Another Look at Open Source

In an earlier post, I argued that Open Source had devolved into a brand name for low cost software because the vast majority of users never touched the source code or contributed code back to the project. 

However, Billy Marshall, the CEO of rPath, rightly pointed out to me that there is a second segment of companies using Open Source who do modify the source code - ISVs.  The traditional paradigm of developing commercial software products is to build and test the product on multiple, specific hardware and software configurations.  That approach is now changing as virtualization technology matures. With virtualization, ISVs now have the option of writing and testing their software on a single configuration and then wrapping their code in a container that can be seamlessly deployed on a wide variety of hardware and software platforms.  Using this alternative approach, ISVs can redeploy a large portion of their engineering resources from porting and testing to building value-added features.

One of the offshoots of the virtualization is that the end user is isolated from the infrastructure decisions of the ISV. If an ISV decides to deploy their solution on customized versions of Open Source packages that are optimized for their specific needs, it has no impact on the end user. All the end users see is the virtual container. This ability for ISVs to customize the infrastructure is what creates this second segment of Open Source users.

When you start considering the business opportunities that will be created by the emergence of ISVs using customized Open Source products, it quickly becomes clear that the beneficiaries will not be companies using the standard model of commercial Open Source like RedHat.  Those companies' businesses are built on standardization - supporting very specific configurations across a large number of users. In contrast, this second segment is defined by variety - each ISV customizing Open Source products to meet their specific needs.

In our view, this creates the opportunity for a new set of companies to emerge who offer ISVs solutions for handling the complexity of managing and deploying software built on customized infrastructure.   If you know any companies that fit that bill, this would be a good time to invest.

How to Know Whether Your Idea Will Fly by Lunch on Wednesday

Launching a new product or taking an existing product to a new market is a leap of faith.  By definition, the company has little experience in trying to sell the product to its target customer so while the idea may be based on sound judgment, you don’t know for sure that the dogs will eat the dog food.  Given the percent of start ups that fail, it is safe to say that often, they do not.  However, it isn’t that the successful ones come out with the right food for the right dogs the first time.  It is that they are quick to adjust if they haven't.

To that end, we’ve developed a 20 hour test that can tell whether or not you have it right. Therefore, if you start at 9:00 Monday by lunch on Wednesday you will have your answer.

The 20 hour test comes from applying our Market Immersion methodology to dozens of new market projects.  In a nutshell, Market Immersion is a methodology for beta testing sales. It enables companies to rapidly build real world selling experience so they can figure out what works, what doesn’t and adjust accordingly.

The first step in process is for the company to cold call prospects to set up beta test sales meetings.  Cold calling is admittedly an unpleasant task, but here are the cold hard facts about cold calling.  If it takes you more than 20 hours to cold call a qualified beta test sales meeting, something is very wrong. 

Here’s why:  When you cold call, you are reaching out to people who you believe should need what you have to offer.  If it takes you more than 20 hours of calling to convince just one qualified prospect that it is worth 60 to 90 minutes of their time to learn more, then what you are saying is just not that compelling – there is just not enough pain around the problem you are proposing to solve or value you are proposing to bring to build a business.

For people who say, “Well maybe the problem isn’t the technology, it is that people just doesn’t understand it or are not ready for it.”  To that, I respond, “Precisely.”  Failing the 20 hour test is not a death sentence. It simply means that you need to go back and retool – different target, different message, different features, different business model.  On the other side, passing the 20 hour test doesn’t mean that you have it nailed. But it does mean that you are at least playing in a market where there is real pain.

I’ll add one more caveat – the 20 hour rule only holds if you run a good test. Here are some of the basics.

·        Position the meetings as discovery meetings with the explicit understanding that if they are interested, it will move into a sales cycle.  We typically say the following, “We are launching a new product in your market that does X.  The reason for our call is that we want to make sure we get it right and to that end, are interested in getting your feedback.”

·        A qualified meeting is a meeting at a company that is a legitimate prospect with a Vice President or someone who reports directly to a Vice President.  Lower level people are more willing to meet and are not a reliable gauge of interest.

·        You can’t delegate the cold calling.  The key to setting up the meeting with mid and high level individuals is having an expert on the phone with them

·        You have to doggedly dial the phone for 20 hours – Practice your skill at sweet talking administrative assistants, begging for email addresses and following up relentlessly.

A Battle of Wills in Text Messaging

I was recently doing research into companies serving the wireless market and it struck me that there are an awful lot of venture-backed companies out there whose business plan depends on getting a big deal with one or more of the wireless carriers.  These companies need to either 1) get one of the increasingly rare slots available on the deck (the standard menu of choices the wireless carriers make available on their phones) or 2) convince the carriers to adopt their company's media management/encoding/delivery technology.  The carriers have a chokehold on access to the end user of which Bill Gates is no doubt envious.  I can imagine that this is exactly what he was gunning for with the Internet when he tried to blend the browser into the desktop.

As part of my research, I came across a recently funded company called 3jam that looks like they have an interesting twist on the 'beg the carrier' approach to business development.

3jam's concept is simple - turn text messaging into a group communications tool by enabling messages to be sent to multiple recipients and then allowing the recipients to respond to some or all of the group.  These capabilities have been a mainstay of email since its inception but are currently unknown in the text messaging world.  The genius of 3jam is apparently that their group messaging service can be used by anyone using any phone served by any carrier.  There is no software to download or service to subscribe to.  It simply works right through the standard text messaging interface, allowing 3jam to bypass the carriers and go directly to the wireless customer. (Note: There are some rough edges to iron out)

This ubiquity is required if 3jam is going to be successful.  Unless a sender knows that everyone in their group can get and reply to their message, they won't use it.  Keeping track of who can and cannot group text will be a show stopper for most users.  How often would you send an email to multiple recipients if you had to know whether each recipient was capable of receiving group emails and not just emails addressed only to them?  Therefore, even access to 50% or even 75% of text messaging users is not good enough.  This also means that 3jam has no choice but to make its service free to the end users.  Free is the only way to get ubiquity.

Assuming that the service is truly ubiquitous and they can iron out the rough edges, I predict that everyone who text messages regularly will be using it in a matter of months.  The value of its service is intuitively obvious and it is one of the most naturally viral offerings I have ever seen.  When the first 3jam message is sent, it introduces the service to all of the message's recipients.  When any of the recipients then sends a 3jam message of their own, they in turn introduce it to a whole new group of users, and so on - rapidly exposing the service to every text messenger.

Looking out 6 months, I can imagine millions of 3jammers, sending one-to-many instead of one-to-one messages, generating huge incremental traffic and revenue for the carriers - and nothing for 3jam.  Obviously, 3jam will need to monetize its user base and because it needs ubiquity, charging consumers is out.  That does not leave a lot of interesting choices.  Other than selling ads (of which I am skeptical), all I can come up with is convincing the carriers to share some of their 3jam generated revenue - thus setting up the battle of wills.

If a carrier decides not to pay 3jam, the company's only recourse is to restrict its service to the carrier's customers.  However, since 3jam needs ubiquity, cutting off any one of the major carriers would doom 3jam.  That leaves both sides playing a game of chicken.  If a carrier refuses to share, they risk having 3jam shut them off and losing all of the related revenue.  On the other side, 3jam would have to choose between continuing to serve the carrier's customers for free or mortally wounding itself by shutting them off. Either way it loses.

How this plays out should be of enormous interest to anyone investing in or working for a company serving the wireless market. Will the carriers make nice?  Will they make an end run around 3jam and introduce their own offering?  Will 3jam find some additional leverage over the carriers, perhaps by finding a way to restrict a carrier's customers without fundamentally damaging the value of its service?  Will it find a way to monetize its base without needing the carriers at all?

We should know in a few months. It will not take years for this to come to a head.