OSS Customer Categorization

Thursday, May 1, 2008 by Mistlee

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OSS Customer Categorization

By Savio Rodrigues

I've been thinking about this statement from Sun/MySQL's Marten Mickos:

"There's a difference between organizations that have more time than money and organizations that have more money than time."

I coming to realize that OSS users split into three, not two, categories:

• A] An organization that has more time than money

• B] An organization that has more money than time but is used to getting what they need for free and is comfortable enough with OSS to rely on their own skills

• C] An organization that has more money than time

While Marten has grouped categories "B" and "C", I think it's important to separate them out. And truth be told, I think category "B" users are more likely to act like category "A" users when a purchase decision to be made. BTW: There is likely an aspect of "how business critical is the application running on OSS" that needs to be overlayed on this user categorization. But that's for another post.

For OSS vendors, it's an uphill battle to get a company in category "A" to spend on a product or subscription. On the other hand, nearly all "early stage" paying customers will come from category "C" users. But over time, the growth of users in category "C" who haven't been converted to customers is outstripped by revenue growth targets that the OSS vendor has. This happens at different points on the revenue curve for different markets (i.e. operating systems vs. app servers vs. content management). I'd venture a guess that the inflection point for most OSS vendors is around $50-100M/year in revenue. From this point forward, the race is on to convert category "B" users into paying customers. Based on my discussion with customers that fall into this category, converting to paid customers is easier said than done. The whole "it's certified and supported" story falls on deaf ears. These customers have been running the OSS product for years and haven't found the need for a support contract, so why get one now?

Recently MySQL was in the news for implementing a strategy squarely focused at category "B" users (even if Marten and team wouldn't classify the move as black and white as I do here). But look around and virtually every leading OSS vendor (SpringSource, Zenoss, MuleSource, etc) has implemented some form of an "incentive" to convert category "B" buyers. In most cases it's a product that is only commercially licensed or only available to paying customers.

There is absolutely nothing wrong with this strategy. I am actually a fan of it because it'll drive an order of magnitude more revenue than trusting in the goodness of user hearts (...you know the companies who have money but you've taught them they don't need to spend with you). I'm sure some OSS purists will tell me that I'm wrong. I could very well be. Or maybe their company is still selling into category "C" users? I'd say time will tell, but the shift towards closed-source, or otherwise gated offerings from open source vendors leads me to think I should bet a beer on this one.

What do you think? Is Marten correct, or are there 3 buyer groups as I've described?

BTW... I respect Marten's thinking around OSS enough that being proved wrong at his hands or his thinking won't leave scars ;-)


About the Author:
Savio Rodrigues is a product manager with IBM's WebSphere Software division. He envisions a day when open source and traditional software live in harmony. This site contains Savio's personal views. IBM does not necessarily agree with the views expressed here.
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