Open source business and customer selection management

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Open Source enterprises are thriving and as they grow so the economic model that supports them becomes clearer. Service with a smile sums it up. It is very interesting to compare three businesses to see why.

Business 1, a car retail outlet. Business 2, an IT company dealing with proprietary software. Business 3 an IT company dealing with free, open source software.

All three have an end product that has to be built. In this comparison the fabrication costs of the car are regarded as equivalent to the fabrication costs of, say, an e-mail system.

Sources of revenue for our three businesses are:

1) resell margin on the goods (this tends to zero as margins squeeze)

2) fees (from financial services for the car dealer, licence fees for the software dealer)

3) support (service fees and insurance)

Most car dealers will tell you that they make little or no profit on the cars but do make money on reselling financial and insurance services. Their real income is from servicing modern highly complex, non-do-it yourself cars.

Most IT businesses will tell you that they make little or no profit on the fabrication as it is notoriously hard to cost, their revenue comes from the support contract which is in effect a service contract and an insurance policy rolled into one.

Open Source versus the others

Free, open source software business have no resell margin (though many would love to change that) and no licence fees.  Their fabrication costs are the same as for a proprietary software company or a car reseller...you hope you cover your costs.

All you are left with is service revenue. It's here then that you must make your profit.

To make profit from service just like any other business your expenditure must be less than your revenue. It follows that your product must be reliable or it will break and break you too.
Good Open Source software is reliable and so is good Proprietary software...phew!

Ideally your software should need regular servicing. Luckily it does, they are called security updates, patches, upgrades and the rest. Both FOSS and proprietary software do this to a similar extent. Databses are popular because they are valuable and need a lot of servicing: think luxury car.

The first catch is that your software must not be too reliable or unbreakable or no one will take out insurance on it. Fortunately, and this is very  much the case with cars too, we have 'users' who can be relied upon to break things from time to time. It's about the same for FOSS and proprietary systems. FOSS users are no less dangerous than proprietary users.

Where proprietary software really scores over FOSS is the possibility of a good old fashioned lock-in. A well locked-in customer does not have to have too much TLC. FOSS businesses however are interchangeable with each other and the customer is typically not well locked in..this means to keep business you have to be nice to them, very. Even Car dealers get service lock-in, try getting your modern Audi/SEAT/Skoda serviced at a Fiat garage...or by that bloke round the corner.

All of this is good news for the customer but it could be a breaker for the business as it could end up expending uneconomic amounts 'supporting' the customer. This brings us to the title of the article: Customer Selection Management (CSM).

Doctors (GPs) know an expensive customer when they see one and are inclined to 'lose' them from their books... allegedly. The perfect customer pays his or her dues and never calls or visits or makes demands and so it is in IT.

What we need is some CSM software.

Here is the spec of a (tongue in cheek) CSM package.

1) Automatic alerts if customer's service call-frequency or number of call exceeds an arbitrary low limit.
 
2) regular automatic mailouts and calls of 'we love you' to well behaved customers

3) no-claims discounts for non-use of services with sudden loss of such for unknown crash event after five years.

4) Use of semi-sentient avatars to talk to customers who organise conference calls every week and would otherwise tie up the whole company for hours.

This software won't make us rich but it will help the balance sheet a bit..oh for those lock-ins...smile it's open source :)

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