• Arun Saxena

    To open source or not….

    Ashok was perturbed. In Jan 2006, an eastern European company had taken his source code, made minor changes and started selling it under an alternate brand name at a reduced price. Ashok’s company Chartengo was a pioneer in Adobe Flash based charting software that helped users create charts for data visualization. Its charts were perceptibly superior to any available on the market. The company had five employees and revenues of $500,000 in 2006. It used to offer source code with its USD 99 developer version of the product. A growing business like Chartengo was sandwiched between free libraries on the Internet and large data visualization vendors (revenues > $100 million) on the other. In between it also had to content with few hundreds of competitors. The possibility of a vendor infringing on Chartengo IP in some distant corner of the globe was high.

    Chartengo did not have a legal team so they contacted a firm that specialised in copyright infringements. The firm quoted $250,000 to file a suit but there would be additional fees for court appearances. besides the unaffordable legal fees, Ashok was apprehensive about the stance an eastern European court would take in this matter. He decided to forego the legal route. He talked to development team and few experts outside. A surprise suggestion with overwhelming majority was – make your product code open source. They said open source code will make it difficult for infringers to compete. Why should customers pay for a code that is open source from the original vendor? Ashok’s team of developers was thrilled with the idea of open sourcing their code. It would accelerate innovation and save them time developing everything themselves. They felt perhaps the customers would also be happy. They could also see an opportunity for higher revenues. The open source would probably draw more customers, especially those who were sceptic of dealing with a small company like Chartengo.

    Ashok had so far found it the best strategy to protect its intellectual property. He believed innovation would only happen if it could be exploited for exclusive financial benefits of the innovator. How could he even think of handing over his crown jewels to the infringers in the marketplace? The thought of handing over his IP to these hackers and letting them enter their random untested code into it thus contaminating its pure quality was appalling to Ashok. He clearly saw his competitive advantage evaporating with opening his source code. Yet, at that time, open source was rising like a tsunami? Apart from individuals hacking into your code, well-funded companies were also doing so. There was passion about open source. Even customers were enamoured by open source culture. It was turning into a religion.

    The question is – what should Ashok should do?

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    • raksweb

      Sounds like Ashok does not believe in Open sourcing, rather he is being forced into it. Anything forced does not work. He should not get carried away by the coolness factor in open source. Rather he should he should look at alternative technical solutions for charging the customer without giving out the code, maybe a different business model. If the domain he is in is such that there is no scope of protecting one’s source code then that industry is surely going to be a nasty one and hence better to look at a different business model. The truth is that if people get a way to steal, they will always steal and its very difficult to be the nice guy playing by the rules when everyone else is breaking the rules.

      • http://www.facebook.com/profile.php?id=752387199 Arun Saxena

        raksweb,

        It is true that business decisions be based on hard-nosed logic rather than fuzzy things like coolness and so on. Piracy hurts software vendors of all shapes and sizes. The strategy and the business model must account for this.for example, music piracy was rampant globally. Yet, Apple came with iTunes music service and did the unthinkable. He charged 99 cents for a song in a world ruled by cool yet notorious P2P file sharing. iTunes became a success by any yardstick.Another example – most of worlds’ biggest and highly profitable software companies are NOT Open Source.So you can fight piracy and also make money without going Open Source.

        Therefore, If we can answer correctly for a situation why people steal, we can better design strategy to tackle this situation.

        Arun

    • Abhay Goel

      Thats an interesting although awful situation to be in. If we dissect how Ashok landed in this situation, I believe, it is because code was offered for a fee to the customers. I’m sure there must be enough copyright notices within the code but that would not stop unscrupulous people from (mis)using it.

      IMHO, either code is shared (given for a fee or shared freely) or is not shared. Once code is available for the taking, its pretty hard neigh impossible to control who uses (steals) it and for for benefit.

      On whether to opensource his product at this point, my take is that probably this is the only option left. It would not only undermine his competitors but also help him with innovation (and bug fixes and all the she-bang that comes with open source community). Besides, Ashok can continue to offer commercially supported versions (just like jBoss and several others).

      Looking at the history of opensource, most of the popular opensource products/frameworks had their beginnings as internal non-commercial projects to help an organization with their challenges. So these organizations already had a revenue stream from some other commercial offering (product or service) and they could probably afford to forego a potential commercially viable product.

      This also brings out an interesting question on whether start-ups should build this in their business model and opensource their code from the word go?

    • Sundararajan Seshadri

      Open source protects IP – but how does it generate revenue? There are three choices:

      1. Offer services including support and maintenance around the product – sometimes it is very very attractive.

      2. Offer dual licensing

      3. Tie up with products / suppliers who can be considered to be ‘related’ to your product. (e.g. a special CRM report product can be tied up with the big CRM persons).

      If the product does not offer one of the above conveniences and we still want to go open source, it could be only with the idea of being very generous and just donating it to the world, deriving happiness that our ‘child’ is giving happiness to every one! sarve janah sukhina bhavantu

    • http://www.facebook.com/profile.php?id=752387199 Arun Saxena

      A software product does not become open source just because its source
      code is published. It becomes open source when offered under an open source
      license. Open source today has two flavors – free open source (FOS) and
      commercial open source (COS) or open core. The COS model offers a feature
      limited version of the product as free open source while offering a full
      featured proprietary (non-open source) version at a price. COS software vendors
      also offer services like technical support on FOS version, at a price. The true
      open source loyalists do not consider COS as open source at all!

      Ashok discontinued the $99 developer version with the source code. It
      was offered initially to get product visibility and acceptance among
      developers. Incidentally, it was a developer product – a component that
      required a bit of programming in connecting to data sources. Instead, Ashok offered
      Chartengo Free, and Chartengo commercial version. The free version was feature
      limited, for example it offered just 20 charts compared to 40 charts in the
      commercial version. However, the free version was open source. It was offered
      under dual open source licenses – MIT (X11) and GNU GPL licenses. That
      meant users could use or modify the software for personal or commercial purpose
      and redistribute the modified software as part of their application. Of course
      there were no warranties.

      The
      strategy was the FOS version will drive sales of the COS version and support
      revenues. It seemed to work. It worked elsewhere as well, for example, LINUX,
      MySQL etc. Bundling source code with enterprise licenses grew product acceptance
      in enterprise space where customers worried how long a tiny company like Chartengo
      would exist?

    • Rinka Singh

      I’m sorry Open source doesn’t work that way. First of all open sourcing doesn’t mean you will get a rash of people charging over to contribute as Oracle discovered to its dismay.

      Secondly, open sourcing code does not mean that the other guy cannot continue his piracy. Nothing stops him from taking the latest release, adding a few bells and whistles to it and offering it as a different package. eg. IBM’s database DB2 on Linux is still priced and it leverages Linux and its various components.

      An open source model works only if the product/component has many competitors and is becoming commoditized. But if a component is getting commoditized, then he must look for other sources of revenue.

      Ashok should:
      a. Stop releasing source to the industry.
      b. focus on building deeper customer understanding and accelerate releasing features to out-innovate & out-differentiate the Eastern Bloc competitor.
      c. Build services/solutions around his product that increases the value of the product in the eyes of the customer.

      d. Change his business model to a freemium (or a very low cost basic model) model to help him recover lost ground.

    • Abhay

      Good one, especially i liked the comment part. Comment should be covered in a blog.

    • Rama

      Half a million dollar revenue with 5 employees and he was giving away code for $99. Somehow there was something amiss in revenue building strategy even if it required extra coding to connect to data sources. If the product was in a mature group, it would perhaps be right to go through open source to innovate. When you are a niche player and have a product with little competition, perhaps finding a business partner and building a product strategy to increase distribution while ensuring that the premium product has some ways to be automated through configuration would have been better.

      Open source is a great ways to get cheap labor but in this world nothing comes free of cost. If you open up source the down side will be a constant vigilance to ensure your IP is protected. My advise to Ashok will be to build revenue growth through partnership while spending some more time to get a strong techie to change what he currently has to do via giving away code through configuration management. He should wait until he has built the market and then evaluate whether the product needs further innovation to open up to the open source community

    Apr, 25
    2013
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