¶Adam Jacob on open-source licensing / GTM strategy
2024-08-27
Another good Twitter thread from Adam Jacob on open-source licensing and go-to-market strategy.
He mentions that you should find a way to not give your product away for $0 — introduce some kind of friction. This thread does not mention particulars of how to square that with releasing the software open-source, though. (He says “don't” at one point, but also mentions benefits of doing so. How do you do both?)
Cached for posterity:
Y'all are making me need to get back to writing about the business dynamics of open source. As people figure out how to deal with Fair Source / Open Core / Proprietary or whatever - my guidance is you need to think about this as business/go-to-market strategy.
Once you take all the other things out of it (including why Open Source is good for people, the infinite nature of software, etc.) - what you're left with is a conversation about TAM/SAM/SOM. The equation is simple: Potential Customers * Average Selling Price.
Getting customers to buy is about overcoming their complacency with the existing solution and their anxiety about change. You do this first with a fantastic product that's strongly differentiated from the pack (complacency reduction). You do it second by alieviating their anxiety
One great way to allievate peoples anxiety is with pricing and packaging. This is why free tiers and 0 friction downloads work so well. Another is with open source - in particular for the innovators and early adopters, this dramatically allieviates the fear of being stranded.
Great pricing and packaging is about having your price tied to the perceived value your customers get. You want your price to be as high as possible for the value. Too high and folks won't buy. Too low and your TAM/SAM/SOM is simply too small to be a great business.
Open Source - license in/license out - is a terrible pricing and packaging scheme for a business. It's great for the customer ($0, unlimited escape hatches,) but terrifying for your TAM (1 billion customers * ASP of $0 = TAM of $0).
How do you get a great pricing and packaging fit for open source software? The starting answer is: you don't give it away for $0. You must create some friction in what would otherwise be a purely frictionless process.
So first up - who is your customer? What value do you provide them? Figure out a price sturcture that aligns your pricing with their reciept of value. Example: AWS charges me $/hr per ec2 instance. This aligns with my received value (a server).
Simple is better here. Second, how will they experience that value? You'll likely want some way for the customer to use the product, so that they understand the value first hand. This likely looks like some kind of free trial, and likely a free tier.
My #1 advice here is very straightforward - you need to not allow anyone to get your product without having a commercial relationship with you, or being on the trajectory to having one. The most straightforward way to do this is simply not to distribute an open source build.
Figure out your pricing. Sell that product. Don't give away your trademark. Don't undercut yourself. Find ways to integrate your innovative early adopts into the product lifecycle. Make things sticky. Use that generous free tier.
Finally, think about competitive dynamics, partnership opportunities, etc. If you are successful, your reward is competition. How do you want that to appear? If the software is open source, it will appear as alternate distributions or monetization, not by you.
Are you okay with that? How will you mange it? Can they use your trademarks? The upside of letting them exist is that they are, by nature, still in your ecosystem. If you are a good steward and upstream, that can be a very valuable position. (See RHEL vs Clones)
Even if you are okay with that, under what licensing terms? Fully permissive eases friction - there is nothing anyone has to think about. File based copyleft, a-la MPL? Linking copyleft, a-la the GPL? Network copyleft, a-la the AGPL? All different dynamics for users and partners.
All these things are part of deciding how you will behave, and what dynamics you're trying to build. This is strategy! ("How you align your limited resources to your unlimited aspirations across time, space, and scale").
If you look at these questions and go: I don't want any competition based on the software, my customers are anxious about what happens if I cease to exist, and I want to monetize primarily as SaaS - Fair Source looks pretty solid as a choice.
I would question your decision on competitive dynamics - I think for most businesses, there are ways to harness the competitive dynamics and a strong upstream that expand your SAM mutually, but.. if you're afraid of it, you're afraid of it) - but I get it. You're not wrong.
So, tl;dr - decide your go-to-market strategy first. Then incorporate software licensing strategies and competitive strategy. Design it with the goal for the business in mind. Under no circumstances give your product away for $0. Open tends to beat closed when building standards.