When your biggest competitor is yourself at a $0 price point, how do you compete?
I'll try to keep it short this time :-). Michael Tiemmann was one of the founders of Cygnus software, which was started on $6K and was sold to Red Hat for $600M. Tiemmann went on to become CTO of Red Hat and is currently (I think) VP of Open Source Affairs.
The key quotes from this link. When looking at the GNU Manifesto, "Suffice it to say that on the surface, it read like a socialist polemic, but I saw something different. I saw a business plan in disguise."
Later he goes on to say: "I would explain how freedom to share would lead to greater innovation at lower cost, greater economies of scale through more open standards, etc., and people would universally respond 'It's a great idea, but it will never work, because nobody is going to pay money for free software.' After two years of polishing my rhetoric, refining my arguments, and delivering my messages to people who paid for me to fly all over the world, I never got farther than 'It's a great idea, but . . .,' when I had my second insight: if everybody thinks it's a great idea, it probably is, and if nobody thinks it will work, I'll have no competition!"
IMHO opinion, Red Hat's best idea was acquiring Cygnus and buying into Tiemmann's ideas. The result is what you see now.
The thing that fascinates me is that Tiemmann still has no competition because nobody thinks it will work.
I'm curious about Sendmail. What was the business model? Cygnus's business model was essentially custom development. They did have a proprietary product for a short time, but as one of the terms of sale of the company they ditched it.
Just looking at sendmail now, it appears they were trying to make money dual licensing. I agree that this will never work.
Sadly a new CEO came in and declared that "the margins are in boxed software, so that's what we're going to focus on" and then fired all the consultants.
So maybe you're right, maybe it would have worked if they had stuck to the original plan.
But even then, it still wasn't a path to a huge business. 500M a year in revenue is definitely amazing and I would kill to own such a business, but it's not "rocket ship" successful, which is what most of the folks with this model are aiming for.
You're not going to be in the $1B space selling services, but neither are you at risk of extinction.
Juggling those becomes very difficult.
I've been following this space for years, and there are no easy answers.
I think the model where the 'secret sauce' is proprietary, and you give away the infrastructure, like, say, Ruby on Rails, seems to work ok. Produces some good open source software and is still an 'easy'/straightforward business model, because you're selling a product.
The two are not incompatible. Most of our new features are paid for by our clients, some of which we then include into our main product. Maintenance comes from other sources of revenue, though - hosting, for example, since many companies would rather not deal with that, even if they could.
There are lots and lots of companies in the government and huge enterprise services space that have more than a billion in revenue.
A few off the top of my head:
* https://newsroom.accenture.com/fact-sheet/
That said, it's not like you can't make money selling services.
Well, IBM and Oracle sell services on Open Source products and even Microsoft does nowadays...
And they could sell services for my open source product too, if they fancied it.
So how that makes me much safe?
Strictly speaking Open Source is not failed business model because it simply isn't a business model at all. It's a model for licensing software, not how to make money. But, I know what you mean, it does add another level of complexity.
However, there are ways to run a model that has many of the advantages while also keeping value in the commercial aspects. For RH/SUSE they have two versions - the free stuff, and their certified distribution. The basic version of that is that their paying customers are primarily slow-moving corporates and the military. While people say they sell "support", a key part of the package is hardware and software certification - they're selling compatibility and stability and certainty. If you're in IT in a Fortune 100 and you want to run SAP, even if your tech team could run Fedora, SAP isn't certified on it, and if things do go wrong do you want to be in that conversation?