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The business of open source software

How do firms compete with open source? What resources become critical in managing their growth? What strategies do they adopt to co-exist with dominant proprietary software firms? How do they interface with communities of practice to exploit network externalities? What strategies do they adopt to lock-in developers?

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Firms compete through the use of open source today primarily through addressing organizational needs unmet by currently existing commercial vendors. In particular, they are very successful in providing technology for needs that cannot be met, given the current price points for commercial software. The single most important aspect for success is a large community using their products. Typically, these companies are very able to meet their growth without any particular constraints. In the short term, I believe a challenge for many of them will be adhering to the financial discipline necessary for a much lower revenue market. In the long run, the availability of quality technical talent could be a gating factor, given that most of them are service-based; people marrying a strong technical ability with a good "bedside manner" are much rarer than pure technical talent.

Most open source firms today do not have to craft a particular strategy to co-exist with proprietary vendors in their market segment. There is little overlap between the customer bases. I predict they will face a larger challenge when mainstream IT shops begin turning to open source for their IT needs; they often expect vendor behavior and responsiveness, inconsistent with an open source cost structure.

The key for succeeding with a community is to have a transparent relationship. Companies must be open and communicate freely. Trying to hide information or spin it is the kiss of death for having an enthusiastic community. This can be quite troubling for many companies in that their instinctive response is to "manage" their "message."

There is no strategy to lock-in developers. You must consistently provide great service and communication with the community. Any attempt to lock-in the user base is doomed to fail; particularly troubling for a company trying to achieve lock-in is the rapid communication among members of the community. It is not possible to isolate community members (customers) from one another.

This was first published in January 2006

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