Introducing Open Source Network Marketing

My decision to start Commercial Open Source blog was significantly influenced by my desire to share ideas on open source business models, extending my quest for feedback and opinions from other authoritative open source thought leaders.

Rereading Matt Asay‘s post about “the convenience of proprietary software“, to which just yesterday followed Stormy Peters’ answer, I thought it was time to throw another business model idea: open source network marketing.

Making a differenceMake a difference by aepoc

Wikipedia’s entry on Network Marketing reports (the italic emphasis and URLs are mine):

Network marketing is a business distribution model that allows a parent multi-level marketing company to market their products directly to consumers by means of relationship referral and direct selling.

Independent unsalaried salespeople of multi-level marketing referred to as distributors (associates, independent business owners, franchise owners, sales consultants, consultants, independent agents, etc.), represent the parent company and are rewarded a commission relative to the volume of product sold through each of their independent businesses (organizations). Independent distributors develop their organization by either building an active customer base, who buy direct from the parent company and/or by recruiting a downline of independent distributors who also build a customer base, expanding the overall organization. Additionally, distributors can also earn a profit by retailing products which they purchased from the parent company at wholesale price.

Skepticism around Multi Level Marketing has its place, and there are many resources explaining what’s wrong with Multi Level Marketing. As a matter of fact the legitimacy of MLM businesses can’t be given for granted, and many pyramid schemes try to present themselves as legitimate MLM businesses. Apparently the Federal Trade Commission advises that MLM companies setting greater incentives for recruitment than product sales are to be viewed skeptically. Others state that the real problem with MLM is the people it attracts, highlighting that network marketers often have little or no experience developing business relationships other than that of employer/employee, and they are in danger of disappointment caused by the failure to quickly satisfy unrealistic economical expectations.

So, why do we need a scheme like an MLM to sell open source?

Information asymmetry make categorizing open source customers a not so easy task, and I believe that is not uncommon to see users – read potential customers – spent a lot of time (therefore money) instead of buying commercial open source products and services. Someone, somewhere in the IT department, knows how much time spends to make things work.

These people can make the difference, they can really help to turn users into customers, from inside.

They use open source software, they know what kind of support do they need, they are the best distribution channel than ever. They do know how to reach customers – rather they live by them – and how to offer your value proposition.

The point is: what you can offer them?

Technorati Tags: Open Source Business, Open Source Marketing, Open Business, Network Marketing, business models

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20 thoughts on “Introducing Open Source Network Marketing

  1. What can you offer them, is your (and mine) question…

    One answer is hidden in Open Source’s main weapon: the Community. Qou can try to join all those people into an horizontal, cross community not strictly related to a software project but to a wide knowledge of main attractive themes of Open Source.

    It is not easy and I am here just putting my thoughts on a keyboard, but maybe we shoudl brainstorm on it.

    Fabio

  2. Hi Fabio,

    open source world is becoming more and more valuable, but only a tiny fraction of OS actual value goes back to the original author and to whoever it may concerns. I call this the “appropriating returns from Commons” problem.

    Open source network marketing – if applied responsibly and ethically – could be an effective response to such problem. Positive network effects are making few OS products ready for prime time, but half of them lack of enterprise support. CIOs are asking OS companies behave like proprietary vendors, pre-sales support included. Proficient open source personnel are, by no means, the better option.

    The frittering is truly in the details: how the compensation scheme pays, allow or not to allow downstream partnering, etc.

    Lose weight now, ask me how! ;-)

  3. Roberto,

    you know very well that your words apply globally, and not on the poor italian OS market. Here we are far away from asking ourselves why the OS value doesn’t get back to original authors: there is NO value here to get back anywhere.

    But let’s talk globally. The benefits of the network effect are by no doubt interesting. And it could be a chance, too. I see just one problem: network effects have positive returns when you reach and go over a certain critical mass: how many investments should you draw in order to reach the critical mass?

    And now, here it is, my question: how does the compensation scheme pay? :-)

  4. Hi Fabio,

    you are right, open source vendors are not popular in Italy, despite there are quite a few open source developers here.

    Talking about positive network effects, you are right saying that (big) investments are necessary. New players need to spend big bucks to reach a critical mass, and to become the next philanthropic arm of free software business is not for all. All in all there are enough well known open source products to which apply OS networking business models, though.

    The compensation scheme has to be build in a way that preserve and enhance open source values, and no economic rewards have their own place in the equation alongside economic ones. Moreover potential conflicts of interest has to be kept as low as possible, users have to turn into customers because it makes sense, not because network marketing has cheated them.

    The compensation scheme is just like a dress, and it has to fit you absolutely perfectly. It is definitely not a one-size-fits-all system.

  5. Fabio,

    I am afraid that great tools like your Baobab maybe not the perfect for open source network marketing, but I would be happy to tell people about you, let’s talk about that.

    Ciao!

  6. Roberto, I don’t’ think the problem is that users unknowingly spend time. They knowingly spend time to save money.

    The problem is that the OSS movement has used “low price…heck, we’re free” as the value driver for years now. Users have bought into this and now we expect users to all of a sudden pay for support or something else around OSS?

    This is why I strongly believe that selling support is the wrong decision for the OSS industry. Support is of little value…so why would I pay for it?

  7. Hi Savio, great hear from you again!

    I believe you are right about users knowingly spend time to save money, at least in US. But Europe is a different “country”, where CIOs look for solutions instead of products, as John Newton confirmed. TCO and ROI are rarely evaluated, attitude to risk taking is pretty low, and information asymmetry plays a role.

    So said, I am afraid you are generally right saying that support is of little value into mature IT markets, while it is growing interest in emerging ones.

  8. Nice. Turn open source into a scam.

    No one in their right mind would ever pay for open source software. There will never be sufficient economic value to charge for copies.

    There is no money in distribution. How can anyone compete with apt and yum?

    Digital copies will always be free as in beer. The value comes from the creation of originals. There are many professional open source developers getting paid to do just that.

    If you’d like to see more software, forget distribution, feed and shelter the creators of originals.

  9. My idea of open source network marketing is neither a pyramidal nor a Ponzi scheme – that are both illegal and unethical – and it doesn’t pay on levels.

    You are right, an IT department could manage a Linux distribution on its own environment by itself. So said companies like Red Hat are delivering value to the market, even if the determination of this value is the result of subjective judgments.

    I definitely agree with you, when you say that to see more free software the market need to feed authors. Note that it doesn’t say anything about how this might actually be done, and I think that an appropriate network marketing could help to create economical resources for funding code development.

  10. Why is it that every time somebody says “Network Marketing” the word SCAM is always attached?

    Although MLM or Network marketing attracts some people that are scammers and schemers there are some of us that are professionals that have been highly successful by helping others.

    Your compensation plan (it’s not a scheme) is vitally important and if you were to actually consider an Open Source MLM it would be extremely important to consult someone who has been successful in the industry.

  11. Open source is different, also in this respect. First, a large part of the free software crowd has strong ethics. Second, many open source developers and hackers have strong technical expertise on open source software.

    So said, I believe open source network marketing needs a team to be properly designed and implemented, and a MLM expert would definitely be one of them.

  12. It is true that network marketing companies do push their people to recruit. I work with a training that coaches network marketers to lead with product and offer the option of an opportunity with the company. We believe that if a person is not passionate about the product they cannot not promote.

  13. Kim,

    Your comments are thought-provoking. The industry is flooded with many mlm biiz opp. Success goes to the person who is passionate about the product. Now thats a long term biz.

    Regards,
    Alexander

  14. Hi Roberto,

    I think the biggest problem in the network marketing industry is there are so many people who are selling the sizzle of the business but not the steak.

    Just because something has a binary plan or a 5×5 doesn’t make it illegal or immoral. Unfortunately it only takes a few bad apples to ruin it for the bunch.

    I think in general the network marketing business model is one of the businesses models around that allows for motivated people to really get in there and earn some money.

    Personally I believe that if more people adopted mlm pay structures for their affiliate programs online they would find more people willing to promote their products.

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