Making a (profitable) business Built on Open Source
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Jeff Walpole discusses challenges with sustaining an open source business built on Drupal and strategies to overcome them. Growing a Drupal services business is relatively easy at small scales through hourly work, but scaling and sustaining profitability is difficult due to competition and lack of competitive advantages. Products and distributions can help by generating passive revenue streams, but require substantial, sustained investment. Alternatively, firms can focus on niche expertise, packaging services, and using Drupal's popularity and tools to reduce costs and drive revenue without developing products. The key is leveraging Drupal as a business platform rather than just a coding platform.
Making a (profitable) business Built on Open Source
- 1. MAKING A (PROFITABLE) BUSINESS... BUILT ON OPEN SOURCE JEFF WALPOLE CEO, PHASE2 TECHNOLOGY
- 2. WHAT I AM TALKING ABOUT • Growing a successful business is hard • but sustaining a reasonably sized / profit generating business is even harder. • Right now many of the businesses in our space are “riding the Drupal wave”, operating as specialized implementers of Drupal. • Shifting to a larger high profit and sustainable business will be hard for many due in part to the intricacies of open source competition and open source productization.
- 3. ABOUT ME Who I am: Who I am not: Almost 20 years in the I am not a CTO and wont software / consulting be talking about business technical strategies. Led Phase2 for the last 11 years based upon I am not a lawyer. I can’t open source software answer “can I do THIS in and services GPL?”
- 4. OUR WORK IN DRUPAL
- 5. DRUPAL COMMUNITY 55+ 12 50+ 6 2 Involved Drupal Speakers at Key Modules Distributions Security team Professionals DrupalCon Denver Maintained Built members open
- 6. STARTING A SERVICES BUSINESS IS EASY. SCALING IT IS HARD.
- 7. The Growth Curve / Scaling -> Sustaining 1-20 person shops - 20-50 person medium 50+ person businesses - self making a living businesses - growing but sustaining / high profit not (yet) sustaining mainly hourly services Takes additional things to be every hour spent = a dollar Takes a mix of hourly + scalable AND sustainable. earned fixed + retainers What are those things? "We build a website" - Takes repeat business and islands of isolation strong customer loyalty your competitive advantage Takes some sales (pricing/ is probably being the ones estimation savvy) that "know" Drupal Requires strong project works for a life style management to succeed business 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2013 2014 2015
- 8. HOW TO SCALE SERVICES: • great sales & marketing • great recruiting • infrastructure for efficiency (processes, project management, supporting functions) • partnering to grow capabilities/business development • securing larger contracts • M&A
- 9. SUSTAINING TAKES MORE... • reliable/recurring sales & marketing with process • sustained competitive advantage (vs. a point in time) • securing long term contracts (e.g. government) • intellectual property • passive revenue/ productization • investment?
- 11. MAKING $ WITH NICHE DRUPAL WAS EASY • cost to develop was low • cost to recruit/train developers was *relatively* low (at least initially) • testing is (partially) free • re-use of our own and others contributions • community innovation means the community develops and innovates for us
- 12. PARADOXES OF DRUPAL COMPETITION • competitive advantage (knowing how it works + being better than anyone else - and proving it!) is very hard to sustain • competing is perceived to be bad because open source ethos • competing is hard because others can copy easily when you "share" in an open model
- 13. COMPETITION IN DRUPAL IS CHANGING • more players in the market • downward pressure on rates & pricing • more off-shoring and different resource make-up on projects • greater competition from larger companies/platforms now competing with Drupal (CQ5, Salesforce, etc)
- 14. OTHER MACRO THREATS • Adoption is everything - without it our advantage dies • Talent shortages hurt everyone • Community dynamics
- 15. SO HOW TO SUSTAIN, NOT JUST SCALE?
- 16. THE REALITY The challenges of Drupal and “open source business” are not really about IP or licensing. Open source is actually part of the solution, not part of “the problem.” but so is good old fashioned business strategy.
- 17. GROW THE ECOSYSTEM • more businesses at scale • more businesses figuring out how to create business models around Drupal • more specialization/ less internal competition among firms • more varied business models around Drupal • more Independent Software Vendors (ISVs)
- 18. THE IMPORTANCE OF THE ISV • A software ecosystem cannot rely on services companies around a single product • ISVs (Independent Software Vendors) provide depth • ISVs for us (Drupal) could include integrations, platform vendors, add ons, etc. • Otherwise we are all just Drupal VARs (Value Added Resellers)
- 19. HOW DO PRODUCTS HELP?
- 20. PRODUCTS ≠ SCALE • building and distributing a product CAN be a way to scale a Drupal business, IF you change your model to support “product operations” • Developing a product (or more precisely supporting one) can actually hinder growth of a services company. • “I am launching a product, so that we can grow revenue” is a common but uninformed opinion on pure Drupal
- 21. PRODUCTS ≠ SCALE • Plenty of services businesses also scale: large-scale consulting firms, hosting providers, and many in the software space scale without products • Products can produce passive revenue (see above re: business models) and be helpful for sustainability, but are not the only way to “scale”
- 22. HOW OS CHALLENGES PRODUCTIZATION • You build an open source product and distribute it. • The market uses it, demands features, requests releases. • “Selling it” can be undone by any buyer who then distributes it for free. • “Selling services around it” is not productization.
- 23. DISTRIBUTIONS ≠PRODUCTS BUT THEY ALLOW FOR... • Re-use • Standardization • Interoperability • Use case targeting • Building blocks for other models
- 24. DISTRIBUTIONS DON’T ALLOW IP CONTROL. SO THEY ARE... • marketing (for everyone) • lead gen and marketing for the creator/ maintainer • platforms for more sophisticated services/ tie-ins • better platforms for application stacks • could allow for support models
- 25. OPEN SOURCE BUSINESS MODELS
- 26. SERVICE(ISH) Model Examples Consulting and Implementation Every “Drupal shop” out there (e.g. professional services) Redhat, Build-a-Module, Documentation and training Drupalize.me Support retainers & subscriptions Acquia, Redhat
- 27. PRODUCT(ISH) Model Examples Freemium Alfresco, EZ Publish Dual licensing JBoss, MySQL Distributions Commons, OpenPublish, Atrium
- 28. INTEGRATIONS Model Examples Add-ons (apps/plugins/themes) Wordpress, EzPublish External Product Integration cloud services, Drupal Commerce Application bundles (stacks) Redhat OpenShift
- 29. potential not recommended Low Feasibility Dual Licensing Freemium WHICH ONES Support Competitive/ Legal Feasibility where we started Retainers/ Subscriptions where to focus WORK FOR DRUPAL? Product Distributions Integration Add-ons & Plug-ins Documentation & Training Consulting and Application Implementation bundles (stacks) High Feasibility Low Barriers to Entry High Barriers to Entry Complexity
- 30. SO WHAT’S THE ANSWER? Ask yourself whether you are willing to invest in products. That investment requires a different approach to product building, product management, community management, market matching, and continued, sustained investment. It also requires an excellent idea for a product that people need.
- 31. IF YOU ARE WILLING TO INVEST... • first leverage Drupal’s popularity for lead generation • master services / deliver them successfully • corner specific Drupal niches for competitive advantage • invest in building discipline to help you realize revenue on that • add something to the product that creates passive revenue • bundle support, documentation or training for it • create a distribution, package or integrated product from it
- 32. IF YOU ARE NOT WILLING TO INVEST... ...that doesn’t mean an unsustainable business. Instead... • first leverage Drupal’s popularity for lead generation • master services / deliver them successfully • corner specific Drupal niches for competitive advantage • invest in packaging your services, automating aspects of them, or finding ways to build greater margin in them • use increased margin to re-invest in more process and automation
- 33. AND IF YOU’RE BORED...
- 34. SUMMING IT UP
- 35. DRUPAL IS MORE THAN A CODE BASE. IT HAS A GIGANTIC USER BASE; A POWERFUL BRAND; TOOLS & RESOURCES THAT CAN DRIVE DOWN COSTS AND DRIVE UP REVENUE
- 36. WE HAVE DRUPAL. HOW CAN WE START USING IT AS A TOOL TO BUILD NEW LINES OF BUSINESS? NOT JUST A TOOL FOR BUILDING OUR WEB SITES.
- 37. CHANGE THE OUTLOOK: LET’S STOP THINKING ABOUT DRUPAL AS A CODING PLATFORM WE “USE” AND START THINKING ABOUT IT AS A BUSINESS PLATFORM WE LEVERAGE.
- 38. THANKS! QUESTIONS? JEFF WALPOLE jwalpole@phase2technology.com t: @jeffwalpole www.linkedin.com/in/jeffwalpole
- 39. phase2technology.com @phase2tech