Recently a colleague from Apache commented to me that there are no such things as open-source companies. Instead, he identified a few types of companies that “make money out of open source”:

•    via expertise in consultancy
•    hoarding copyright ownership for a big sale
•    providing additional value on top of open-source products
•    licensing fear, uncertainty and doubt (choosing GPL to make users who fear GPL pay)

As the vice president of the Apache Synapse project and the cofounder of an open-source company, I regularly think hard about what an “open-source” company means. While I agree that examples of that list of types exist, I also think there is another approach.

Michael Porter, the Harvard Business School professor, is widely considered to be the leading expert on competitive strategy. He identifies three generic strategies for competitive advantage: cost, differentiation and focus.

Differentiation was obviously the first strategy for open-source companies—for example when MySQL was the only commercial open-source database. However, that time is over. There are very few areas where you can point to just one open-source project and one company.

Cost is seen as the next competitive strategy for open-source companies. However, this is a weak strategy for selling complex software. Usually the value of the software to an enterprise is much higher than the actual cost, and the negative value—the risk associated with the project failing—is many times the cost of the software. What this means is that few enterprise companies choose software with cost as their first criteria.

That leaves focus. What is a focus strategy? A focus strategy is where you shape a company around a focus: making every part of your business focused on that single-minded aim. Michael Porter has been vociferous in the support of this model, and I believe it’s the only one that is sustainable. It means focusing on using every aspect of open source to ensure that a company delivers something better and different from other software companies.

One key aspect of the focus strategy that Porter points out is that you cannot be the “everything to everyone” company with a focus strategy. Focusing on one area inherently rules out some customers, but it drives other customers to you more strongly.

About Paul Fremantle