[einhverfr]

Some areas where open source software is the norm:

1) Web servers

2) compilers for UNIX and embedded application development

3) ISP infrastructure

I am sure there are plenty of others. My business is trying to bring LedgerSMB to this area regarding mid-range accounting and ERP.

Open source can be effectively monatized in more ways than proprietary software. As LedgerSMB 1.4 comes along we'll be shifting from consulting company to start-up offering subscription services to do things that open source economics doesn't pay for very well. The software will still be open source but it will be monatized through subscriptions (think RHEL) which come with value added components updated in a timely manner. However the fact that it is open source also allows for me to off-set some of the development costs via consulting services (those aren't going away, but they are being de-emphasized a bit).

No I don't mind sharing the plans here. There are reasons why the revenue for these solutions, even if people know what the problems and solutions are, cannot be stolen from me. Open source is just a different game and you have to figure out what the rules are.

For the record the major areas we are going to focus on will be payroll and electronic submission to government agencies. These areas are frequently updated and the issue is that you don';t want to be the first one to ask for the feature and thus pay for everyone else's use. A subscription model lets us spread the cost around. People could try to jump in but I have a head start and a place of great privilege in the market. It would take a long time for someone to be able to challenge me.

In open source the way you get to a point where you can monetize the user base is by maximizing your downstream market (that's those who use your services and your customers' services). The closer you are to the center, the larger that base is. If anyone here says "oh that's a great idea" and tries to do this in LedgerSMB, you'll be starting near the outside, while I have the entire community as a potential user base. And if you go out and find lots of new customers, those are also potential customers for me. I win there too.

The real reason for proprietary software is that it is one way of spreading around the cost of development. You have to do it differently in open source software, but there are actually a larger number of ways of doing it than are possible in the standard COTS world.

[dpark]

Not coincidentally, those are also areas where there's basically no longer any profit to be made. No one makes money selling web servers or compilers for Unix, because it's not possible to compete on price with "free".

The businesses that make money from open source typically do so by selling something else on top. Google doesn't sell open source. They sell services. Red Hat doesn't sell open source. They sell support to large businesses. ISPs sell bandwidth. Etc.

[einhverfr]

Well, here's the approach my business is taking:

1) You can bill up-front for major features development. If someone wants a major feature they can may for it. This reduces the risk of software development because much more of the development is being paid for up front. However the revenue doesn't scale and it's subject to boom/bust problems. This being said it's a great strategy to mitigate financial risk in product development.

2) You can find areas where #1 doesn't work and come up with some sort of customer agreement that does scale. The nice thing is that if that area really doesn't work (updates to payroll for example) for reasons inherent here, then you won't have someone else release something like it fully on an open source model and have to compete with free.

So the way I look at it is that I get some things for free (financing for development), my customers get some things for free(software, upgrades on main packages), and this then creates a market for services I can charge more for because the overall package is less expensive.

ERP is huge business but the thing about it is that going with an open source approach brings benefits to smaller businesses that are currently reserved for huge businesses. A multi-pronged approach to revenue here (consulting, subscriptions, support contracts), allows you to take advantage of network effects between these things, cut risk, and still maintain general scalability of revenues.

If others want to do this with LedgerSMB I would generally advise against competing with core, long-term members of the community. You are more likely to succeed if you carve out a niche for yourself in an area that's not being done or is underdeveloped (MRP would be a good example with LedgerSMB).

[dredmorbius]

Too: proprietary solutions cannot (at a sustainable price point) compete with the quality of free.

As someone noted -- there's a development model which shares the load among many eyes, and produces higher quality work as a result.

There are a few other mechanisms at work, but the upshot is that for utility, and even a fair amount of specialized software, there's no longer a marketplace for the software itself.

[Karunamon]

>Too: proprietary solutions cannot (at a sustainable price point) compete with the quality of free.

That depends entirely on the community behind the free solution, and what class of software it is. For instnance, I'm not aware of a FOS document management system which would compete with, say, Paperport or DevonThink (Windows and Mac systems, very proprietary).

[dredmorbius]

I didn't say in all cases. Specialized, very high-value, and vertical tools particularly.

But generally the trend is that, starting with OS, development and management tools, and commodity software, Free Software is taking the financial value out of software sales.

For your example, OpenKM and LogicalDoc turn up for searches on "document management open source", though I couldn't say how they compete on functionality, scale, ease-of-use, stability, and/or management.

To shift spaces slightly: there's a pretty small market for proprietary Wiki software. Atlassian and Microsoft Sharepoint would be two that I'm aware of, though alternatives, especially MediaWiki, are very widely used (internal to the CIA even).

What's becoming more common is a service model based on free wiki software. Jimmy Wales has a startup based on offering MediaWiki pages, there's a similar offering based on TWiki that I'm aware of. I'm sure there are others. Similarly, blogging engines as-a-service. The software's free, but the service offering drives revenue.

Could be a way into the docs management market as well.

[cabalamat]

> No one makes money selling web servers or compilers for Unix, because it's not possible to compete on price with "free".

That may or may not be the case. However, it certainly doesn't stop high-quality compilers and web servers being written for Unix.

[dpark]

I never said it did.