Social Web Market: The Long Tail, Skinny Head, and Beefy Middle

I read an interesting article by Chris Anderson entitled "Debating the Long Tail". In it he responds to an article by Anita Elberse, a Harvard Business School associate professor, who challenges his long tail theory's predictions.

The difference of opinions arises from the fact that they have different perspectives on where the head ends and the tail begins...which actually dovetails nicely with how I've been explaining to people where Ringside Networks fits within the Social Web Market Landscape.

I start off by drawing the standard long tail diagram. In my diagram, I refer to the Skinny Head which is where the "blockbusters" reside that Anita Elberse writes about. We also, of course, have the Long Tail which is where the large volume of niche offerings exist. I add a section, however, between the two that I refer to as the Beefy Middle.



The Beefy Middle changes some of the debate of where the head ends and the tail begins since it provides an area between the two. Let's look at a diagram of the Social Web Market Landscape to get a better feel for what the Beefy Middle entails. The # of Sites is on the X-Axis and the # of Profiles (i.e. registered users) is on the Y-Axis:



The Social Web's Skinny Head is the domain of the large social networking sites such as Facebook, MySpace, Hi5, Orkut, and LinkedIn. It also houses the most popular social applications such as YouTube, Flickr, Delicious, and Digg. These represent the major hubs of the social web.

The Social Web's Long Tail is the domain of personal blogs, websites, and simple social web widgets and gadgets. Google Friend Connect and Facebook Connect define the far left of the Long Tail since they are designed to bring social capabilities to the long tail of simple websites.

This leaves the Social Web's Beefy Middle. This area is where most corporate websites reside. This is the market area that Ringside Networks is focused on as well as solutions from companies such as Acquia (i.e. Drupal), Jive, and Lithium.

The websites that reside in the Beefy Middle already have their own database of registered users (thousands, tens of thousands, hundreds of thousands) along with some semblance of profile data (i.e. credit card info, newsletter registration, etc.). It is usually NOT desirable for these websites to create a social network that is separate from and does not reside on their existing web property. These companies want/need to integrate their existing users within a larger social context.

Moreover, these companies have their own systems that manage their own content and data which is further reason for using a social web solution that integrates well with their existing systems.

Finally, these sites typically have web applications (or are planning web applications) that they would like to enhance to have a social context that enables the applications to connect to and run on multiple sites including the major social networks like Facebook.

The market requirements of the Beefy Middle are challenging since it is almost a given that the existing registered users are already socially represented on two or three of the Skinny Head sites as well as countless sites across the Beefy Middle and Long Tail.

This means that these companies need to define a social web strategy that enables their website to operate as a spoke that can easily plug into the major social web hubs. They also need to give their registered users the ability to map their social identities to the social hub(s) of their choice. This minimizes duplication of profile data and maximizes the ability of users to quickly and easily engage their broad network(s) of friends.

So there you have it; the Long Tail, Skinny Head...and Beefy Middle. My guess is the term "Beefy Middle" won't be as widely used as "Long Tail", but hopefully it helps illustrate the portion of the market that Ringside Networks is focused on serving.

If you'd like to learn more about how Ringside Networks addresses the needs of companies in the Beefy Middle, please check out the Social Business section of the Ringside Networks website for a range of examples and articles related to the rapidly moving business of the Social Web.

Social Window Shopping

Back in the stone ages (i.e. before the Internet), people would get together with their friends for a day of window shopping.

Going from store to store, comparing and contrasting the alternatives, placing items of interest on layaway, and ultimately making a purchase based on the input of friends.

The web, of course, has changed this dynamic by making it very easy to shop online. Sites like Amazon.com have User Ratings and Reviews applications that allow any member to post their thoughts on a particular item. They also have Wishlist applications that enable people to set aside items that they are considering for purchase.

While these applications provide a great source of information to the shopper, they are still missing the crux of what made window shopping so powerful; namely the input and social camaraderie of friends.

Why is this important? Well, if you look at the chart below from Forrester's "Data Chart of the Week: Who Do People Trust?", you will see that the opinions of friends or acquaintances who have used the product or service is what people value and trust the most.



With the advent of the Social Web, we are at a point where e-commerce websites can start to bring the power of social interactions back to the shopping process.

Social Window Shopping Example
Let's look at an example where you are shopping for running shoes on Sneaks4Geeks.com. You've narrowed your search down to your top three choices by reading all of the anonymous reviews and ratings. It's time to kick it up a notch and get your friends involved!

While you already have some friends on Sneaks4Geeks, you also want to get the opinions of your running friends on Facebook and the Nike+ community.

Sneaks4Geeks uses this really cool Social Window Shopping application that enables people to interact with and get shopping advice from their friends on a range of social sites. The Window Shopping application developers had the mentality of "write once, social everywhere" when they created the application, so they chose Ringside Networks to help them achieve this goal.

So on Sneaks4Geeks you add your top three running shoe choices into the Window Shopping application and reach out to your running friends on Sneaks4Geeks, Facebook, and Nike+. You include the note: "Help me choose! I'm considering the following running shoes for the Broad Street Run in May. What's your favorite?".

Since the Window Shopping application is also integrated into Facebook and Nike+, my friends across all of these sites can respond to my request from within the Window Shopping application available on their particular site. They place their vote for one of the running shoes and provide an insightful comment back.

After a little while, you tally the votes, read the comments, and make your purchase based on the input of your network of friends. For those friends who responded with an opinion, the Window Shopping application automatically thanks them and shares the results of your purchase.

You happily trot off with a new pair of running shoes, and your shopping experience reminds two of your friends that their running shoes are getting pretty worn out...maybe it's time for them to get some new running shoes from Sneaks4Geeks!

Conclusion
For any Social Web initiative to succeed, it is important to find the area of passion that will truly drive social engagement. In the example above, enabling people to shop and interact with friends for their thoughts and opinions touches on a critical area of passion for many people.

Please visit the Social Business section of the Ringside Networks website for more articles on the Social Web and to learn more about how Ringside Networks helps facilitate scenarios such as the Social Window Shopping example covered above.

Social Web Tip: Start With Passion

In my past two posts, I wrote about two very successful social web communities, the Jeep Community and the Nike+ Community.

What do these communities have in common besides well known and established brands?
PASSION

Just look through all of the pictures and videos posted by the Jeep community to get an idea of how ravenously passionate they are about their Jeeps. Similarly, the Nike+ running community just loves getting together for running events, talking about the latest running gear, etc.

Jeep and Nike are big companies with established brands and healthy, growing communities.

How about we look at an example where the seeds of passion are just being planted?

I recently caught up with a friend of mine who has launched a new site called Greenthumbr:




Bob McWhirter loves gardening and while he has only just started building the Greenthumbr community, the world is definitely full of people who love everything green too. So he has fertile ground upon which to grow a thriving membership.

Passion comes in big and small packages. Moreover, passion can start relatively small, but with the help of the social web, BIG things can happen!

Look at Barack Obama's rise to prominence as a perfect example of how the social web can amplify passion. While some people knew about Barack Obama 18 months ago, his MyBarackObama.com website as well as his Barack Obama Facebook page have attracted and energized millions of active and passionate followers.

So, my social web tip for you is to find the PASSION in your community and feed it, nurture it, encourage it, revel in it, wallow in it. And before long, you just might see the strong roots of a thriving social web community take hold.

Social Web Example: The Nike Plus Community

In a prior post, I provided a definition of social web. Some may read that post and ask the question: "But are real companies actually embracing the social web?"

The answer is an unequivocal: Absolutely!

I have already illustrated how the Jeep Community is an extension of Jeep.com that engages its passionate community directly as well as promotes the large number of Jeep communities that exist on social web sites like Facebook, Yahoo, etc.

The Nike+ Community is similar in that it engages its passionate member community directly from its own website. It is different in that it does not overtly interlink with other Nike communities that exist on other social web sites. At least not nearly as much as the Jeep Community site does.

The picture below shows the entry point for runners to track their mileage. A cool feature is the Community mileage counter that is constantly counting up the collective mileage posted by the Nike+ community. Kind of reminiscent of the McDonald's "100 Million Served" counter. Neat touch.



The next picture shows the entry point for finding and sharing events that the Nike community would be interested in. Nike clearly wants to encourage their community to run together and interact.


Nike also provides an information-rich blog entitled "Inside Nike Running". They have experts writing on a range of topics. So for the community members who primarily like to read and listen, they have a great resource. Nike also provides a Forum for members who are more vocal and want to share their own thoughts.


While the site is a little over-polished for my tastes, it absolutely provides a branded way for Nike to engage its community around an area of PASSION.

I searched on Facebook to get a feel for how Nike is expanding its Nike+ community by engaging with Facebook members directly. While there are a variety of Nike+ groups created on Facebook (ex. the "Nike+ Challenges" group), none of them appear to have a lot of momentum which may be due to the fact that the Nike+ website already has a lot of engaging content.

I really like the "Nike+ Running Monitor" Facebook application and how it connects Facebook and Nike+ website members.
"The Nike+ Running Monitor is connected to the Nike+ website, giving you the ability to share your running information with the Facebook Network.You have the ability to add your profile summary, runs, goals, challenges and much more so you can show off how well you are doing and to keep you inspired!"

Nike clearly has a great strategy for engaging its passionate community with useful information and tools that enable them to feel part of the larger community. If you look at each of the screenshots above, you will also see how Nike makes it easy for community members to find their running products and learn more about them. It's a great noninvasive way to market/advertise to people who actually care about the products.

What's the bottom-line benefit to Nike? Customer loyalty, word of mouth referrals, increased brand equity, and increased sales. They also likely have a much higher ROI on their product-related advertising since they are engaging well qualified customers directly.

Further Reading:
Why Build Social Applications into a Website?
Why Develop a Facebook Application?
Social Media: Rent or Own?
Search Advertising vs. Social Applications

You can find even more recommended reading in the Social Business section of the Ringside Networks website.

Social Web Example: The Jeep Community

In a prior post, I provided a definition of social web. Some may read that post and ask the question: "But are real companies actually embracing the social web?"

The answer is an unequivocal: Absolutely!

Let's take a look at the Jeep Community for example. Jeep has devoted a section of their Jeep.com website to engaging their passionate member community via the social web and doing so in a wide variety of ways.

Scrolling down the page reveals much more:


In the above pictures you can see that Jeep enables their community to interact with a wide range of social applications: picture sharing, video sharing, games, special offers on merchandise, Jeep event calendar including marketing events such as “Jeep King of the Mountains”, and a ton of links to Jeep groups on Facebook, MySpace, Yahoo, Flickr, YouTube, etc.

Jeep is clearly a posterchild for how to effectively engage a community via the social web. Their Jeep Community site is effective since it enables their community to rally around their PASSION. And Jeep has done this in a way that increases the value of their own web property (Jeep.com) as well as taps into the power of the large social networks such as Facebook.

What's the bottom-line benefit to Jeep? Customer loyalty, word of mouth referrals, and increased brand equity.

Further Reading:
Why Build Social Applications into a Website?
Why Develop a Facebook Application?
Social Media: Rent or Own?
Search Advertising vs. Social Applications

You can find even more recommended reading in the Social Business section of the Ringside Networks website.

Social Networking Big Dog: Facebook or Google?

I just finished Day 1 at Google I/O, and the experience compelled me to write a sequel to my previous "Open Source Big Dog: Red Hat or Sun?" post.

So my second "Big Dog" question is simple:

Who is the social networking big dog?

The answer really boils down to Facebook vs. Google.

I know, I know...I can hear the screams of what about My5, what about HiSpace, what about....just stop...please stop!

Recent events CLEARLY point to the fact that the fight is between the two masters of social kung fu: Facebook and Google.

OK, enough kung foolery...let me get serious and start my explanation.

I was very impressed by the turnout at Google I/O (Google's 2 day developer conference). If anyone doubted Google's commitment to developers, then Google I/O should firmly prove that they understand the value of developers.

Being an old time Java guy who worked at Bluestone Software and JBoss, I couldn't help but feel that Google's conference had the same type of energy and raw excitement that the original JavaOne conferences had back in the early days. The sessions had a decent amount of ad-hoc demos and unscripted moments; they were clearly not pre-approved, hermetically sealed or highly polished...which is a good thing!

The comparison with JavaOne gets even more interesting if you consider how Google and its OpenSocial compatriots (Bebo, Engage.com, Friendster, hi5, Hyves, imeem, LinkedIn, mixi, MySpace, Ning, Oracle, orkut, Plaxo, Salesforce.com, Six Apart, Tianji, Viadeo, and XING) are ganging up on Facebook.

This soooooo feels like Sun and its Java Community Process members ganging up on Microsoft in the late 1990's.

Why is Google rallying the troops against Facebook? Well, if we look at the latest growth stats for the top 10 social networking sites in the US, Facebook continues to put up HUGE numbers with 98% growth from March 2007 to March 2008. They clearly have strong momentum. And my guess is that even Steve Ballmer would be impressed with the number of developers that Mark Zuckerberg and team have been able to attract to the Facebook platform.

Since Google really really needs an open (and crawlable and indexable and searchable and monetizable) Internet, it is not surprising that they have taken a page from Sun's playbook. Google, with its OpenSocial foundation, is preaching the values of openness and "write once run anywhere". And since Facebook is not part of OpenSocial and is not open source, Google is calling out the walled-garden Facebook platform as closed and therefore not as good...much like Microsoft was and continues to be painted by Sun and others as closed (i.e. not part of the Java Community Process...and not relevant in open source).

Unlike Microsoft, however, Facebook appears to be taking bold steps towards shedding its "closed" image: Facebook To Open Source Facebook Platform

If Facebook does indeed open source its platform, it will be sending a strong message to the market that it does not plan on relinquishing its leadership and momentum to Google or anybody else.

And as Bob Bickel wrote in his latest blog post: "For the true power of the Social Web to be delivered, there will need to be more steps toward openness."

Why? Because openness helps accelerate the market and gets vendors focused on delivering value to customers rather than duplicating efforts on base infrastructure. It will also help the smaller Facebook continue to compete against the much bigger Google and friends.

So, who is the social networking big dog?
At this point in time, the power of the superpoke goes to:
Facebook

They've got the lead and they have strong momentum.
BUT...don't count Google out! After all, the game is really just starting.

And for those interested in who I'd like to see win the battle between these big dogs? Neither. I want them both to continue to compete and succeed, which will further accelerate the market for everyone involved. Moreover, at Ringside Networks, our Social Application Server provides compatibility for both Facebook and OpenSocial, so I see Facebook and Google as important partners in this fascinating and fun corner of the software market.

Open Source Big Dog: Red Hat or Sun?

So my question is simple: Who is the open source big dog?

The answer to the question as stated is likely IBM.
You're welcome Savio. :-) IBM, of course, benefits nicely from its investments in Apache and Eclipse and has done a lot to make Linux what it is today. But IBM is not betting the farm on open source, so let me tweak my question to be:

Who is the open source [as a business] big dog?

The answer really boils down to Red Hat vs. Sun.

Red Hat is the incumbent big dog, of course. They have a nice portfolio of Linux and JBoss Middleware offerings. And Red Hat's financial performance last fiscal year was quite impressive.

Red Hat however continues to suffer from [re]breathing its own air. "Red Hat Announces Improvements in Organizational Alignment to Focus on Top Priorities" just underscores Red Hat's "business as usual" approach.

The above "news" simply talks about how folks like Cormier and Pinchev (long-time executive team members) will "Assume Responsibilities to Enable and Accelerate Growth". Snore. I'd like to think that that's been their focus for the past few years.

They've clearly done a great job convincing Jim Whitehurst (new CEO last January) that there's no need to add fresh talent to the team. Hey Jim, you already have the A-Team, so there's no reason to change things. Just look at last year's financial performance after all.

Call me naive, but while Red Hat's financial performance has been quite good, the measure of "big dog" status needs to go beyond that. Red Hat can continue to grow nicely off of its Linux and JBoss Middleware businesses, but "big dogs" need to aggressively lead the charge into new areas. Which requires fresh blood with fresh ideas, in my opinion. Asking people who are good at executing on "business as usual" to aggressively expand into new areas does not work.

Meanwhile....Sun is busy marking its own territory in its quest to be the big dog.

Jonathan Schwartz's recent statements make Sun's strategy pretty clear:
"Everything Sun delivers will be freely available, via a free and open license (either GPL, LGPL or Mozilla/CDDL), to the community. Everything. No exception."

Sun sponsors a portfolio of open source technologies arguably wider than Red Hat's portfolio...from OpenOffice to Java to NetBeans to Glassfish to OpenSolaris to...

The acquisition of MySQL.

Sun not only added a database to their footprint, they added a great team (Marten Mickos, Zack Urlocker, etc.) with a strong open source pedigree. If Jonathan Schwartz manages the acquisition and integration properly, he will listen to and value the input from the MySQL team. MySQL's success and market momentum has been impressive and Sun finally seems to have a better appreciation of the importance of momentum and what it means to lead the market.

Matt Asay's article entitled "Ubuntu + Sun = Very good idea" expands further:
"But Sun does recognize the importance of momentum for it right now, and it wants the favor of open-source developers pulling its way. With MySQL and Ubuntu in its court, it's hard to see how it could possibly be less sexy in the market."

While Sun is making great strides, I need to see more from them before I entirely buy into their ability to execute. Sun's open source portfolio doesn't have enough #1's in it to overtake the current top dog. Moreover, Sun has historically stumbled and fumbled in executing on its software strategy. The transition from McNealy to Schwartz, who has been leading Sun into new areas, came just in time. But I still need to see more. While Sun gets "community"...they don't have a strong history of success in the software business. And their commitment to open source almost came too late.

So for now, my answer to the question "Who is the open source [as a business] big dog?" is:

Red Hat

But Red Hat needs to realize that past success does not guarantee future dominance. Red Hat needs to improve its ability to grow into new areas. It needs to make its ability to expand its footprint a strategic weapon.

Focusing purely on business as usual may yield some solid results over the coming year, but will ultimately result in decreased momentum...

...and the crowning of a new open source big dog.


UPDATE ON MAY 1:
I got some private emails about this post. I believe Matt Asay hit the nail on the head in his "Former JBoss executive to Red Hat: Don't rest on your laurels".

This post is purely based on my desire to see Red Hat step up and lead. And I mean lead beyond Linux. To Matt's point...a response of "we already are" just proves they are missing the point entirely.

Frankly, IBM, HP, Oracle and others set the table for the Linux market (years ago, they all poured a ton of marketing $$'s and other resources into putting the "Enterprise" in Linux). Yes, Red Hat did a lot too, but they benefited greatly from the sugar daddy investments in the Linux market.

Red Hat's move into middleware (i.e. beyond Linux) illustrates the fact that those same sugar daddies are likely NOT interested in helping Red Hat market themselves beyond Linux. It is up to Red Hat to prove it can do that themselves. And they need to prove that they can do it beyond middleware as well.

So, yes, execution is very important, but maintaining and increasing momentum is critical! Otherwise your competitor with the mojo will be more than happy to be the big dog. In this industry, it’s not an either or. If you want to stay on top, you need momentum and you need to execute.

And as Matt stated: "this isn't intended to be a rant against Red Hat." As the big dog, I simply expect a great deal from them....as should others.

Business of Open Source

I read Cal Evans' blog entitled "Thoughts on Open Source, Running a Company, and OSBC"; in it he chronicles his thoughts from OSBC last week. Since I'm a JBoss guy, what initially caught my eye was the fact that he mentioned JBoss, and ex-JBossians, a couple of times in his rant.

I want to state first that I agree with MANY of the points Cal makes; I'll get to those after I touch on the points I had issues with.

I'll start off with his biggest rant that businesses were bastardizing (my word, not his) the intent of "open source" by trying to monetize the projects. My initial reaction is "what do you expect to hear at the Open Source BUSINESS Conference".
:-)

Also, he seemed to imply that ex-JBossians have sold out: "Developers seem to be willing to sell out for bucks these days." To quote Marc Fleury...great code just doesn't fall from the sky. Nobody should have to apologize for paying great developers to do what they love to do full time.

I'm not sure which ex-JBossians Cal was referring to, but I know, for example, that the Ringside Networks guys created and launched a new project and company at OSBC. All of the code is out in the open and that team is actively recruiting folks to participate in their project. I actually think it's healthy for people from JBoss, Red Hat, and other open source companies to branch out and start new projects/companies. It helps ensure that open source continues to expand its reach and useful footprint.

The business of open source can be done the right way...and it can be done the wrong way...which leads to some of Cal's other points:

• "Free Download!=Open Source": I WHOLEHEARTEDLY agree. 'nuf said.
• "Business people who work with open source consider it a business model": Open source is not a business model...it IMPACTS the business model. With easy and free access to the source code and binary distributions, open source takes an adoption-led approach to the market. It enables users to decide if the technology is worth using and if the project is worth interacting with. This results in a different approach to sales and marketing. Some things need to be done differently...otherwise you risk disaster for the business AND project. Do NOT confuse having a business associated with an open source project as selling out, being less transparent, etc. At JBoss, we worked hard at making sure we kept a balance between JBoss the company and JBoss the projects.
• "Hire from your community": Relates to the business point above. Business and community CAN coexist. Professional Open Source leverages the $$'s generated by the business to further grow the community of interest, ensure future vibrancy of the projects, add new projects/technologies, etc.
• "Transparency is the new black": Agree. This is actually what makes open source powerful! You can't afford to be half-pregnant here.
• "Outsource everything that is not a core competency": Don't get me started on this topic! :-) I agree with your point 1000%; this is the basic core vs. context argument. If you try to outsource what makes you different...then what do you really have.
• "If you take yourself too seriously, no one else will take you seriously at all": I also have issues with people who take themselves too seriously. Anybody worth their salt wants to be the best at what they do, so drive and passion do not necessarily equal "too serious". I find the most down to earth people are those that love what they do and who they do it with.

Good thoughts Cal...thanks for sharing.

IBM's Interest in EnterpriseDB

Like a few others, I found IBM's choice to make an investment in EnterpriseDB kinda interesting. Matthew Aslett (the 451 group) got the following quote from IBM in explanation:
"IBM has become a minority shareholder of EnterpriseDB. This affords us an opportunity to continue to participate in, and gain further insight into, the open source community. This complements other experiences such as with the Linux, Apache and Eclipse communities and previous investments we’ve made in Red Hat and Novell. IBM has been a long-time supporter of Open Source communities, and we continue to see interest among our clients for Linux and other Open Sources solutions. This investment supports our overall strategy to support Open Source solutions in the marketplace to further enable our customers to implement business-critical solutions"

If I'm in EnterpriseDB's shoes, I'm digging this quote since being thought of in the same breath as Linux, Apache, and Eclipse sounds like strategic company to me. After all, in my opinion, a large part of Red Hat's success can be attributed to the early investments and marketing done by IBM (as well as HP, Oracle,and others) on its behalf.

The quote above also tries to minimize the importance, of course, but why would IBM invest if it just wanted an arm's length relationship?

To me, this move is a typical IBM long-term strategy play. They are always looking 5-10 years down the road (which equates to 1-2 Big Blue Dog Years). And while EnterpriseDB is not going to immediately displace Oracle for the high-end database needs, they still have an interesting market opportunity.

Savio Rodrigues (IBM WebSphere dude) posted on this topic and asked the question:
"What do you think, does EnterpriseDB have a brighter future by targeting Oracle users that want "Oracle like features for MySQL prices" or by targeting MySQL users who have "hit the wall"?"

Since EnterpriseDB is built on Postgres (which has been around a long time and is quite stable) and since they provide an Oracle compatibility layer, my answer would be "Yes" and "Yes". I think they compete for general database business with both Oracle and MySQL.

Bottom-line: This investment by IBM gives them a potential future play that neither their DB2 nor their Cloudscape/Apache Derby investments address directly. Now we just need to wait 1-2 Big Blue Dog Years to see how it all plays out.

UPDATED: The EnterpriseDB One-Two Punch
Savio replied to my blog with "I agree in principal that EnterpriseDB will continue to go after Oracle & MySQL. But in practice, they need to pick one segment to be their primary focus, or else they risk less than optimal results in both."

While I agree with Savio that focus is usually a good thing, my experience at JBoss, for example, also taught me that sometimes you've gotta lead with a one-two punch. At JBoss, we had momentum from new application development projects AND momentum from BEA migrations. Both were valid and lucrative focus areas. We actually had solid WebSphere migration business too, but we treated those more opportunistically than strategically since battling IBM is always more complex.

Anyhow...my point is that if EnterpriseDB's Oracle compatibility is any good, then over the longer-term, they can drive solid business. Ex. think through the Oracle upgrade cycle (when faced with moving from an older version to a newer version....should I consider EnterpriseDB??). The combat with MySQL clearly will heat up over time...but I still think they need to milk the Oracle opportunity.

I'm just a Philly guy who loves a nice one-two punch. :-)

Golden: Commercial Open Source - Can It Scale?

Bernard Golden of Open Source Maturity Model (OSMM) fame had a similar reaction as I did to the blog by Savio Rodrigues that asserts OSS business models don't scale.

I countered Savio's assertion with "Scaling a Software Business (open source or otherwise)".

Bernard Golden countered Savio's assertion with "Commercial Open Source - Can It Scale?" where he makes a range of worthwhile points:

"What this strikes me as is a failure to really come to terms with what open source means to IT, and, by extension, the software industry. It is judging open source by the standards of proprietary software business models and finding it lacking, instead of thinking through what business opportunities are made possible by the new mode of software distribution."

"His argument fails to fully comprehend the power of price elasticity, richly explored by Clayton Christensen; simply put, reduced prices don't mean less money is spent on a given item; reduced prices increase the customer base by more than enough to increase total market spend."

"What is important to recognize about all of these open source businesses is that they follow a publishing model and sell subscriptions. And, like all subscription-based businesses, they scale slowly, but are, nevertheless, able to grow to very large scale and can be phenomenally profitable... By contrast, licensed software companies can grow much faster, but tend to have problems later on when it becomes difficult to find new customers to fork over large upfront signing fees."

"The key to successfully scaling a software business (and this is true for both open source and proprietary software businesses) is to generate sufficient leads and to efficiently manage them well enough to create a viable business, defined as sufficiently profitable on a sufficient revenue base. An efficient sales process, applied to the very large lead base made possible by price elasticity, can certainly achieve success on even a 3% close rate."

"We haven't even begun to see the potential for commercial open source (or for that matter, community open source). It will so transform the IT landscape that, in the not-too-distant future, we'll look back on the bit-coercive proprietary software world and marvel that it existed at all - and that it was so small."

Mr. Golden states much more elegantly what many of us OSS vendors have been saying for a while now. And as he points out, the landscape is still changing...which should make the next few years a lot of fun.

Scaling a Software Business (open source or otherwise)

OK, I've grabbed the bait Savio Rodrigues (of Big Blue fame) has cast for me. Savio's a good guy and we've traded opinions in the past, so here we go again.

Savio asserts "The OSS business model is great to grow from $0-$50M, but very difficult if you're trying to get to $100M.".

In my inimitable Philly style, my response is: Dude, that same statement can be made of most software companies, open source or not.

Let me use Princeton Softech (non open source) as an example. I was there before JBoss, and my focus was to help them grow to $50M and beyond. So I helped build and launch their database archiving solutions for Oracle E-Business, PeopleSoft, Siebel, and JD Edwards. In order to scale the business, we expanded our footprint beyond the generic archiving solution, to application-specific solutions. This scaled the business and increased valuation enough to entice your Big Blue to buy them recently...so be sure to treat my friends well! ;-)

So let me now use JBoss and Red Hat as examples.

To establish and build the business, you've got to start with great technology and A players. You then need to focus your business model on selling the right stuff. In the case of JBoss, we sold 75% subscriptions, 15% training, 10% consulting. Why? Because subscriptions have higher margins than training and consulting.

Once you've got momentum going on one product, you scale the business by:

• Expanding your footprint (new products, product lines, solutions, etc.)


• Expanding your reach (channel business, partners, geographies, etc.)

The focus when I joined JBoss in 2004 was to grow the footprint beyond the application server into a full middleware suite of products (Hibernate, JBoss jBPM, JBoss Rules, JBoss Portal, etc.). Add in our upcoming SOA Platform (based on JBoss ESB), and the fact we added MetaMatrix earlier this year, and you've got a nice footprint.

On top of that, Red Hat has a pretty cool strategy for the RHEL business, has a solid Channel focus that includes JBoss, and offers a global reach.

All of that adds up to a multi-product line company with decent reach. You take that into customer conversations and you're able to drive strategic decisions rather than single product discussions.

[Added on Dec 1]
To those who think “The support-only OSS business model does not scale.”. Uhhh…I disagree. It may take a while to build up a base, but once you do and you can keep renewals at a good level, it’s a very scalable model. It's actually quite similar to the maintence revenues traditional software companies treasure. The subscription model is the gift that gives day in/day out.

IBM is famous for its 10 year strategies, so I encourage you to visualize this over the long term and let me know if you're still having problems seeing the model scale.

Prochain Arret Neuchatel

I write this from the Swiss Air Lines business center in Geneva...awaiting my flight back to the US.

I've been in Neuchatel the past few days for the quarterly meeting of the JBoss TBOD (Technical Board of Directors). Sacha Labourey chairs the two days of meetings of the JBoss technical leaders. We covered a wide range of business and technical topics (OpenJDK, Java EE 6, etc., etc.) over the two days. It's a good way to ensure that we synchronize our thoughts once a quarter. And it offers a great chance to generally catch up with folks face to face...during the meetings...after the meetings over food and drink....etc.

Speaking of food and drink, the meeting nicely dovetailed with the annual Neuchatel Wine Festival. It's 3 days of food, drink, and general partying into the wee hours. I took some time on Saturday to wander around the town and found myself at around 1:30 completely famished.

No worries there of course, since every kind of food and drink is right here for the asking. I kept it simple by ordering "la choucroute et une bier".

As I lifted the beer to my lips, I toasted another successful TBOD meeting...and then tucked into my dish.

Mmmmmm....sauer kraut with various sausages and a beer never tasted so good!

What's in a Subscription?

So, it's been a busy couple of months of business travel. With lots more to come in September and October.

My travel has mostly focused on meeting with customers and partners to understand their needs, share our strategy, and discuss ways we might be able to help them.

In these discussions, I typically cover our strategic roadmap and development model for the JBoss Enterprise Application Platform and other JBoss Enterprise Middleware products.

Since the Red Hat / JBoss business model is built on selling subscriptions, the discussion leads to the definition of a Subscription.

Put simply, a Subscription is comprised of:

1. Software bits
2. Patches and updates to the bits
3. Support in the use of the bits
4. Legal assurance

While there's much more to say about each bullet point, that's basically the definition in a nutshell.

Since our products are open source, some people associate subscriptions with just support. In my Open Source Business Models: Definition of Support posting, I make the case that our customers need more than just support...which is why we are in the business of selling Subscriptions.

When Was Your Last Giant Leap?

A few years ago, I participated in a two day session with Bill Treasurer of Giant Leap Consulting. Bill's focus is on helping people and organizations be more courageous.

Founders of open source projects and companies exemplify what Bill would call "purposeful risk-taking". It takes courage to put your passion and work out there for all to see.

Two recent events reminded me of taking Giant Leaps:

1. My friend and prior coworker Ibrahim Abdelshafi is headed back to Egypt to be the CIO of one of their top financial services companies. Ibrahim has been at Primavera Systems for the past 15 years and has done a great job leading the development team there. He periodically considered a move back to Egypt to be closer to his family, but figured he'd seriously think of it in 3 or 5 years since he was really enjoying himself at Primavera. A conversation with an old friend from Egypt led him to more conversations....and bada bing....Ibrahim was faced with a Giant Leap decision. He leaves for Egypt on Tuesday.
2. My daughter Liza will turn 16 this July but will not be home for her sweet 16th birthday. She is currently participating in the Experiment in International Living and is in Europe for the entire month of July. I have tried to raise my kids to be open to life's opportunities, and I feel the EIL program will open her eyes to the much bigger world out there. This is definitely a Giant Leap for Liza who has never been away from home for an extended period of time...and frankly...a Giant Leap for me as her parent who still can't believe it's been 16 years since she was born.

As they say, the only constant in life is change. Many of us are spectators for these waves of change. In my opinion, the best changes, the sweetest changes, the most impactful changes are those where you make a conscious and informed decision to "go for it".

So, when was your last giant leap?

Whether it's in open source, business, or life, I'd love to hear your giant leap story.

Open Source Business Models: Definition of "Support"

Interesting thread on InfoQ regarding open source business models:
http://www.infoq.com/news/2007/06/open-source-models

Rod Johnson and Stormy Peters are engaging in the debate of which model is better: "Create & Support" vs. "Pure Support". This topic has gone round and round in the past, and I think the heart of the debate lies in the definition of "Support".

The "Pure Support" model should actually be called "Technical Assistance" since it focuses on helping people get over technical issues, find workarounds, etc.

Technical assistance is important, but what happens when the issue requires a bug fix...or a refactoring of some of the code? Then what?

The code can be changed...but who manages that change? And if that code is part of a complicated stack of open source technologies...who is managing all the patches and branches of all those changes?

Also...who ensures that change is committed upstream so that future releases of the technology benefit from the change? If the changes are not committed upstream...then who will maintain that fork for the X-years lifecycle that enterprise customers demand?

Let's be real. While enterprise customers need technical assistance, they also need patches and updates to the versions of the software they have deployed today...and they want the peace of mind that comes with knowing that their fix today will still be there in future versions if/when they upgrade.

So, this explains why we at JBoss hire the key technical leaders from the projects that comprise our middleware portfolio. THIS is Professional Open Source.

Professional Open Source is not just Technical Assistance.

Building A Great Open Source Architecture

For the past 3 years, we have been busy building out JBoss Enterprise Middleware as the Open Source Platform for SOA. During this time, we have been very consistent in our stance that SOA needs to be Simple, Open, and Affordable. We contend that SOA technologies should be available to all, not just the privileged few who can afford the HUGE license costs.

This approach delivers real value to our customers. And since joining Red Hat last June, there are more and more people around the world who want to understand our strategy, product roadmap, etc.

I use a set of 3 graphics to describe our product strategy. These are designed to illustrate how I see the open source market - one graphic for last year, this year, and next year. The color coding on the slides is meant to illustrate the level of pain (threat level) that proprietary vendors are feeling due to open source competitors.

Needless to say, Operating Systems a la Red Hat, Web Servers a la Apache, Developer Tools a la Eclipse, and App Servers a la JBoss are causing high and severe alert levels for the proprietary vendors. Portal, Business Process Management (BPM), and Integration markets have been gaining ground and should generate strong momentum into 2008 and beyond.

I actually use these graphics for two purposes: 1) to explain to people how open source is penetrating software market areas that are relevant to Red Hat / JBoss, and 2) as a radar screen, of sorts, that I personally use to help identify strategic areas of opportunity/expansion.

For example, looking at the pace of BPM, Portal, and Integration, I ask myself: what things can I do to accelerate those areas. This is why you have seen JBoss spend considerable time and effort over the past two years on building out technologies such as JBoss jBPM, JBoss Rules, JBoss Portal, and JBoss ESB.

So, mapping all of this back to the bigger Red Hat Open Source Architecture strategy yields a product map that looks something like this:
This architecture, from left to right, covers the typical lifecycle areas of Develop, Deploy, Secure, and Manage. I believe we have a pretty impressive array of open source technologies in our architecture today, and I point you to the the recent reactions of some of the major sofware vendors in the industry as proof positive that the threat levels I illustrate above are accurate and real.

In my Open Source Strategy: Freeing Great Technology blog, I outlined the different approaches we take towards expanding our base of open source technologies. With this in mind, I encourage you to stay tuned over the course of 2007 and beyond as we continue to rollout new technologies and services focused on driving real customer value. The fact that this will have the net effect of turning up the heat on our proprietary competitors is icing on the cake.

What areas will we expand into next? Well...you'll just have to wait and see, now won't you? ;-)

Then they fight you. Then you win.

Mohandas Gandhi's quote actually goes: "First they ignore you. Then they laugh at you. Then they fight you. Then you win."

This quote has been a rallying cry for many years at Red Hat, and is oh-so-appropriate given the shenanigans going on in the software market these days. Let's focus on two major proprietary software vendors shall we? In order to protect their identities, I will simply refer to them here as....Thing 1 and Thing 2.

Thing 1 says he will just take our technology and make it his own. He reasons that this will help him deliver more value to his customers. Hello!! The BIG COSTS for customers are in the layers on top. I suggest you read my Building A Great Open Source Architecture blog for an illustration of the technology areas I refer to and how open source is poised to deliver more value in those areas.

Now...let's talk about Thing 2. They offer an entry level product that is "based on open source" as an onramp to their complex, proprietary, and expensive stack of products that they are really focused on selling. And in the process....get this...this is the best part...they claim they are actually more open source than we are. Now THAT is great marketing folks! They have a tiny sliver of their stack "based on open source" and that makes them more open source than JBoss. Read my blog on Open Source Community for my thoughts on that topic.

Anyhow, the interesting news is that Thing 2 is spending time building and marketing what I call a bridge to the past. They have built some tools that help people move away from our innovative and fully featured open source platform for SOA to their low-end "children's edition" onramp. The problem is that their onramp only provides a thin sliver of the functionality that people need for their SOA initiatives....so....oh darn....I guess that means people will just need to buy the other complex proprietary stuff in their portfolio...for real license $$'s. This "bridge to the past" will truly be the gift that keeps giving....only their customers are not the ones receiving the gift, if you know what I mean.

So why are Thing 1 and Thing 2 fighting us so vigorously?
Because they are not happy that we are successfully building out a complete open source platform for SOA that not only encompasses the Operating System and Application Server...but also covers the market areas of Portal, BPM, and Integration among others.

They see our big picture. They see our great technology and services. And they will do whatever it takes to preserve the lock-in and huge license fees provided by their big proprietary stacks.

Thing 1 and Thing 2 are more focused on trying to slow us down, rather than on delivering increased value to their customers. And I believe customers and the market in general are smart enough to see that.

What Do You Stand For?

I've spent the better part of my career as a software developer, bouncing back and forth between Product Management/Marketing and Development since 2000, and programming since the mid-80's before that. In my transition to the Marketing "dark side", I have to admit that it took me a while to get what "Brand" really means.

Yeah, yeah, I know...it's simple stupid! Kleenex, Band-Aid, Google, and Coca-Cola are examples of good brands with well established trademarks. It's easy to spot good brands....but....how do you think they got to be valued brands in the first place? How much effort did it take for them to build real Brand Equity that fuels their business?

Red Hat spends a lot of time, money, and effort on establishing our brand. Red Hat has been named the industry leader in delivering customer value 3 years running. In order for our brand to maintain its value, we need to ensure our trademarks are used in a proper and consistent way. If not, then legally we can lose our trademarks. For example, "elevator" used to be a registered trademark but the owners allowed their trademark to be used unchecked as a generic name and ultimately lost their trademark protection. Band-Aid, on the other hand, has protected its trademark over the years and maintained its brand equity.

Red Hat and the proper use of the Hibernate trademark was a topic of debate in the news recently. Since I am not a lawyer, have no desire to be a lawyer, and want to avoid legal debates on this topic, I will simply point folks to the Red Hat Trademark Policies page which contains links to our detailed Trademark Guidelines document and Trademark Style Sheet/Usage document for the official details.

When you look at the details of the Hibernate issue closely, it really comes down to the importance of protecting the brand equity built up in the registered trademark. There are guidelines for how to properly use trademarks, such as Hibernate, and following these guidelines is really not an onerous task. Allowing people to not follow the guidelines is a sure path to losing your trademark and subsequent brand value.
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