Open Source Business Models in Supply Chain

An emerging challenge in the supply chain technology space is figuring out how open source software solutions will provide new opportunities to enhance supply chain management.  But I get ahead of myself.  I would first like to examine whether one can develop a business model people are willing to invest in around open source software in the supply chain space.

Open source software platforms require a different business model for a start up.  If you are going to give away some or all of the basic code, then you need to control your future by being an innovator, releasing new drivers and applications faster than your competitors and bundling service, maintenance, testing, outsourcing and consulting services into revenue generating solutions.  In essence, you need to shift your mindset from defending your "legacy", as in traditional software business models to defending your "future", making sure that your offerings keep up with world-class technology and business management standards.

Let's look at the two aspects of an open source business model in a bit more detail.  First, you have to adjust your resourcing to add the best drivers from customers, free users and your team.  This will involve having a detailed product road map with a good understanding of value creation at all points in the process.  You will have to say goodbye to license fees supporting applications development and testing, rely on others to build many of the drivers, provide for industrial strength testing before adding the driver to the open source community and be much more of an innovator in the feature/functionality world to make sure that your software does not lag competitors, given the relative ease of switching vendors in the open source environment. 

To make money, you will have to be more creative in developing service models.  One way is to "freeze" a version of the code to sell as an enterprise edition to customers who wanted a more robust and stable code set.  You could keep the community code free, updating it less frequently than the enterprise edition. Keep in mind that the community edition would have no warranty, no support or maintenance and have minimal processors. 

A better model would be to think of the code as a platform for other services, especially outsourcing of business processes.  The real money would be in the long term contract to outsource procurement or transportation execution processes, with the open source code being free to any contract user.

Another model is using the open source code for the basic, commoditized modules in supply chain management,such as data aggregation, cleansing and visibility, then charging for value added planning or forecasting applications, such as technologies that tie together information from various databases.

A third model, one used by ComPiere, involves offering services to a worldwide network of consulting partners, who pay a fee to ComPiere in exchange for sales and marketing support, technical support and training. These partners provide implementation and integration services, sell complementary products to ComPiere solutions, and are the primary open source development community  for additional drivers and bug fixes, which they send to ComPiere for inclusion in their products.

What are some of the concerns regarding open source as a platform for supply chain applications?

1. Your developer community "forks" your software--one or a group of developers could use your source code to set up your own version, unless you pull a mysequel and require that all code changes become the property of the company.  This kind of defeats the open source concept. It often happens when developers believe that their open source partner is not fixing bugs fast enough, not releasing new versions on time, etc. etc.
2. Using open source software will likely alter your exit strategy--since development times are extended in an open source environment, lengthening time to exit and making it harder to value your intellectual property.  If you have an outsourcing model tied to the open source technology, you will likely have a higher valuation and a faster potential for exit.
3. The more complex the application, the more difficult an open source solution--Moving up the application "food chain" from basic to complex solutions restricts the developer pool to those capable of solving complex supply chain problems.  A smaller pool means fewer potential partners willing to install/maintain the software, less bug fixing, and fewer driver development. 

A supply chain start up considering open source should carefully consider the size of the potential developer community before committing to the platform.  A smaller developer community could mean that your roll out will be slow, in spite of having excellent software, if enough partners are not able to help you install and maintain the software.  And don't look for Accenture or IBM to help you here, unless integration fees are in the millions of dollars--highly unlikely in most open source applications. You may find yourself as much in the business of training a partner network as in developing the software, not a viable business model unless well crafted and staged around available funding.