Emily Omier – How open source companies win #FOSSBack

This talk discusses the risks and advantages associated with open source companies, focusing on the importance of managing risks while maximizing benefits. The speaker emphasizes that open source projects serve as crucial marketing tools, allowing companies to connect with potential customers and build trust through transparency. By effectively aligning product marketing and sales strategies, open source companies can enhance their customer relationships and encourage loyalty, as evidenced by examples like GitLab. The session also highlights the need to listen to user feedback, leveraging the open source community for product development, while differentiating between open source offerings and commercial products. Lastly, the speaker notes the dual flywheel effect, where increased revenue and user adoption can reinforce each other, solidifying an open source company's position in the market.

All right. Well, thanks for coming everyone. So, just to introduce the topic a little bit. Uh, in the world of open source companies, there's always a lot of talk about risks. So, managing the risks from having an open source project. uh which license should you should you choose in order to manage the risks and ensure that you're protected from um a big hyperscaler taking your project hosting

it and then making lots of money off it all these things about risk management and so I wanted to I want to do the talk in fact I I like to change the the topic of conversation around open source companies to focus more on what are the advantages of being an open source company because if there are no advantages quite honestly why are you doing it um

and I fundamentally believe that there are advantages to being an open source company um and we need to talk about them so that if you are an open source company you take advantage of those advantages um and while also managing the risks because let's let's not be uh dishonest with ourselves there are also risks involved with uh building an open source company okay so uh this is

me um I already was introduced a little bit. I uh run a conference called open source founder summit that is for founders and leadership in open source companies that meet the uh definition that I that I just gave companies for whom the open source project uh that they are built around is critical to their success. Um I'm also a consultant for positioning and product strategy for open

source companies. Uh if you are or know of an open source company that needs help with their positioning um or with figuring out the difference in value proposition between their project and their product, that's what I do. Put them in touch with me and I host a podcast called the business of open source. So there you go. That's me. Um before we start about what's different about

open source companies, let's talk about how companies win just in general. In general, companies win when they are able to build a great product. Tell people that that product exists. That's called marketing. Get people to pay them money for that product. That's called sales. And then the the last thing, business operations, uh isn't going to give you a competitive advantage necessarily, but it can screw your company.

So also companies that manage to effectively hire and fire people um manage their accounting etc. So these are sort of the four things you have to get right if you're going to win as a company. There are ways that open source can help actually with all of these things even that last one. Um the last one um like managing your accounting. I haven't yet figured out how

open source can help you. Um but there are a lot of advantages related to hiring specifically when it comes to to having an open source company. Um so this is how companies win. How can open source companies do all of those things better? Um and particularly I want to talk about product marketing and sales because they are an open source company and that is what we're going

to talk about. Okay. So people do not like to admit this. However, your open- source project very fundamentally if you're an open source company is marketing. In almost all scenarios it is marketing. If you can accept that, recognize that that does not make you evil and really lean into it, it can give you a huge competitive advantage over your competitors. Um, so I have um quotes here.

A lot of these uh these lessons I've pulled from um interviews on my podcast. Um and this is these are they're quotes from from open from founders of open source companies. Um Joe Duffy in particular uh talked about how he thought about the open source project from Palumi uh in the similar way as he thought about VS Code at Microsoft and he used to work at Microsoft

which is to say your open source project is a loss leader. You don't make money on it but it allows you to make money on other stuff. So, this is um marketing funnel, a basic marketing funnel. But what I really like about it is that it doesn't stop at conversion. Oh, my little pointy thing doesn't work. Um it doesn't stop at conversion. So, a lot of people

think of marketing and they think of uh awareness, consideration, then it's the salesperson's problem. Um and then people will pay you money and they're out of the marketing funnel that we don't talk about them anymore. That's actually not a super great way to think about a marketing funnel. Instead, you think about awareness. People used to not know that you existed. Now they do. Um consideration. You're in

the running for um a potential deal. Conversion. Oh, they've just paid you money. That is not the end of the story because ideally you want people to continue paying you money. You want them to renew your contract. uh you want them to you want the contract to grow. You want more people in the organization to to use your product and then even better you want your customers

to tell other people about your company about your project and about your product. So having an open-source project um if you are a software company because we are talking about software companies can help people discover that your that your company that your project exists. I want to make a caveat. One of the mistakes that some open source companies make is not making enough of a connection between

their project and their company and their project and their product. So you could be a user of their pro of the project and not know that the company exists. This happens remarkably often. But if you do it right and you don't do that, you don't hide the fact that there's a company behind it. Uh having an open- source project and an open source community can help people

discover that your project exists. It allows people to get a taste for what it's like using your product, using something that your company makes without having to pay you anything. It builds trust because they're able to see uh what's what's happening in your code, what your code looks like. Um is it is does it look like it's well done or not? Um does your software do what

it says it's going to do and not do the things that it says it's not going to do? So it's going to build trust which in turn generally helps with conversion because the people you are selling to regardless of the size of the company they are human and human beings like to do business with people that they trust. And so you you'll be you'll end up converting

more people if as an open source company if you do if you're doing things right. But then it's especially after that conversion that open source companies can really have an advantage um both when it comes to loyalty. So um allowing people to feel a real sense of ownership. It's really interesting. So, GitLab instantly has a a program to get customers to contribute to the open- source project.

And they found that this dramatically en enhances loyalty because they the customers end up feeling a really intense sense of ownership in the progress of GitLab. Even when they're already paying money, they're already paying money to get a commercial relationship with them. They still will also dedicate engineering hours to make the product better. And that's something you only get if you're an open source company. And the

same goes for advocacy. So, one of the things that open source projects generally have going for them is getting people to have this sense of ownership around the project, which makes it that much more likely that they that your customers will end up going to a conference and talking about your project or your company or your your product, but just your project and becoming your advocates. They're

not even free. They're actually paying you and they're helping you with your marketing. Amazing. Okay. So, a second thing is to build build a dual flywheel. So, what does that mean? Uh dual flywheel means that as your revenue increases, your users increase too. As your users increase, your revenue increases too. So this is an idea from GitLab and it really involves um it it really involves getting

alignment from your product marketing and sales organizations. But when you do this right uh you can really get uh both dramatic increases in adoption and in revenue that happen at the same time. Again, it's not always obvious to get the the dual fly well to work, but if you're able to to to to to do this, you'll get advantages over your your So, do a land grab.

One of the advantages of an open source project is that allows you to get massive adoption. And if one of your goals is to get to to change your space, to get massive adoption, h starting with an open- source project is is the way to go. You will almost always get a much larger um percentage, a much um um much wider adoption if you have an open

source project than if you don't. translate that into commercial success, but you have an advantage. Really listen to your users. And this is the advantage that open source projects generally have. They have way more users, so much larger um pool of people to get feedback from. And open source users are often more more open to giving feedback than paying customers. Paying customers, what do you want? They

the paying customers just want to give you money and they want a thing that works. It's a transactional relationship. Open source communities, that's not the way that they work. There's an there's the idea that part of the deal of using an open source project is that you become at least a tiny bit invested. If somebody asks for your for your feedback, you give it to them. There's

also, you know, processes that are built into open source projects that that request feedback. What sort of what sort of issues are people opening? Are are people making any contributions? Are there any pull requests? If you really listen to what your users are saying, it can give you really enormous and really valuable clues for what sort of product you should build, for what people actually want to

pay for, and what they want to pay you for, what they see as your special um advantage in in the ecosystem that you work in. Build trust. when you're able to allow people to verify that you do what you say you do and you don't do what you say you don't do, um this is incredibly valuable when it comes to building trust. Uh especially in the world

of software where there's a lot of customers that are going to be jaded. They're they're going to worry this is another software that's going to um you know take my private data and use it in a way that I don't feel comfortable with. But there's no way for me to verify because it's completely proprietary. um there there can be other ways that you build trust too. This

is a quote from Brian Fox of Sonotype. When they can when potential customers can see you um acting in the ecosystem in a way that they they think is respectable and competent. Again, this builds an enormous amount of trust that you don't have if you just have a a plain proprietary software. This is especially valuable at the beginning, too. Once you are a company that's established, you've

been around for 10 years, uh 50% of the Fortune 100 are on your customer list, people trust you. But when you don't have any of that, uh, building that trust and showing that that this software is serious and and it does what it says it will do and you are serious people who are competent. Um, that having an open source project can be incredibly valuable and it

can open doors for you that you that otherwise wouldn't would stay closed. Next, you need to build a product that does not compete with your project. And this goes back again to really listening to your customers. So it turns out building a product that people are willing to pay you for is super hard. And that's because people don't like to pay for stuff. And actually knowing actually

anticipating what people really what your your market really finds valuable can be challenging. When you have an open- source project uh that is giving you access to a huge pool of people in your target market, if you are able to leverage that, you're much more likely to be able to to to find the thing that you should build that people are actually willing to pay you for.

Here's a we're almost done and we'll go to questions. Here's a a quick wrap-up of what you should do if you want to leverage open source not just to survive, not just to not lose, but to win. Um, first of all, you want to use open source as a distribution model to accelerate every stage of your marketing funnel. You want to use open source as a development

model to build better products. By better products, by the way, I mean products that better meet the needs of your users. It does not necessarily mean products that are more interesting to build or that are technically superior. No, products that better meet the needs of your target market. You should take your community's trust extremely seriously and also use your community as a force multiplier. Um, find ways

to have your community do your marketing for you basically. And then you need to make sure that there's enough differentiation in your ecosystem's mind and in your own mind and your teams between what is open- source and what's in your commercial commercial offering and what the difference is that people are getting out of your commercial product versus your open source product your open Uh, one last thing

that I wanted to bring up. Uh, I actually in an earlier version of this talk, uh, had a number of quotes from the found one of the founders of Min.io and I took them out. Um, but it's worth being slightly cynical about this. If really, really all you want to do is make a lot of money. Let's face it, you can also use your open source project

to get tons of adoption and then you can change your license and force people to pay you. Uh let's not say that that's a great idea. Um but it is a strategy that obviously some people use and it's worth worth acknowledging. Um if really all you want to do is is build that huge software company, it can make sense to take that to take that route. So

there we We end on a cynical note. this is this is the end, but uh if we have questions, now is your opportunity. >> Thanks, Aie. That was awesome. >> Questions? Do you have any advice specifically for companies that are um working in the open source space but mostly with uh public sector customers rather than um commercial rather than private commercial entities? >> Uh so do I

have any any specific advice for working with uh public sector customers? Um a uh there's a lot of public sector customers that are legally required to use open- source solutions. Uh that's something to be aware of. So you're automatically like you wouldn't even be in the game if you if you weren't an open source if if there wasn't an open source option as as part of your

offering. Um and the the second thing is just selling to governments, selling to the public sector is different uh than selling to private companies and assuming I mean if that's your market you know how that works. Um and it's just you just have to know that that's a that's a different game to play by. Um, on the other hand, the the same things about if you get

in uh by people who who work in the organization discovering your open source project, um, they can still go to their supervisors and advocate for you. I know of public sector um organizations that technically have to go through a huge procurement process uh in order to make any sort of contracting um basically in order to buy anything. But because they found an open source company that ex

exactly meets their needs and they stumbled on it because it's open source and they don't they they already know that this is the best option for them. they can find workarounds. So what I'm saying here is that e even if there's um there's you know this really cumbersome procurement when a customer is really motivated uh to become a customer they will usually find a way. Um coming

back to the Mino example, um if you start a company based on open- source software and then you just ruck and you know sort of run away from your community, uh is is is that actually well we we've seen examples where it works but in fact the community can also take ownership of whatever was there before the rugpool and you know go on by themselves, right? Uh

yes. So the when when you have an open source company, if your plan from the very beginning is to pull the rug on your community, um that's I would say that's a risky plan. Um from what I've seen happen, I actually don't think that that's the plan from the beginning when when there is a license change. I I think in almost every case what happens is that

there's um I I almost want to say like a a failure like the c the company tries to make their um make their revenue targets without changing the license and then has trouble doing so and then decides well let's see what happens if if we change the license. I I don't actually think that very many I I'm I don't want to say that nobody has ever like

thought of this as a strategy from the beginning, but my feeling about this is that it's always or nearly always um that it's there's pressure to increase the the growth rate. And it seems like the best way to do that is changing the >> It's often a money problem, right? >> Uh it's a money problem. Yeah. I I wouldn't say it's always it's always a money problem.

Um so yeah and and there's a risk there's a risk to both there's a risk to changing the license as well um that you know h there's a risk to changing the license because there are also advantages to being an >> Yes. So um it occurs to me that the bulk of your talk is centered uh almost uh on open core more so than open source per

se and I was wondering if you could spare a few words about the decision to pursue open core as opposed to models where there is an overlap a complete overlap between your commercial offering and your open source offering that they're not distinct. So if there is complete overlap and there is no difference in value between what a person what a user gets and what a customer gets

nobody will ever pay you periodic doing that by the way >> that means there's there is a difference in value. So what what do people pay you >> to host a server for them? >> That is a value. There is not complete overlap in that case. >> But all of the software is open source. So if you if you host something uh and it means I'm I'm

able to use your software without hosting it myself, that that's a value proposition in and of itself. The fact that yes, I could host that software myself because all of the all of the software is completely free and open source. um that doesn't really change the fact that perhaps I would rather not host it myself or perhaps I can't or um perhaps I would rather have you

host it because you're the expert. Um that's there's a level there's a piece of mind. So there always is going to be a difference in value proposition. Even if you all you sell is support to for your open source project there's a difference in value proposition. The value proposition is when something goes wrong, you have somebody to call. If something if you don't pay me and yes,

you can open an issue, but maybe I'll I'll I'll get around to it when I get around to it. Um, if you pay me for support, I will give you my cell phone number, and if you have a problem and it's 3:00 a.m., I will answer my phone and I will fix your problem immediately. That is a huge value proposition. So being aware that there's a difference

there's there's never complete overlap otherwise why would people why would somebody pay you? Um so I actually don't think of this uh this talk as being purely about open core. um specifically when you when you think about the product. So open core usually when we when we think of open core you have your open source project and then you have your you have a enterprise version and

the enterprise version comes with a dashboard and um and SSO and uh some some security some like uh a authentication um and what else um maybe some like team management functionality um a fancy UI and that's But sometimes you can have a situation where you have your project, you have your you have another product and they fundamentally give you a different outcome. So an example might be

a company um I actually haven't checked in on them them recently but a company called h what are they called? They have um make a project called threat threat striker I think. Uh but anyway, so they their open source project identifies threats. Their product remediates threats fundamentally different things. It's not so is it an open core or not? But obviously they're related. So if you are an

open source user, you are more likely there's a clear relationship between the commercial product, but it's not really Uh okay. So a question from below. Um do you think there is an agenda when um um provide open-source software for messaging software and um they provide the software as is um and leave us features like GUI or a good GUI which is usable and intuitive just to be

paid and uh the rather free part of the software or the free version lacks a lot of features and uh yeah isn't usable at all. Do you think this is on purpose? honestly I'm kind of a cynic. Does everyone has an agenda? Every human being has an agenda. Every company has an agenda. Let's be honest about that. If you have an open source project that isn't usable

as a as on on its own, that really doesn't have value as an as an open source project on its own, to me, you're not an open source company. That's a fake open source company. If your your open source project doesn't provide value on its own, uh at least to like a a slice of the market, right? Because not everybody is going to have the skills to

self-host it, etc. Um so for me, that's the bottom line. like and and in fact all of these things that I've talked about as the advantages of being an open source company I I don't think you really get them if your open source project is um crippleware as they >> okay then that's it. Thank you Emily. >> All right, thank you everyone.