Making a (profitable) business Built on Open Source
MAKING A (PROFITABLE)BUSINESS... BUILT ON OPEN SOURCE JEFF WALPOLE CEO, PHASE2 TECHNOLOGY
WHAT I AM TALKING ABOUT• Growing a successful business is hard• but sustaining a reasonably sized / proﬁt generating business is even harder.• Right now many of the businesses in our space are “riding the Drupal wave”, operating as specialized implementers of Drupal.• Shifting to a larger high proﬁt and sustainable business will be hard for many due in part to the intricacies of open source competition and open source productization.
ABOUT ME Who I am: Who I am not: Almost 20 years in the I am not a CTO and wont software / consulting be talking about business technical strategies. Led Phase2 for the last 11 years based upon I am not a lawyer. I can’t open source software answer “can I do THIS in and services GPL?”
DRUPAL COMMUNITY55+ 12 50+ 6 2Involved Drupal Speakers at Key Modules Distributions Security team Professionals DrupalCon Denver Maintained Built members open
STARTING A SERVICES BUSINESS IS EASY. SCALING IT IS HARD.
The Growth Curve / Scaling -> Sustaining 1-20 person shops - 20-50 person medium 50+ person businesses - self making a living businesses - growing but sustaining / high profit not (yet) sustaining mainly hourly services Takes additional things to be every hour spent = a dollar Takes a mix of hourly + scalable AND sustainable. earned fixed + retainers What are those things? "We build a website" - Takes repeat business and islands of isolation strong customer loyalty your competitive advantage Takes some sales (pricing/ is probably being the ones estimation savvy) that "know" Drupal Requires strong project works for a life style management to succeed business2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2013 2014 2015
HOW TO SCALE SERVICES:• great sales & marketing• great recruiting• infrastructure for efﬁciency (processes, project management, supporting functions)• partnering to grow capabilities/business development• securing larger contracts• M&A
SUSTAINING TAKES MORE...• reliable/recurring sales & marketing with process• sustained competitive advantage (vs. a point in time)• securing long term contracts (e.g. government)• intellectual property• passive revenue/ productization• investment?
MAKING $ WITH NICHE DRUPAL WAS EASY• cost to develop was low• cost to recruit/train developers was *relatively* low (at least initially)• testing is (partially) free• re-use of our own and others contributions• community innovation means the community develops and innovates for us
PARADOXES OF DRUPAL COMPETITION• competitive advantage (knowing how it works + being better than anyone else - and proving it!) is very hard to sustain• competing is perceived to be bad because open source ethos• competing is hard because others can copy easily when you "share" in an open model
COMPETITION IN DRUPAL IS CHANGING• more players in the market• downward pressure on rates & pricing• more off-shoring and different resource make-up on projects• greater competition from larger companies/platforms now competing with Drupal (CQ5, Salesforce, etc)
OTHER MACRO THREATS• Adoption is everything - without it our advantage dies• Talent shortages hurt everyone• Community dynamics
THE REALITY The challenges of Drupal and “open source business” are not really about IP or licensing. Open source is actually part of the solution, not part of “the problem.” but so is good old fashioned business strategy.
GROW THE ECOSYSTEM• more businesses at scale• more businesses ﬁguring out how to create business models around Drupal• more specialization/ less internal competition among ﬁrms• more varied business models around Drupal• more Independent Software Vendors (ISVs)
THE IMPORTANCE OF THE ISV• A software ecosystem cannot rely on services companies around a single product• ISVs (Independent Software Vendors) provide depth• ISVs for us (Drupal) could include integrations, platform vendors, add ons, etc.• Otherwise we are all just Drupal VARs (Value Added Resellers)
PRODUCTS ≠ SCALE• building and distributing a product CAN be a way to scale a Drupal business, IF you change your model to support “product operations”• Developing a product (or more precisely supporting one) can actually hinder growth of a services company.• “I am launching a product, so that we can grow revenue” is a common but uninformed opinion on pure Drupal
PRODUCTS ≠ SCALE• Plenty of services businesses also scale: large-scale consulting ﬁrms, hosting providers, and many in the software space scale without products• Products can produce passive revenue (see above re: business models) and be helpful for sustainability, but are not the only way to “scale”
HOW OS CHALLENGES PRODUCTIZATION• You build an open source product and distribute it.• The market uses it, demands features, requests releases.• “Selling it” can be undone by any buyer who then distributes it for free.• “Selling services around it” is not productization.
DISTRIBUTIONS ≠PRODUCTSBUT THEY ALLOW FOR... • Re-use • Standardization • Interoperability • Use case targeting • Building blocks for other models
DISTRIBUTIONS DON’T ALLOW IP CONTROL.SO THEY ARE...• marketing (for everyone)• lead gen and marketing for the creator/ maintainer• platforms for more sophisticated services/ tie-ins• better platforms for application stacks• could allow for support models
SERVICE(ISH) Model ExamplesConsulting and Implementation Every “Drupal shop” out there(e.g. professional services) Redhat, Build-a-Module,Documentation and training Drupalize.meSupport retainers & subscriptions Acquia, Redhat
PRODUCT(ISH) Model ExamplesFreemium Alfresco, EZ PublishDual licensing JBoss, MySQLDistributions Commons, OpenPublish, Atrium
potential not recommended Low Feasibility Dual Licensing Freemium WHICH ONES Support Competitive/Legal Feasibility where we started Retainers/ Subscriptions where to focus WORK FOR DRUPAL? Product Distributions Integration Add-ons & Plug-ins Documentation & Training Consulting and Application Implementation bundles (stacks) High Feasibility Low Barriers to Entry High Barriers to Entry Complexity
SO WHAT’S THE ANSWER?Ask yourself whether you are willing to invest in products.That investment requires a different approach to productbuilding, product management, community management,market matching, and continued, sustained investment. It alsorequires an excellent idea for a product that people need.
IF YOU ARE WILLING TO INVEST...• ﬁrst leverage Drupal’s popularity for lead generation• master services / deliver them successfully• corner speciﬁc Drupal niches for competitive advantage• invest in building discipline to help you realize revenue on that• add something to the product that creates passive revenue• bundle support, documentation or training for it• create a distribution, package or integrated product from it
IF YOU ARE NOT WILLING TO INVEST......that doesn’t mean an unsustainable business. Instead...• ﬁrst leverage Drupal’s popularity for lead generation• master services / deliver them successfully• corner speciﬁc Drupal niches for competitive advantage• invest in packaging your services, automating aspects of them, or ﬁnding ways to build greater margin in them• use increased margin to re-invest in more process and automation