Open Source Company: Oxymoron?

08 Oct 2005

People seem surprised when I tell them that our company does open source development and has a couple of large open source projects (PostGIS and uDig). They have a very valid reason for their surprise: there seems to be no reasonable way such projects could make money. In fact, they seem destined to lose money. Lots of it.

Superficially, I cannot help but agree. When I think back on the profile of clients we have added over the past several years, there does not seem to be that much work that ties back directly to either uDig or PostGIS. And yet, the company has been growing pretty steadily over that same time period, and the number of people working on the open source code in one way or another has also been growing. So clearly something is afoot.

I think the answer is in the nature of a consulting company, which is what we are. Ordinarily (open source excluded) our business procedes lock step with the relationships we can develop with current and potential clients. Those relationships lead to referrals, to more work, and so on. The currency of the relationship is competence and trust. We demonstrate our competence and trustworthyness on a project, and gain a referral.

What the open source effort is buying us, over time, is a proxy source of referrals and trust. By using our software for free, clients are gaining a sense of our competence. By asking us questions on mailing lists, they are also gaining a sense of trust in our reliability. So even though our direct revenue stream from PostGIS consulting is pretty small, the indirect stream of trust leads clients to contact us directly for partially related or unrelated work. We don’t necessarily book the work as “PostGIS derived” or a “uDig lead” and then over time we forget the source.

There is something mildly corrosive about this process, because it can potentially lead us to under-invest in our open source work. After all, it appears to be primarily a cost center. Recognizing the benefit requires extra work: noting where we save money by using PostGIS instead of OracleSpatial for project work; sourcing leads back to the open source work, recording it, and recognizing the sales expense that would have been required to generate that lead in a conventional way.

Eric Raymond spelled out a number of business models for “open source companies” in his paper The Magic Cauldron and none of them really fits us well. We use open source as a loss leader (9.1), but not for proprietary software. We offer services around the open source projects (9.3), but they are not our principal source of revenue, nor are they the primary benefit the open source software provides us.

Our model is what I call the “business card model”. Our open source software projects are tokens of our wider capability in understanding and solving geospatial problems. The projects provide us with an introduction to a large number of potential clients, and a (very) small percentage will eventually contact us with work, but the cost of doing the development will still be much smaller than the conventional sales effort needed to generate the same leads. Our open source projects act like a virtual salesman, flying around slapping backs and handing out business cards. And, as an added bonus, we get cool software too!

Open source: it’s cheaper than a salesman, and you can burn it to a CDROM (try that with a salesman).