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Spend enough time in tech and you’ve probably heard of “open-source software”.
I personally think it is one of the most powerful business models in today’s current technical environment.
The traditional way to buy software (and very much still true) is that companies would:
Need a solution → Talk to sales → Watch a demo → Run a POC → Negotiate → Buy
For the most part, this is still how software is evaluated & bought today. However, AI is changing that landscape pretty quickly.
Let’s look at some companies that have successfully open-sourced their software & benefited from it.
A few weeks ago I touched on Databricks & they are a prime example.
You can use Databrick’s open-source project called Apache Spark, & they continue to contribute to the OSS community today… even though they’re currently valued at $175 billion.
Other great examples are Elastic, GitLab, MongoDB, and many others.
If you are unfamiliar with what open-source means, it means that the source code behind the software is publicly available for anyone to view, use, modify, and contribute to.
This is a very simplified explanation, but instead of keeping the software completely locked behind a paywall, companies make part or all of the technology openly available.
At first, this business model might sound a little backwards.
Why would a company spend millions of dollars building software just to turn around and let people use it for free?
But that is what actually makes it so powerful…
Distribution.
One of the hardest problems every software company has to solve is distribution.
You can build the greatest product in the world, but if nobody knows about it, uses it, or cares about it... you don't have much of a business.
Open-source software creates an incredibly powerful distribution engine.
Developers can find the software, download it, experiment with it, build with it, and eventually introduce it to other people within their organization.
Eventually, at the top open-source companies, you can have millions of people using your technology.
The product is spreading organically throughout the market while simultaneously building a massive community of users around it.
Adoption Before Monetization
This is probably my favorite part of the model.
Traditional software companies typically try to monetize before someone ever uses the product.
Open-source companies can do the opposite.
They focus on adoption first.
The more people who use the technology, the larger the community becomes. The larger the community becomes, the more people contribute to the project, talk about it, recommend it, and introduce it to new organizations.
This can create an incredible flywheel.
More users → More contributors → Better product → More awareness → More users
Eventually, some of those users and organizations need more than what the free version can provide.
Typically companies look to become enterprise customers for:
-security
-scalability
-support
-governance
-compliance
-a managed solution
-additional features
The open-source project creates adoption. The commercial offering monetizes that adoption.
The Product Becomes the Marketing
Software companies spend a crazy amount of money trying to get people to know they exist.
Open-source companies certainly still invest in all of these things, but they also have something incredibly powerful working in their favor...
People use it, talk about it, recommend it.
Developers bring technologies they love from one company to another throughout their careers.
Someone could use MongoDB at one organization, leave for another company two years later, and advocate for using it there too.
That's distribution that is incredibly difficult to replicate through traditional marketing alone.
Why this Business Model is so Powerful for Sales Reps
Now let's bring this back to sales.
One of the hardest parts of selling software is getting an account to care enough about their problems to spend money to solve it.
They might have never heard of your company, not trust your product, or believe your technology actually works.
Open-source can completely change this dynamic.
Imagine prospecting into an organization where developers are already using your technology.
You aren't necessarily trying to create demand from nothing.
The demand might already exist.
Your job becomes identifying where the technology is being used, understanding the challenges the organization is experiencing, and helping them determine whether the commercial offering can solve those problems.
That's a completely different sales motion.
The conversation can become:
"You're already using our technology for XYZ. I’d imagine you are facing these challenges today. Let’s chat about how we can solve those issues."
This is a VERY consultive sell. You work for the company of the product that they’re already using.
Open-source usage doesn't guarantee that an organization is going to buy anything.
But it can give sales teams valuable signals to help determine where they should spend their time.
Usage can create intent.
If you're a rep trying to figure out which accounts to prospect into, would you rather prospect into accounts that might not even know your company OR choose accounts that have already adopted your technology to some degree?
I know which one I'm choosing.
Open-Source Still Has It’s Challenges
I do want to make one thing clear... just because a company open-sources its software doesn’t mean it will automatically become successful.
There are plenty of challenges that come with the model.
Getting thousands of people to use something for free is great, but at some point you need to figure out how to turn some of those users into paying customers.
That can be incredibly difficult.
Companies need to create a commercial offering that provides enough additional value for organizations to actually pay for it... without taking away from the open-source project that made the company successful in the first place.
There is a delicate balance between the two.
You also have to deal with competitors being able to see, use, and potentially build on top of your code. Maintaining a massive open-source community requires a ton of time & resources, and having millions of users doesn’t necessarily mean you have millions of potential customers.
Most importantly, enterprise sales is still enterprise sales.
And just because people are using OSS does NOT mean that they will eventually become commercial customers.
You still have to deal with long sales cycles, multiple decision-makers, procurement, security reviews, budgets, competition, and everything else that comes with selling complex software.
Open-source doesn’t eliminate any of these challenges.
However, when the model works... I think it can create one of the most powerful growth engines in technology.
The reason I find the open-source model so interesting is because of how everything works together.
The product creates adoption → The community creates distribution → Usage creates signals → Sales helps turn that adoption into revenue.
If I have 500 accounts, I don’t want to spend the exact same amount of time prospecting into every single one of them.
I want to find the accounts that are most likely to buy.
If I know developers inside certain accounts are already downloading, using, contributing to, or interacting with the technology I sell... that is incredibly valuable information.
It doesn’t mean they’re automatically going to buy.
However, it gives me a signal.
I can use those signals to prioritize my accounts, find the right people, create better messaging, and ultimately spend more of my time talking to companies that actually have a reason to care.
This is where I think the open-source model becomes especially powerful for sales organizations.
It’s certainly not a perfect business model, and it comes with plenty of challenges... but when it works, it can create an incredible combination of product adoption, community, distribution, and revenue growth.
Especially in a world where getting attention is becoming harder & harder, I think there is something incredibly powerful about building a product that people find, use, and love before a sales rep ever enters the conversation.
Until next week.
– Rook ♜
1:1 Strategy Consult
ps… check out my article I wrote on how to break into Databricks here