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Show Me the Money… in Open Source

Web applications are a great example of using open source technologies and trying to gain profit through them. We all know the web app model. Solve a simple problem. Charge a monthly subscription. However, the pros and cons of the web app model are the same. One size has to fit all. You can’t really make it specific for one customer or you won’t solve the problem that most people have. But, then it’s not specific enough for a few of the customers that are out there.

Case in point: Basecamp by 37signals and the recent release of activeCollab by Ilija Studen. Both are project management software web applications. Basecamp, using Ruby on Rails, and activeCollab, using PHP5. What are the differences? Basecamp has a free version but they also charge for a few premium features. activeCollab? Completely free… for those who can afford it. It is a hosted solution but you must host it yourself. If anything were to go wrong, then you need the tools and the know-how to be able to fix it.

While there is a cost to ‘free’, who will activeCollab actually appeal to? The largest potential target market consists of the real technical type, who already manage sites and possibly web apps, and who might be thinking, ‘Basecamp was good enough for a while. We were coping with it. But here’s this activeCollab that enables us to customize it for ourselves and support a process that we already use for our business.’

Who is going to win on this one? Basecamp may lose some customers. activeCollab will continue to have a lot of uptake (the alpha release was popular). In the developer realm, there is more widespread knowledge of PHP than there is of Ruby on Rails so they’re actually going to have quite a few people using activeCollab for free, and tailoring it to their specific needs, or even contributing back to the source code. Basecamp is for those who want a warranty. And, because of the customer loyalty that has been built around 37signals, they are going to retain most of their customers. Not too many current Basecamp customers are going to be able to dive in and know all the language and the codes necessary to tailor fit activeCollab.

I believe both products will do well, but here’s a thought: were somebody to take activeCollab and tailor make it for a specific vertical, let’s say trade shows. Rinse and repeat for a different vertical and suddenly you could have hundreds or thousands more people using activeCollab. But why would anyone spend all of that time developing activeCollab into something used by relatively small market segments? Money. While the terms and conditions on the site states that the software can’t be sold, there is a line that says, ‘You can charge distribution, reproduction, bundling and packaging costs. You can also charge for support and charge for indemnification’. They could host it and they could then know the back end code and solve problems for other people who have specific problems. This is where the competition, the great capitalist competition, comes in. So then, they are providing direct competition with Basecamp with a revenue-generating model.

If that is the case then there will be tighter and tougher competition out there, and we may begin to see this happening more often in different segments, solving different problems. Whether it is online billing, email management, or contract warehousing, there’s always going to be someone who is going to go say, ‘I can do that! I’ll create an open source solution, a free solution.’ Then somebody else is going to come along and tailor it, so all of a sudden, more competition. Competition is great for business. It’s especially great for the consumer because you get better products at a lower price. Simple economics. We’ll see who comes up with the next activeCollab remake.

Ingenuity. Competition. Economics. I love open source.

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