Linked by Thom Holwerda on Tue 20th Dec 2005 18:37 UTC, submitted by Robert Escue
IBM Unix isn't a flashy market. But what distinction there is has been going to Sun Microsystems lately, by making its Unix-based Solaris operating system available as open-source software. Last week, IBM moved to put its AIX Unix operating system back on everybody's radar by revealing plans to create a development center on its Austin, Texas, campus to speed up AIX development.
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RE[8]: One size fits all?
by Simba on Wed 21st Dec 2005 05:14 UTC in reply to "RE[7]: One size fits all?"
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"It's obvious you're going to argue this all week just for fun, so this is my last answer and after that you'll be arguing with yourself."

Translation: You know you can't win the argument, so you are going to get the last word in and then try to convince me not to respond because you won't be looking. Nice tactic.

"Companies build business models around providing a product for free and then making money off the services that people then pay for to accompany the free product. In this case the free product is a Linux distribution and the service people pay for can be any combination of the following:"

Sounds great in theory. In reality, it rarely works. JBoss converts only about 3% to 5% of their users into paying customers. And that is on the high end. The typical rate of conversion is even lower. That means if you give your software away for free, only about3% of the people who use it will actually buy support contracts. You have to have a truely massive user base for that to be sustainable... Or you have to do one of the following:

A: Overcharge the customers that do pay to make up for the ones that aren't. This is why Red Hat's lowest level support plan is more expensive than Sun's highest level support plan.

B: Cut your development costs by relying on volunteer developers to do most of the development for you. And like outsourcing, this plays a big role in reducing developers to commodity status who's skills are not worth very much monetary value (and that's for the ones that can actually get jobs).

"If they do like it they'll often pay for some subscriber extras if they can afford it, if not they'll often pay for a boxed set to reward the company for making a good product."

As I said, on average, the people who actually pay for the extras is about 3% to 5% of the users. Make no mistake about it. Human beings are cheapskates. They are much quicker to punish then reward.

Saying "A lot of them" isn't true either.

Yes it is true. When the average conversion from free user to subscriber is only 3%

"If Red Hat offers more features, better support or some other bonus with their higher price then they can price higher and still have lots of customers."

But they don't offer either more features, or better support. Sun's support is superior to Red Hat. The reason Red Hat is so much more expensive is what I have already said. Only a very small percentage of their users are supporting the entire Red Hat company. I don't know what Red Hat's conversion rate to paying customer is. But as I said, the average is only 3%

"Actually the vast majority of comercially run Linux servers are on payed support contracts."

Novell operates at a loss. So does MySQL and JBoss. In other words, it is a myth that businesses are making money off the "open source / service and support model". Novell is losing money on SuSE, MySQL is losing money on MySQL, and JBoss is losing money on JBoss. Red Hat managed to finally make some money after 10 years of losses. But nearly half of it was from investment income. And it is also after having closed several offices and laying off quite a bit of its staff after the Linux FAD burst and its stock value crashed. VALinux also had to lay off over 35% of its staff after its stock value crashed.

"You're saying that looks like nothing more than a wild assumption, or at best hearsay."

So then don't take my word for it:

Now matter how much the open source people want to deny it, making money off the service and support model is the exception, not the rule. It took Red Hat 10 years to make any money at all. And even then they only made $20 million after you take out investment income.

SuSE was losing money, and so is Novell. Turbolinux went bankrupt. So did Mandrake (And Mandrake was outselling Red Hat for awhile). MySQL operates at a loss, so does JBoss. And Red Hat and VA stock crashed bigtime, causing investors to lose billions of dollars. The stock value of Red Hat today is worth only about 1/10th of what it was during the peek of the Linux hype. VA Linux stock is worth less than 1/100th of what it was during the peak of the Linux hype.

Edited 2005-12-21 05:19

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