the key to generate revenues is establishing the qualification criteria that will identify the leads that eventually become revenue-generating opportunities. As an example, Skok explained how JBoss implemented an effective lead-scoring mechanism to identify and close opportunities through the company's inside sales team.
SERVICE REVENUES: One of the sessions focused on the opportunity for services (on top of the softare subscription fees). Service and maintenance fees represent 45-50% of the enterprise IT budget. The CEO of GroundWork, Ranga Rangachari, indicated that for his company every $1 of subscription revenue generates between $2 and $2.50 in services revenues. In this case, services represent an excellent opportunity for the channel.
RENEWALS: Subscription renewals represent another key factor in the success of open source companies. According to Michael Evans of RedHat, his company faces a huge issue with subscription renewals and management for which they spent millions of dollars on their back end systems. David Skok of Matrix Partners shared the renewal rate for JBoss at roughly 85%.
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