Monday, November 14, 2005

Open source: turning software sales and marketing upside down

It doesn't take a PhD these days to figure out that it's getting harder and harder for the majority of enterprise software to make money. Now Larry Augustin points out that the traditional model of selling software licenses really means that the vendor charges the customer to sell to him.
The problem is that the traditional enterprise software business model is broken. A rabid search for new customers and revenue growth has caused sales and marketing costs to spiral out of control. In fact, Rick Sherlund at Goldman Sachs estimates that in 2005 software companies will spend 82 percent of new license revenue on marketing and sales efforts. That's up from 66 percent in 2000.

This quest for additional revenue has created an untenable cost structure for the industry - one that doesn't serve vendors or their customers. In essence, vendors spend a lot of money to convince customers to buy, and then charge them a lot of money for the license which covers the sales and marketing costs. We're charging the customer just to sell to them.
Augustin is the creator of, the world's largest open source software development community. He also serves on the boards of directors of open source vendors JBoss, SugarCRM, Pentaho, Medsphere, and the Open Source Development Lab, which is the keeper of the keys for Linux.

So, as you can imagine, Augustin's solution for this problem involves the open source model. But whether you agree that open source is the answer, it's hard to argue with Augustin's depiction of the problem.

Read the whole essay on

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Key advantage of open source is NOT cost savings

1 comment:

Redhuan D. Oon said...

But commercial concerns has a dark side. For after those Open Source players gained the market and mind share without the spending, then what?

Many will pull back, harvest its exploded playing field and return back to the traditional model of everything but its latest source codes for the masses.

This myopic and insincere abuse of the Open Source culture, will bring harm to those companies themselves rather.

Forks will abound, and one day some clearer google comes along and wham! it crosses the finishing line.

There must be a better decorum of "Do Not Open, Then Close" or follow the Gurus' advice of 'if you must, create another brand, and not cannibalise your golden swan'.