Free software advocates, including myself, like to pontificate about how free software is a good business model. We like to hold up companies like Red Hat and show them off like a bright cliff-top lighthouse that shows the way to profitable free software. And, in passing, we like to name-drop companies such as IBM, HP, Oracle and Sun, rabbiting on about how they are all benefiting from a free software model. However, each of those four companies have closed products that are cash cows, the only truly 100% (ish?) free software oriented company being Red Hat. How much of a broad successful business model is free software in fact? Does it really work in real life? Ask no further, for I am about to put to the test that which myself and others have been advocating for years...
A question I am often asked regarding free software businesses is “How can you make money from something that can be obtained at no cost?”. The people asking often already know that Red Hat is free software based and that the company is profitable, but they are genuinely puzzled as to how a company can be worth millions when you can obtain their core product by simply “downloading the source...”.
The answer is of course you do not make money from the software. Free software is exceptionally useful, but in a business IP sense the software is totally worthless. It is not worth a dime. The value of free software is in the use of it, and the revenue it offers companies is in the related services. This on the face of it seems unimpressive; however, it is not far from the closed software models.
I entered the software industry a little over twenty years ago. At that time the vast bulk of the income of the company I worked for was obtained from software installation and sales. I would estimate over eighty percent of it. Today, I would say the income of software companies I am involved with is distributed differently. Well under forty percent of the income of these companies is from software sales and licensing; the bulk is made up from support oriented services. I know the same is not the case for all software companies, but I see license sales as becoming less and less significant across the industry.
Free software simply takes this trend to its logical conclusion.
I will now explain my new business experiment, so please excuse the plugs. For the last year or more I and a business partner have been working on a new “product”, or “service business” to be more specific. Our intention is to base a business on computers pre-installed with free software desktop software, namely a derivative of Ubuntu. Unlike ventures like this others have tried, and often failed, we do not intend to sell Ubuntu, GNU/Linux, GNOME or even OpenOffice.org. We are selling what we call an “OfficeBox”. A complete solution.
We are concentrating on the benefits of our “product” rather than what makes it up. Our target customers are the local small businesses and are not experts in IT. In fact, our marketing literature veers away from mentioning Ubuntu and GNU/Linux at all, or free software for that matter. To do so would only create confusion. We are selling the solution.
The choice of GNU/Linux is simply an enabler for us to provide products and services in an economic way. We can install software at far lower license costs in a much more versatile manner than Microsoft resellers can. We especially are going after the thin client installations. Many potential customers can save thousands in hardware savings with increased productivity. It is simply a matter of getting the message out. (Or, the not so simple matter, to be more accurate.)
We are well aware that we will not make money on installations though. Hopefully, we can make enough to cover our cost-of-sales there, such as hardware costs. Our profit margin will be entirely dependent on the training, support and the other related services we can sell on top. The technology does lend itself towards that, however.
For those interested in what we are doing our web site is officeboxsystems.com, and, if I may be so cheeky as to sneak this in, if you’re in the UK and interested in our services, please contact us through the email address or phone number you see on the web site. I don’t know how successful our business will be, but I will keep you informed how it does, and the reason behind success or failure. It may be a big money spinner, or it may flop completely, I don’t know. Whatever the outcome, at least we can claim that we gave it a go, that we tried to practice what we preach. Not only are we eating our own dog food, we are trying to sell it to others. Or, more precisely, give it to others and make money on waiter services and tomato sauce.