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Formulating an open source business model requires community segmentation and targeted marketing

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  • Alberto Onetti

    ()
    (Department of Economics, University of Insubria, Italy)

  • Hal Steger

    (VP Marketing, Funambol Inc. (Redwood City, CA, USA))

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    Abstract

    From a commercial open source company's point of view, open source is ideally the ultimate in “grass roots" marketing where people learn by word-of-mouth about the project and where they volunteer their time and effort, resulting in a vibrant community that benefits the company in many ways. This enables an open source company to enjoy major advantages that do not normally accrue to proprietary software companies e.g. they do not need to spend resources on traditional marketing activities and furthermore, having this community support can help ensure the longevity of the project and company. While this ideal may apply to a handful of open source projects, where they achieve a large critical mass of a community which lends itself to a natural form of monetization, for the vast majority of open source companies, it is not the case of “build it and they will come”. Instead, most open source companies need to understand who comprises their community so they can formulate a viable business model. In particular, they need to understand that communities are comprised of heterogeneous types of people, each of which have their own interests, motivation, needs and ability to be monetized. Open source companies need to identify the subgroups in their community, decide which ones to deliberately focus on, and choose the best way to leverage them. This is indispensable for determining how best to monetize the interest in their software, ideally without ruffling the community spirit that differentiates their software from proprietary offerings. And this is where “old fashioned” marketing can help. This means understanding your user base and what makes them tick, determining their needs, and formulating products and services that people are willing to pay for. The sooner an open source company understands that it needs to practice traditional marketing techniques such as segmentation and target marketing, the faster they will hit on the business model formula that enables their company to succeed. These techniques need to be adapted for the open source world, which requires the blending of traditional marketing techniques and community relations. The risk of treating one's community in an undifferentiated manner and applying a generic, formulaic business model is that a company will fail to generate significant revenue as well as alienate a community that could abandon them. As a community is perhaps the most distinctive asset of an open source company, losing its community is tantamount to death. If the community is not properly nurtured and leveraged, an open source company's potential will not be realized. This paper aims at describing, through case study research, a generic approach for how commercial open source companies can segment their community to aid in their formulation of a business model and marketing plans to reach their potential. It is for anyone who works in an open source company or project who is trying to determine a viable business model. The paper is structured in three parts: the first part outlines the research question and methodology. The second part proposes a way that an open source company can segment its community. The final part analyzes the Funambol experience, describing how the company segmented its community and created open source programs to nurture and leverage it.

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    Bibliographic Info

    Paper provided by Department of Economics, University of Insubria in its series Economics and Quantitative Methods with number qf0707.

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    Date of creation: Jun 2007
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    Handle: RePEc:ins:quaeco:qf0707

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    1. Findlay, Ronald, 1978. "Relative Backwardness, Direct Foreign Investment, and the Transfer of Technology: A Simple Dynamic Model," The Quarterly Journal of Economics, MIT Press, vol. 92(1), pages 1-16, February.
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    5. Junkunc, Marc T., 2007. "Managing radical innovation: The importance of specialized knowledge in the biotech revolution," Journal of Business Venturing, Elsevier, vol. 22(3), pages 388-411, May.
    6. Pavitt, Keith, 1984. "Sectoral patterns of technical change: Towards a taxonomy and a theory," Research Policy, Elsevier, vol. 13(6), pages 343-373, December.
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