Open Source Marketing - and what it got to do with the Michelin brothers

2008-11-11 Management Open-Source

Open Core Licensing and the business model behind it is not (really) new. When you look at it from a history/marketing point of view there are lots of examples, where money is/was made with a "handle-blade" model.

From a marketing point of view the most famous example is probably Gillette. They give away the handles and make a lot of money with the blades. This works because they have a very strong brand and because they "own" the interface between the handle and the blade.

Open Core Licensing uses some aspects of this idea. It gives way the core (handle) and wants to make money with add-ons (blades), but there are also a couple of very significant differences.

First, the handle in the Open Core Licensing model has a value on its own. You can use it to shave yourself. It is working. Out of the box. No blade needed.

Second, Open Source customers would probably never accept a handle, with a proprietary  "PlugIn-API", which would force you to buy your blades from "a/the" company that owns that interface.

Means the blade-handle picture is going to get us only so far.

But there are other pictures we might want to take a look at that do not need a "proprietary" interface. In 1850 two brothers were running a rubber factory in Clermont-Ferrand. They were called Eduard and Andre Michelin. The business was not going well, because producing rubber was getting commoditized, resulting in lots of competition and low margins. But then they had a good idea and a brilliant idea. First they realized that making rubber is not good enough anymore, but that they knew a lot about rubber and they figured that they could become their own customers and build something out of rubber. But what? This is where genius struck the first time: They realized that cars and bicycles would benefit from rubber tyres. The beauty of it is that you sell a blade (tyre) on a handle (car) that will wear-off when you use it. And this is were genius struck a second time. Eduard and Andre concluded that they have to find a way to make people drive and what better reason there is for driving than food or even better good food. As result they decided to put together and publish a guide on (good) restaurants and give away this guide for free (at least initially). What a brilliant idea!

Again Open Core Licensing uses some aspects of this idea, but not all of them. The main point is that Michelin did not own the interface, means they expected that sooner or later more people will be able to copy-cat their idea and produce tyres. As a result they focuses much more on making the car a success and making people drive, betting on the fact that they had an (first-mover) advantage in the resulting tyre market, because they were the first ones in the market and that they could make more money being "a" player in large market, rather than being "the" (only) player in a small market. To map this to Open Core Licensing we maybe have to think up-side down, means the integration market is the car and we have valuable add-ons (tyres) for this market, that people occasionally buy. How about creating a guide/solution for good integration, that will make people integrate systems? And give it away for free and benefit from the resulting (larger) integration market?

Again this picture is only going to get us so far, but it can at the same time give interesting insights into the dynamics of open source business models.