Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Water into Wine: Monetizing Open Source via On Demand

Posted by - November 29, 2005

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, and thereby invest more in important value-adds such as 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"

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