Saturday, March 22, 2008

Open Source as a way to compete against market leaders

So I had a chance to talk with the MPower folks, the topic of my last post, at the NTC.

Overall, they have the right idea, seem like good folks, and their primary driver is building a profitable business (as opposed to mission-based technology). NOTE: I in no way think for-profit vendors don't care about their customers. I simply think that non-mission-based players choose not to serve those that don't pay them. Interestingly enough, an open source license means that the the vendor (MPower) helps nonprofits that don't pay them. This doesn't make MPower a mission-based technology provider, but they are making a critical contribution to the mission of providing better technology to the entire nonprofit sector (regardless of their checking account balance).

We'll see how MPower develops... to my mind, true open source is made up of actions, not press releases. They have taken the most important action... a reasonable license and download.

So what is important about this:

  1. No Vendor Lock-In. The source code of MPower, the software, is available to the customer. If an ecology develops around the software, you will not be wedded (or locked in) to working with MPower... you can just hire another company to work on your stuff.
  2. Commercial Support. MPower, the company, is providing a high level of service and support for the software. This has been the Achillies heel of the CiviCRM ecology... it can be difficult (but is getting far easier) to write a check and have a vendor to blame when your implementation doesn't work so good or purchase a 1-800 number to call and get product support.
  3. Autonomy. Want to extend the MPower software's functionality? Simple. Pay them or pay someone else to code what you need. No permission from MPower necessary.
Now, of course, the devil is in the details. Here are the details that will make or break whether this has a big impact from a mission perspective.
  • Gross margin. MPower is a business. License fees and subscription revenue generate higher gross margins than service and support. Lets all hope that (a) they have a spreadsheet that clearly maps this out, (b) they have investors that aren't looking for big gross margins, (c) they aren't looking to go public. If (b) or (c) are true, then they are going to build a subscription revenue stream.
Some "open source" business plays, most notably SugarCRM, have seen their intentions collide with the reality of revenues and growth rates. The most important thing in my entire conversation with MPower was that they said they were patient... they have patient capital that can wait the many years it takes to build a large, fast growing business on an open source business model.
  • Permission. People are going to do things that the MPower company will not like. When another company launches a 1-800 number supporting the MPower software in direct competition with MPower the company, what will they do? How will they react? How will they compete?
Hopefully, they will be comfortable providing great service and being confident that they are they best provider there is. (As opposed to limiting competitor access to the community or some other such tactic)
  • Community. How do they engage? Who do they engage?
Looking forward to the next few years. We live in interesting times.

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