Jeff Walpole discusses challenges with sustaining an open source business built on Drupal and strategies to overcome them. Growing a Drupal services business is relatively easy at small scales through hourly work, but scaling and sustaining profitability is difficult due to competition and lack of competitive advantages. Products and distributions can help by generating passive revenue streams, but require substantial, sustained investment. Alternatively, firms can focus on niche expertise, packaging services, and using Drupal's popularity and tools to reduce costs and drive revenue without developing products. The key is leveraging Drupal as a business platform rather than just a coding platform.

1. MAKING A (PROFITABLE)
BUSINESS... BUILT ON OPEN
SOURCE
JEFF WALPOLE
CEO, PHASE2 TECHNOLOGY

2. 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.

3. 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?”

4. OUR WORK IN DRUPAL

5. DRUPAL COMMUNITY
55+ 12 50+ 6 2
Involved Drupal Speakers at Key Modules Distributions Security team
Professionals DrupalCon Denver Maintained Built members
open

6. STARTING A SERVICES
BUSINESS IS EASY.
SCALING IT IS HARD.

7. 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
business
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2013 2014 2015

8. 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

9. 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?

10. CHALLENGES WITH
SUSTAINABLE SERVICES

11. 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

12. 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

13. 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)

14. OTHER MACRO THREATS
• Adoption is everything - without it our advantage dies
• Talent shortages hurt everyone
• Community dynamics

15. SO HOW TO SUSTAIN, NOT
JUST SCALE?

16. 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.

17. 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)

18. 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)

19. HOW DO PRODUCTS
HELP?

20. 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

21. 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”

22. 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.

23. DISTRIBUTIONS ≠PRODUCTS
BUT THEY ALLOW FOR...
• Re-use
• Standardization
• Interoperability
• Use case targeting
• Building blocks for other models

24. 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

25. OPEN SOURCE BUSINESS
MODELS

26. SERVICE(ISH)
Model Examples
Consulting and Implementation
Every “Drupal shop” out there
(e.g. professional services)
Redhat, Build-a-Module,
Documentation and training
Drupalize.me
Support retainers & subscriptions Acquia, Redhat

27. PRODUCT(ISH)
Model Examples
Freemium
Alfresco, EZ Publish
Dual licensing JBoss, MySQL
Distributions Commons, OpenPublish, Atrium

28. INTEGRATIONS
Model Examples
Add-ons (apps/plugins/themes) Wordpress, EzPublish
External Product Integration cloud services, Drupal Commerce
Application bundles (stacks) Redhat OpenShift

29. 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

30. SO WHAT’S THE ANSWER?
Ask yourself whether you are willing to invest in products.
That investment requires a different approach to product
building, product management, community management,
market matching, and continued, sustained investment. It also
requires an excellent idea for a product that people need.

31. 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

32. 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

33. AND IF YOU’RE BORED...

34. SUMMING IT UP

35. DRUPAL IS MORE THAN A CODE
BASE.
IT HAS A GIGANTIC USER BASE;
A POWERFUL BRAND;
TOOLS & RESOURCES THAT CAN DRIVE DOWN
COSTS AND DRIVE UP REVENUE

36. WE HAVE DRUPAL.
HOW CAN WE START USING IT AS A TOOL TO
BUILD NEW LINES OF BUSINESS?
NOT JUST A TOOL FOR BUILDING OUR WEB SITES.

37. CHANGE THE OUTLOOK:
LET’S STOP THINKING ABOUT DRUPAL AS A CODING
PLATFORM WE “USE” AND START THINKING ABOUT IT AS
A BUSINESS PLATFORM WE LEVERAGE.

38. THANKS! QUESTIONS?
JEFF WALPOLE
jwalpole@phase2technology.com
t: @jeffwalpole
www.linkedin.com/in/jeffwalpole

39. phase2technology.com
@phase2tech