open source and consulting

Having read posts from Andy and Stephen O Grady. Here is my grey matter added to the collective intelligence around the topic.

Making money in open source is still IMHO not a proven business model (Refer Andy- Redhat revenues <> $5 plus ranges and most of the venture cap money going to open source , But the monetization method is not yet clearly established yet.

My take on open source monetization is the following. (Besides my thoughts here , here and here)

Convergence between Services and Product firms is inevitable(specifically in the open source space). Andy's POV of around consulting dollars in the open source space comes from a traditional view of a consulting firm where products and services are two separate businesses. There might not be that clear a boundary in the future.

Case in point - Infosolve . This is an open source vendor which has a go to market strategy with Services as the Front end and products as the back end (the enabler for services). This is different from other open source players like Redhat where they are essentially a product company which also offer services. My guess is that all open source vendors will end up having a significant part of their monetization coming from services(Consulting , SaaS OR some other form - example mysql service). The role of the open source products will boil down to enabling you to provide a better service model for monetization OR (worded differently) open source software products will end up being enablers for some other revenue stream - hardware sales for companies like HPQ , JAVA and IBM OR services sales.

For SaaS doing open source is more of an internal cost saving function while for Consulting it will be revenue generating function. So IMHO companies like EDS , CG ,Accenture will have to develop open source products/tools etc that enable selling their solution in a vertical.

Here are three examples illustrating in different ways how a consulting firm will work in the open source space.

1) If I have to sell a Application Modernization Solution to a Bank as a consulting firm. I will be expected to bring to the table a set of products(potentially open source led by my firm) that will enable me to implement the Enterprise wide program. These products could be similar to openDQ or an indemnified stack of open source products like the one offered by Spikesource. These expectations are present today also from customers and they are fullfilled by partnerships and alliances , but in the future there will be a conflict of interest situation between the company creating the open source product and the traditional consulting company because both the companies have the same path to monetization - SERVICES. This is a situation similar to IBM Global services , where the alliances with IBM generally do not work out for services firms as IBM has a strong services arm.

2) The Value of SI's is going to come with their ability to pull a stack of open source products together to address Enterprise challange's. rumormill tells me that spikesource is hungry for revenue and not doing too well. I am not surprised. As a buyer , what is the value of spikesource to me- It is basically an insurance policy for my software. I am not sure if a stable product like
Springframework OR Hibernate requires insurance (it is really counter intuitive). Now lets consider if Spikesource was really a Systems Integrator and as one of its offering provided SOA implementations. As a buyer I see the value in going to with spikesource as it will not only execute the project but also indemnify the software it is using. The way mysql is using services like network monitering is also an interesting case of how services will play and important role.

Note: I have heard the Spikesource is moving towards this direction. It has also ventured into the Software Appliance Direction with Intel on its investors list

3) Lastly the role of consulting companies to advise / Strategize and help customers define the roadmap etc will always remain. This is the High value - low scale funtion Andy talks about. It will be the ability of the consulting firm to understand the vertical and have solutions that fit into what the customer is looking for that will provide the scale for the Consulting firm.

For Product companies , it is going to be important to figure out a monetization mechanism that does not rely on monetization at the time of distribution of bits and bytes. Maybe they will have to come up with appliances like you see for (Neoview and Datapower and tealeaf and SuiteTwo) OR end up being SaaS companies like - Microsoft -live , Google and Salesforce.com OR go about a consulting services route indicated in this post or an IT-BPO route discussed earlier