Innovative Software Business Models

Joseph Weisenthal at The Stalwart felt it was time to dust off Shai Agassi’s infamous half a year old speech and warm up the Open Source as IP Socialism debate again. (hat tip: Jeff Nolan) Why now is beyond me, but in a way it’s perfect timing: draws attention to the Who Pays For Software? New and Old Business Models event tomorrow, where Open Source, SaaS and VC Panelists will discuss the old and new business models.

Talk about Business Models, I haven’t had a chance to write about Intalio’s innovative business model, which I heard about at the World is Flat breakfast organized by Ismael Ghalimi, Intalio CEO and IT Redux blogger.

As Marten Mickos pointed out: “Open Source is not a business model, it’s a software production model and philosophy”. How do you turn it into a business is the million-dollar question now: there is no gold standard, creative entrepreneurs are experimenting with their own models.

Intalio recently moved 80% or so of it’s offering into Open Source. The fully featured product is avaialable free as long as it is run on an Open Source Database, however, customers have to pay an Enterprise Licence if they intend to use it on a commercial DB. Services and Training are chargeable – so far that’s the “traditional” Open Source model, if there is such a thing…

However, Intalio started an innovative experience outsourcing their product management to none other but their customers. They publish the future product development roadmap, along with the estimated timeline and cost of features, enhancements. Customers then can “bid” as to how much they are willing to pay to rep-prioritize the plan and get their requested features developed sooner. To move an item up on the schedule the entire cost has to be covered and at least two customers have to request it. As the model scales up, the requisite minimum “vote” may move from two to a higher number of customers – the more the better, the closer they are to a standard core product. 50% of what customers pay will be made available to them as discount towards future Enterprise Licence purchases.

So let’s tally it up. If the model scales up, Intalio expects most of it’s development paid for by customers – albeit at cost level. But when you start from zero development cost, zero sales cost (there is no sales organization, it’s all a download-try-buy pull process), add revenue from training and services, provide incentives for customers to purchase licences (the 50%) – I’d say it looks pretty good to me. Let’s review the model in half a year or so…

Update (7/11/06): More details from Ismael on Intalio’s business model.

Update (3/18/07): A year later Ismael declares the model a success.

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  1. Anonymous says

    Very interesting thought process. We are not offering an open source product, yet what you said can be used to add further competitive advantage. Our initial launch will not have all the bells and whistles. But if one or two customers require certain feature, could we get them to pay for the cost! How much these added features will help the project sponsors in terms of reducing their operating costs (plus other tangible and intangible benefits), or could they finance on terms – perhaps treat it as term loan….Will review this in near future

  2. Anonymous says

    You’re right about open source being a development model and not the business model a lot of people seem to be confusing it for. Creativity and innovation is the key in discovering new business models, and a lot of things are being tried out.

    We are an analytics consulting and services firm that helps clients deliver on BI using open source tools. We also created DecisionStudio-Professional – a comprehensive open source (GPL) desktop BI Platform. Our Open Source Analytics blog provides good articles, case studies, best practices, hands-on content and also fills up information gaps on the internet. In that sense we are reaching out at multiple levels in the product-service spectrum.

    I’d think that the successful open source business models would depend upon demonstrating quantifiable benefits by focusing on the customer instead of things like IP socialism, ideology or evangelism.

  3. Anonymous says

    Excellent article, thanks

    Making revenues from free & open source software is one of the most frequently asked questions these days. While there have been a few successful examples of companies (like MySQL, Red Hat etc) which are making money, I’d surmise that these are still very early days for open source revenue & profit models.

    While open source as an operational paradigm certainly has been having exceptional success against proprietary and closed-software models in the recent past, in my opinion, a lot more thought need to be given and experimentations done before the emergence of viable revenue models for the free & open source models that can successfully compete with the current proprietary software revenue model. Some specifics of the business models are emerging fast, but it will take a few years for the market to test each of these out and hopefully, the fittest will survive.

    A site that focuses exclusively on revenue models from open source is – Free, Open-source Dollars!

    Ec @ IT, Software Database @

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