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.
Make 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?
Roberto Galoppini, and 
Abdul Latif Sultan are discussing. 
Promise of a new day by 
Carlo, and 2 others are discussing. 
Fabio Marzocca 5:01 pm on May 31, 2008 Permalink
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
Roberto Galoppini 3:57 pm on June 1, 2008 Permalink
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! 😉
Fabio Marzocca 1:07 pm on June 2, 2008 Permalink
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? 🙂
Roberto Galoppini 4:45 pm on June 3, 2008 Permalink
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.
Fabio Marzocca 11:01 pm on June 3, 2008 Permalink
Roberto,
while I’ll keep waiting to find my perfect dress to fit, I can tell you to add also myself into that “few italian open source developers” list! .-)
Roberto Galoppini 7:30 am on June 4, 2008 Permalink
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!
Savio Rodrigues 1:21 pm on June 4, 2008 Permalink
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?
Roberto Galoppini 2:27 pm on June 4, 2008 Permalink
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.