What do we know about open source pricing?

By Mark de Visser

Pricing for open source software products remains a hotly debated topic of interest. Dave Rosenberg argues in a recent post on Negative Approach that there is consensus that the price of open source software should be 10 to 20 percent of the price of equivalent proprietary software. He does not attribute that to anyone, and in our echo chamber of technology bloggers and tweeters, such a statement will quickly come to be seen as a long-established fact.

Initially, my intuition told me that Rosenberg’s thesis was wrong, but I didn’t want to dismiss it without doing my own research. I looked into it a bit more and uncovered some interesting facts that argue both for and against the 10-to-20 percent range put forward by Rosenberg.

My first experience with open source pricing was in 2002, when I was at Red Hat. I was part of team that had to set pricing for Enterprise Linux (or Red Hat Advanced Server, as it was called in those early days). We consciously decided to price it about 20 percent above Microsoft’s equivalent Windows servers, which we viewed as our major competition. Both Red Hat and Microsoft aimed to convert Unix users to the Intel platform, and we felt lower pricing would harm our credibility as a competitor.

Many will argue that Enterprise Linux succeeded because the cost of the stack of Intel hardware plus Linux OS was lower than the equivalent Sparc/Solaris stack, but even that aggregate cost benefit was not 80 percent or more — nor did it need to be. Today the prices at OS vendors Red Hat, Sun, and Microsoft remain at about the same levels. Open source or not makes little difference; Red Hat and Sun use other arguments in their competition with the proprietary alternative from Microsoft. Rosenberg’s thesis does not hold here.

I also looked at the 12 companies that signed the Collaborative Software Initiative’s Open Source Letter to Obama and was surprised to see that only 3 of these 12 disclose their pricing on their Web sites. Compiere prices its professional ERP service at $50 per user per year, a lot less and a lot simpler that the $1,500 to $5,000 per user for Oracle’s basic ERP product. With that math, Compiere goes beyond supporting Rosenberg’s thesis, falling way below his suggested range.

Ingres calculates its TCO over three years at $575,000 versus $960,000 for Microsoft SQL Server; $2.5 million for IBM DB2; and $3.7 million for Oracle DB, a discount ranging from 40 up to 84 percent against proprietary products. OK, Dave, I’ll give you that one too.

Sonatype, my company, supports open source build software Maven with support services ranging from $500 to $12,000 per year, and in most cases recommends using Nexus Professional at $2,995 per year as well. The maximum amount of $15,000 annually for Sonatype’s services compares to IBM Rational’s BuildForge, which starts at $350,000 per year — another vote for Dave. MySQL, a part of Sun Microsystems, which did not sign the letter to Obama, provides comprehensive pricing on its Web site and has a 10-to-1 price advantage or better over Microsoft, IBM, and Oracle. So four votes for Dave (and fodder for an interesting comparison between the MySQL and the Ingres calculations).

But what about the nine companies that do not disclose their pricing? Atomic Object and OpenLogic are mostly service companies, so they have no product prices to publish. Why don’t Alfresco, Cleversafe, Hyperic, Jaspersoft, Medsphere, MuleSource, and TalentD publish their prices? Other popular open source projects like JBoss and Spring Framework also do not disclose pricing. If their products were so much more affordable than their proprietary alternatives, why would they not publish their prices?

Those omissions suggest to the potential buyer that these companies do not have a low-price strategy and do not offer the cost benefits that Dave Rosenberg is talking about. Frequent buyers of software are immediately on alert if a company wants to “understand their goals” and offer them a “customized quote.” They will bring their purchasing department and legal department into the negotiations to make sure they get the best deal from their perspective — and by doing so, they will make the sales cycle much more expensive for both the vendor and the buyer (and the software less affordable).

I’m not that surprised that open source companies have different pricing strategies. After all, companies have different products with different value propositions in all kinds of markets. I am more surprised by the fact that so many open source companies drop their open nature and become very traditional enterprise software companies when it comes to the sales cycle.

That’s a missed opportunity, especially in the current economic climate. Buyers want great and useful products, at a very good price, without being locked in, from companies they feel they can understand and trust. Software products that are open source have a big advantage; open source companies should extend that openness to the rest of their customer interactions as well.

Mark de Visser is CEO of Sonatype, whose flagship product is Nexus, a Maven repository manager.