Community Monetization is Fools’ Gold

Some open source vendors are preoccupied with counting community downloads.  Why?  They believe that downloads are a leading indicator of commercial sales pipeline.  The theory is that a meaningful percentage of community relationships will develop

into commercial relationships, and sooner rather than later.  While it's certainly true that some community relationships will cross over, the percentages are small, the durations are tortuously long, and the consistency (i.e., repeatability) of that cross-over motion is low.  Thus, revenue models based on the premise of community monetization are, with few exceptions, doomed from the get-go.

Benevolent Militia

Open source communities are akin to the volunteer militia of America's Revolutionary War era.  While there are plenty of free-riders, many community members are passionate, dedicated volunteers who trade their time and effort for the value they receive from the use of your software.  They want your stuff to be good, and they're willing to help you make it good, but they're not particularly interested in paying you any money.  They provide you with leverage and help you build IP mass in a number of ways, including:

  • Testing. Every time you cut a fresh build, your community will jump on it and give you instant feedback … orders of magnitude more useful than running a traditional Beta test program.
  • Use cases. Your close-in community guys will give you visibility about how they are using your software. This tribal knowledge often informs the commercial side of your business about possible customer applications, improves your sales pitch, and gives you referenceable use cases.
  • Feature ideas. If your community is active and engaged, you will receive constant inputs about needed features and future product directions.
  • Code contributions. Except in large open communities, IP contributions usually take the form of bug fixes, platform/framework ports, and edge feature implementations. Nonetheless, these contributions add mass and expand the population of your potential users.

So your benevolent militia does, in fact, give you great value.  Just don't count on it for significant revenue.

Who's Your Daddy?

Close your eyes and ask yourself a question: "If we never open sourced our software, how would we go to market?"  THAT is how you should be going to market!  In other words, don't rely on your open source community to be your market or lead you to your markets; build your go-to-market strategy independent of your community strategy.

Does my guidance sound extreme?  After all, you will experience some degree of community cross-over the longer you're running an open source project (and you offer things your community wants to buy, such as low-cost training).  My objective, however, is to disabuse you of thinking that your open source community will efficiently evolve to become your primary market.  It's just not going to happen.

ISVs – Stealthy Exceptions

Now that I've crushed your dreams of community monetization, I'll raise one exception – ISVs.  Whether they deliver their solutions via site-based or SaaS platforms, ISVs are continually on the prowl for technology that can either expand the value of their solutions or improve their product margins (or both).  If your technology is well-suited to the ISV market, you can be sure that some of your target ISV customers are trolling your community under the cloak of anonymity.  Their motion and psychology are roughly as follows:

  1. They need a component that behaves like X (where X is your solution).  It's a large-grained component, so it will probably cost a lot (in both money and time) to build, and the ISV may not have the domain skills to build it competently.
  2. They come to your open source project before approaching you commercially because they can eval your software without engaging a sales process.
  3. Assuming they like your solution best, they'll examine your open source license to determine whether they can embed your stuff and distribute their derivative works royalty free.  If so, you may never hear from them.  If not, they will contact you to negotiate a license and support deal.
  4. Even if they can do royalty-free distribution, some ISVs will contact you to negotiate a support deal because they want the security blanket of an expert partner.  They may also be looking for other value-added services, such as IP indemnifications, they can pass downstream to their customers.

If ISVs are an important part of your go-to-market mix, don't wait for them to contact you.  Build some tasty offers into the landing pages of your community site to smoke your ISV prospects out of the bushes.  They are the community relationships you have the best shot at consistently monetizing.

2 Comments

  1. Some interesting links | DBMS2 -- DataBase Management System Services

    [...] I’ve had my issues with Fred Holahan, who was VP of Marketing when I posted that EnterpriseDB was not to be trusted. (That said, Fred is long gone from EnterpriseDB and my opinion hasn’t changed.) But he’s put up a good series of posts on the basis of the open source “progressive engagement” marketing funnel, including this gem on why you shouldn’t count on monetizing your community/free users. [...]

    • fredh

      The site seems to be having a problem posting pingbacks so I will try to post them manually until I resolve the issue. Here is one from http://dbms2.com/2010/07/23/some-interesting-links:

      [...] I’ve had my issues with Fred Holahan, who was VP of Marketing when I posted that EnterpriseDB was not to be trusted. (That said, Fred is long gone from EnterpriseDB and my opinion hasn’t changed.) But he’s put up a good series of posts on the basis of the open source “progressive engagement” marketing funnel, including this gem on why you shouldn’t count on monetizing your community/free users. [...]

Comments are closed.