When I worked for Autodesk in the mid-nineties I used to publish a eNewsletter for their channel partners. The problem was I didn’t know a thing about the channel or the products. This irritated my boss’s boss to the point where he constantly mocked me behind my back and encouraged everyone else to do so. Oblivious, I only realized the truth later after a late night drinking episode with a sympathetic co-worker.
I don’t blame the guy, although he was one of those people that mistook pretense for substance and polish for smarts. I was young, inexperienced and didn’t realize how much I needed to learn about the company and reseller channel. I sincerely wanted to help our channel partners improve their business. But because I failed to do the proper research I was ridiculed.
So when I joined MindTouch this lucid memory still haunted me. The voice of mistakes past kept replaying like a collection of worst business moments caught on tape. Yet, I was new to Open Source but not the industry. I knew I needed to learn more, but had a very good understanding of the industry and how it benefits corporations and individuals.
The Open Source Success Formula
The open source model has long been admired as one where a company can generate revenue successfully but still remain free for community use. Still we didn’t fully understand how to reconcile our own success with other high performing open source companies. So we decided to conduct a survey. Not a 10 question multiple choice survey, but a live conversation done interview style with numerous follow up questions.
We pushed hard for their best practices and most gave them up willingly. So far 16 of the top open source executives and companies have participated (we’re still looking for more).
What we found time and time again is that the best- in-class open source companies knowingly or unknowingly followed this formula:
|D x CR x ASP = $$ (or € £)|
The formula can be broken down as follows:
- D = Distribution (total number of downloads, subscriptions, etc.)
- CR = Conversion Rate (meaning: percentage of the Distribution that develops into paid customers)
- ASP = Average Sales Price
- $$ = Revenue
While high distribution (D) figures are important, the conversion rate (CR) appeared to be the primary focus of the best in class group. At some point distribution tops out. Looking at CR the primary factors are;
- Product / solution differentiation from the core (or community)
- Product / solution differentiation from competitors
- How mission critical is the product / solution
- Marketing and sales effectiveness (how well are you communicating #1 – #3 above?)
The ASP is also a direct reflection of how well you execute CR. Finally, $$ represents the revenue success of new customer acquisition.
We discussed other additions to the formula like adding an +R for Renewals, or adding a B for Brand in brackets around the formula due to it’s affect on every element, or even a cost/margin component, but the core formula stood out as the focal point. Moreover, the study is focused on new customer acquisition and commercial conversion.
This is only a First Step
While our key findings and best practices will not be published outside of the survey group, those that understood the formula and built best practices around it were achieving the highest success. Significantly, those that mastered D but not CR were leaving money on the table. The challenge is figuring out which area(s) to focus. We hope the formula gives you a head start.
Do you have a different experience? Want to participate in the study? Please share.
And in case you’re wondering…
My Boss’s boss was let go shortly after my experience and I’m pretty sure runs custodial services at one of our competitors.