Friday, June 18, 2010

Making Open Source Profitable

Today's columnist is Sean Morrison from BRL-CAD. He writes:

From economics, profit maximization is a process used to maximize a return on investment. It's a process that looks at sales prices, production costs, and other factors in order to find a sweet spot where you make the most with the least. Profit, in its most basic form, can be described with a simple equation:

Profit = Sales - Cost

That's all good and well, but what does it have to do with free/libre open source software (F/LOSS)? For many free software developers, the mere idea of making money is an affront to their ideals. Business journalist Dana Blankenhorn of ZDNet notes in The open source tea party that there are drastic differences in what motivates contributors to F/LOSS: "In its starkest terms there is a divide between idealists and realists, between those who see FOSS as a creed to be adhered to and those who see it mainly as a business model, a route to profit."

But this isn't about money. Especially for software that is freely (in every sense of the word) and openly shared, talking about sales and profit may seem a bit peculiar. Developing an open source community, however, has substantial parallels with developing a small business and many of the same concepts and tips still apply. The main difference is a translation of terminology.

So what does profit mean? In general economic terms, Wikipedia tells us that profit is the total revenue (i.e., the sales) minus the total expenses (i.e., the costs). Except we're still in unfamiliar territory. Open source projects are not usually expressed in terms of monetary value. Open source projects are compared with a myriad of metrics such as popularity, project vitality, code metrics, and overall utility of the software itself.

That being the case, consider what profit means to a business. For commercial industry, a successful business is a profitable business. A successful open source project, however, is one that offers something of sustainable value. Therein we begin to see how the same equation can be applied in a more generalized form:

Profit = Revenue - Expenditures

Revenue for open source is value coming into the project and value is derived by interest in the project. Value comes from the utility of the code itself; it comes from the open source community around that project, its developers, and its users. Growing the community, increasing downloads, and making improvements to the source code represent an increase in that project's total revenue.

Expenditures for open source is a little more tricky as the software itself is free (as in beer and freedom), but there certainly are still "costs" as there are expenditures of time and effort. In terms of development, there is effort expended publishing releases, maintaining infrastructure, developing the code, reviewing contributions from others, and keeping the code maintained. The community at large spends time learning the software and sharing their knowledge with others.

The open source software movement may be relatively new, but running a small business is not. Evaluating profit, increasing revenue, and decreasing expenditures are terms commonplace in business. It would be highly disadvantageous of growth-bound projects to ignore the existing wealth of business resources available. One such resource is the non-profit SCORE Association which focuses on providing free business mentoring services.

SCORE provides a plethora of resources and advice for growing business that can be applied to most open source projects with a simple translation of terminology. For example, their top five categories for improvement include: 1) improving your web site, 2) building a local presence, 3) preparing for growth, 4) conserving capital, and 5) enhancing sales. All of those can be readily described in terms of our aforementioned profit equation.

Improving a web site amounts to increasing revenue by attracting new contributors while reducing expenditures through improved support. Their tips on building a local presence and preparing for growth aim to reduce project expenditures by leveraging outside help, delegating responsibilities, and recognizing people that consume more than they contribute. Conserving capital is particularly interesting as a project's developers, community, and code are open source capital. Included in their tips on conserving capital are suggestions of being frugal with developer resources, knowing your users, not reinventing the wheel, and encouraging reuse. Enhancing open source sales (i.e., value coming into the project) refers to improving user awareness and education, cultivating new contributors, being persistent, and demonstrating your project's value to the community at large. The breadth and scope of applicable sound advice is abundant.

Why are you involved with open source? Maybe you are looking to turn a software asset into a commodity that is hopefully updated, maintained, and improved by a legion of contributors around the world. Perhaps your goal is to develop or even commercialize some open source asset. Or maybe you've developed useful code but since it's not your core business, you realize that there is still a potential public relations benefit.

Reduce your open source expenditures. Improve your open source revenues. When looking for ways to make open source successful, increasing your open source profit is a great place to begin.

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