Free Grows Revenue – Just Ask Your Carrier

My Thanksgiving resolution was to write shorter blogs. I am currently still failing, but I want you to know I’m working on it.

Our announcement yesterday, to combine our Java Enterprise System into Solaris, and to deliver it all as free and open source software, has generated no small amount of buzz (If you want to know why I love blogs, it’s because I can measure market reaction, almost immediately – developers, and folks writing blogs are, after all, the target demographic, not the media).

But it also highlights some of the fundamental misunderstandings most folks, especially some journalists, have about free software in the enterprise – that it somehow implies a sacrifice in revenue. Gavin fell into that trap in his coverage. So I thought I’d tell my most representative free software story, and highlight why free software GROWS revenue, not diminishes it.

A while back, nearly three years ago, I was visiting a very fast growing customer. It was not a pleasant meeting – we’d had quality problems in the account, service problems, and a variety of price/performance problems – all of which had made the life of the CIO and CTO squarely miserable.

After talking the customer off the ceiling for an hour or so, the lead executive in the meeting looked at me and said, “we’re about to go into our Christmas season. We’ll sign up more customers on that one day than in the rest of the year combined.” Fair enough. Sounds like a good business opportunity. “So give me your home phone number.”

“What?” I said? “Why do you want it?” He had a perfectly logical answer. “Because I’m betting on you. And if I have any issue whatsoever on Christmas Day, I’m calling you at home, and I want you on the hook with me.” Ok, fine. I gave him my number. (After I reassured myself I had every one of my staff member’s home phone numbers on speed dial.)

Christmas came. He didn’t call. Whew.

Just a few weeks ago, I met with this same customer in my office. He’s had two years of huge growth (and an account team that’s done a stellar job creating a partnership between our two companies).

He’d come in to drop off a big order, and to get caught up. In the process of delivering the order, he’d inquired about a Sun software product he’d begun using. We talked for a while, and said he’d like to include it on the order. To manage his expectations, I let him know it was about to go to free/open source. He looked to his sales rep and said “HA! I’m not paying you $500K for something that’s free!” The Sun sales rep looked at me like I’d gone insane.

So I looked at the customer and said, “Oh, there’s only one little thing you should know.” “If you’re using the free product without a support contract, don’t bother calling me on Christmas Day. You’ll have to look to the community.”

The customer paused, smiled, and said “Ok, ok – put it back on the order.”

The point being, Sun doesn’t have a single customer, worldwide, that will run an unsupported product in their datacenter. Do such customers exist? Surely. They’re called developers. Or startups. Or companies or economies that want to build their own internal support teams. That’s the target for the Solaris Enterprise System. That’s who uses free software without support contracts. And you’re not going to win them over if you don’t provide them with free and open source products. And if you don’t provide them with the technology to use, they’ll find someone else’s free products.

Opening up the Solaris Enterprise System, and giving it away for free, lowers the barrier to finding those opportunities. Free software creates volumes that lead the demand for deployments – which generate license and support revenues just as they did before the products were free. Free software grows revenue opportunities.

Opening up Solaris and giving it away for free has led to the single largest wave of adoption Solaris has ever seen – some 3.4 million licenses since February this year (most on HP, curiously). It’s been combined with the single largest expansion in its revenue base. I believe the same will apply to the Java Enterprise System, its identity management and business integration suites specifically. Why?

Because no Fortune 2000 customer on earth is going to run the heart of their enterprise with products that don’t have someone’s home number on the other end. And no developer or developing nation, presented with an equivalent or better free and open source product, is going to opt for a proprietary alternative.

Those two points are the market’s reality. And having reviewed them today at length at a customer conference, with some of the largest telecommunications customers on earth, I only heard the strongest agreement. They all, after all, are prolific distributors of free handsets.

Betting against FOSS is like betting against gravity. And free software doesn’t mean no revenue, it means no barriers to revenue. Just ask your carrier.


Filed under General

3 responses to “Free Grows Revenue – Just Ask Your Carrier

  1. Louise Gale

    Having worked for iPlanet selling support for software and then moving into Sun, I speak from experience when I say that the argument here does make sense. However, the argument assumes that the adoption by the service sales team to understand and sell support on software is already in place, from experience it seems to me that alot of sales reps still have a hardware head and are reluctant to understand software and the support surrounding it. After trying to explain an RTU for the 100th time I gave up and left Sun.

  2. eIT

    Excellent article and insights…

    I have been reading quite a lot of thoughts on FOSS and its revenue models, and what you have clarified here is the existence of two distinct, almost mutually exclusive market segments, and how FOSS makes “business model” sense to the vendor with regard to each of these segments…

    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. These cos are almost pure-play FOSS cos while Sun comes from a different background, with a legacy of its own (similar to that of IBM)…

    If the market segments (F2000 & developer segments) do behave the way you have mentioned above, then at least for large companies such as Sun and its equivalents, FOSS indeed holds exceptional promise – hmmm, who said you can’t have the cake and eat it too!

    We are aggregating good FOSS revenue model insights at a site that focuses exclusively on revenue models from free, open source software is – Free, Open-source Dollars , and I will be including this article at that page, many thanks once again for your effort…(I wonder how you have the time to blog at all!)

    Ec @ IT, Software Database

  3. Jonathan ,
    I am an investor in SUNW and hence my interest in SUNW succeed.
    I had a thought that I wanted to share with you in relation to Google and SUN Alliance and specifically in relation to Open Office and Google Apps.
    I am a very avid user of Google Apps. I like it a lot. The Style I have always used Google Spreadsheets and document is that I create the first version of my document(in excel or word) on my laptop and then upload it to google apps. Google is pretty good at keeping the original Excel or Word as intended. The ongoing maintainence of the document and sharing with other users is what I use google for.
    Now will my style of functioning change when lets say Google adds more features to its application. I think probably not. The inherent latency in network to switch between tabs , data entry etc will always remain. Frankly when I am creating the baseline document I have a lot keyboard activity and since the document is in design stage I keep on iterating over how the document shoud be made. With the high keyboard activity in the early stages of document creation I have found that Google spreadsheet and documents to be limiting me and annoying from a response time standpoint.
    So why am I writing this comment on SUNW blog. Well , to create a viable alternative to microsoft office , google needs to realize that it needs a desktop option for its documents strategy. The only viable option at this point is open office. I know that open office is supported by google but better intigration between the two in terms of features , distribution and messaging will help google and sun

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