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November 29, 2005
Water into Wine: Monetizing Open Source via On Demand
A SVW guest column by Greg Gianforte, CEO of RightNow Technologies.
If steel were free...
Imagine a car company that got its steel for free. So,
instead of spending its money on costly raw materials, this company
could invest in high-value differentiators such as better vehicle
design, build-to-order manufacturing, and superb customer service.
Now imagine that this company also offered customers completely
care-free car ownership. Its customers would never have to
worry about gas or oil changes or insurance, because that would all be
taken care of for them. All they'd ever have to do would be
to get in and drive.
Obviously, that would be a great deal for the customer. Plus,
with its cost-of-materials reduced to zero, the company could operate
quite profitably while offering its extremely compelling value
proposition.
This, in a nutshell, describes the business model of an on demand
software vendor using open source technology. By eliminating
the cost of databases, operating systems, and other infrastructure
components, open source technology allows an on demand vendor to invest
more in development, hosting, and services. And by providing
software as a service, the on demand model frees customers from the
valueless, budget-sucking burdens of IT ownership.
In other words, on demand software delivery is an extraordinarily
effective way to monetize open source.
On Demand Applications
To understand how the "water" of open source is transformed into the
"wine" of business value, let's first review the case for on demand
applications. Customers are embracing on demand applications
because they prefer to spend their money on application functionality
(which has lots of value to the business) rather than the ownership of
IT infrastructure (which has none). On demand vendors enable
customers to achieve this objective by hosting and managing the
supporting infrastructure for the application—delivering
functionality where and when it's needed via the Web.
The customer doesn't care which operating system or database the on
demand vendor is using in the hosting facility, as long as the
application is scalable, reliable and secure. So on demand
vendors are free to leverage open source solutions such as Linux,
MySQL, and Apache to keep their infrastructure costs low—and
thereby invest more in important value-adds such as R&D,
multi-version hosting architecture, and implementation support.
RightNow Technologies
RightNow offers a prime example of how this formula works.
We've pioneered a wide range of CRM innovations, especially in the way
our software automatically learns about customers from their
behaviors. We've built a uniquely sophisticated hosting
environment that has supported over 1 billion customer interactions on
behalf of our clients in the past few years at 99.98%
reliability. Plus, our enterprise-class hosting capabilities
let customers upgrade when they want to—unlike other on
demand vendors that force their customers to upgrade
simultaneously.
We allocate significant resources to ensuring the success of our
customers through a highly differentiated engagement model, closely
tracking the effectiveness of their implementations and pro-actively
pinpointing opportunities for improving their ROI. We've also
grown revenue for 31 consecutive quarters and have been profitable
since we went public.
All of this has been made possible because we decided to use open
source; rather than become just another distribution channel
for monopolistically priced technologies from Microsoft and
Oracle. As operating systems, databases, Web servers, and
other infrastructure components become increasingly commoditized, there
is simply no good reason to pay through the nose for proprietary
solutions that offer no discernible functional advantages over their
open source counterparts.
So, while RightNow is not an open source vendor per se, it's hard to
name a company that's more effectively taking advantage of the
economics of open source.
Every business should strive to maximize the value it delivers to the
customer and minimize the cost of doing so. The combination
of on demand and open source allows us to do exactly that.
-Greg Gianforte, CEO and Founder
RightNow Technologies
www.rightnow.com
Greg has written several guest columns for SVW, including:
"Software lemmings head for the platform cliff"
"Most startups should avoid venture funding, not pursue it"
You can also purchase his latest book, "Boot Strapping Your Business,"
through the affilate link.
November 29, 2005 03:27 PM
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