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MAKING A (PROFITABLE)

BUSINESS... BUILT ON OPEN


SOURCE
JEFF WALPOLE
CEO, PHASE2 TECHNOLOGY

WHAT I AM TALKING ABOUT


Growing a successful business is hard
but sustaining a reasonably sized / profit generating business is
even harder.
Right now many of the businesses in our space are riding the
Drupal wave, operating as specialized implementers of Drupal.
Shifting to a larger high profit and sustainable business will be hard
for many due in part to the intricacies of open source competition
and open source productization.

ABOUT ME
Who I am:

Who I am not:

Almost 20 years in the


software / consulting
business

I am not a CTO and wont


be talking about
technical strategies.

Led Phase2 for the last


11 years based upon
open source software
and services

I am not a lawyer. I cant


answer can I do THIS in
GPL?

OUR WORK IN DRUPAL

DRUPAL COMMUNITY

55+ 12 50+ 6 2
Involved Drupal
Professionals

Speakers at
DrupalCon Denver

open

Key Modules
Maintained

Distributions
Built

Security team
members

STARTING A SERVICES
BUSINESS IS EASY.
SCALING IT IS HARD.

The Growth Curve / Scaling -> Sustaining


20-50 person medium
businesses - growing but
not (yet) sustaining

1-20 person shops making a living


mainly hourly services
every hour spent = a dollar
earned

50+ person businesses - self


sustaining / high profit
Takes additional things to be
scalable AND sustainable.

Takes a mix of hourly +


fixed + retainers

What are those things?


"We build a website" islands of isolation

Takes repeat business and


strong customer loyalty

your competitive advantage


is probably being the ones
that "know" Drupal

Takes some sales (pricing/


estimation savvy)
Requires strong project
management to succeed

works for a life style


business

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2013

2014

2015

HOW TO SCALE SERVICES:


great sales & marketing
great recruiting
infrastructure for efficiency (processes, project management,
supporting functions)
partnering to grow capabilities/business development
securing larger contracts
M&A

SUSTAINING TAKES MORE...

reliable/recurring sales & marketing with process


sustained competitive advantage (vs. a point in time)
securing long term contracts (e.g. government)
intellectual property
passive revenue/ productization
investment?

CHALLENGES WITH
SUSTAINABLE SERVICES

MAKING $ WITH NICHE DRUPAL WAS EASY


cost to develop was low
cost to recruit/train developers was *relatively* low (at least
initially)
testing is (partially) free
re-use of our own and others contributions
community innovation means the community develops and
innovates for us

PARADOXES OF DRUPAL COMPETITION


competitive advantage (knowing how it works + being
better than anyone else - and proving it!) is very hard to
sustain
competing is perceived to be bad because open source
ethos
competing is hard because others can copy easily when
you "share" in an open model

COMPETITION IN DRUPAL IS CHANGING


more players in the market
downward pressure on rates & pricing
more off-shoring and different resource make-up on projects
greater competition from larger companies/platforms now
competing with Drupal (CQ5, Salesforce, etc)

OTHER MACRO THREATS


Adoption is everything - without it our advantage dies
Talent shortages hurt everyone
Community dynamics

SO HOW TO SUSTAIN, NOT


JUST SCALE?

THE REALITY
The challenges of Drupal and open source business
are not really about IP or licensing. Open source is
actually part of the solution, not part of the problem.
but so is good old fashioned business strategy.

GROW THE ECOSYSTEM


more businesses at scale
more businesses figuring out how to create business
models around Drupal
more specialization/ less internal competition among firms
more varied business models around Drupal
more Independent Software Vendors (ISVs)

THE IMPORTANCE OF THE ISV

A software ecosystem cannot rely on services companies around


a single product

ISVs (Independent Software Vendors) provide depth


ISVs for us (Drupal) could include integrations, platform vendors,
add ons, etc.
Otherwise we are all just Drupal VARs (Value Added Resellers)

HOW DO PRODUCTS
HELP?

PRODUCTS SCALE
building and distributing a product CAN be a way to scale a
Drupal business, IF you change your model to support
product operations
Developing a product (or more precisely supporting one)
can actually hinder growth of a services company.
I am launching a product, so that we can grow revenue is
a common but uninformed opinion on pure Drupal

PRODUCTS SCALE
Plenty of services businesses also scale: large-scale
consulting firms, hosting providers, and many in the
software space scale without products
Products can produce passive revenue (see above re:
business models) and be helpful for sustainability, but are
not the only way to scale

HOW OS CHALLENGES PRODUCTIZATION


You build an open source product and distribute it.
The market uses it, demands features, requests releases.
Selling it can be undone by any buyer who then
distributes it for free.
Selling services around it is not productization.

DISTRIBUTIONS PRODUCTS
BUT THEY ALLOW FOR...
Re-use
Standardization
Interoperability
Use case targeting
Building blocks for other models

DISTRIBUTIONS DONT ALLOW IP CONTROL.


SO THEY ARE...
marketing (for everyone)
lead gen and marketing for the creator/ maintainer
platforms for more sophisticated services/ tie-ins
better platforms for application stacks
could allow for support models

OPEN SOURCE BUSINESS


MODELS

SERVICE(ISH)
Model
Consulting and Implementation
(e.g. professional services)
Documentation and training
Support retainers & subscriptions

Examples
Every Drupal shop out there
Redhat, Build-a-Module,
Drupalize.me
Acquia, Redhat

PRODUCT(ISH)
Model
Freemium

Dual licensing
Distributions

Examples
Alfresco, EZ Publish
JBoss, MySQL
Commons, OpenPublish, Atrium

INTEGRATIONS
Model
Add-ons (apps/plugins/themes)

Examples
Wordpress, EzPublish

External Product Integration

cloud services, Drupal Commerce

Application bundles (stacks)

Redhat OpenShift

not recommended

potential
Low Feasibility

Dual Licensing

Freemium
Support
Retainers/
Subscriptions

Competitive/
Legal Feasibility

where to focus

where we started
Distributions

Product
Integration
Add-ons &
Plug-ins

Documentation &
Training
Application
bundles (stacks)

Consulting and
Implementation
High Feasibility

Low Barriers to Entry

High Barriers to Entry

Complexity

WHICH ONES
WORK FOR
DRUPAL?

SO WHATS THE ANSWER?


Ask yourself whether you are willing to invest in products.
That investment requires a different approach to product
building, product management, community management,
market matching, and continued, sustained investment. It also
requires an excellent idea for a product that people need.

IF YOU ARE WILLING TO INVEST...


first leverage Drupals popularity for lead generation
master services / deliver them successfully
corner specific Drupal niches for competitive advantage
invest in building discipline to help you realize revenue on that
add something to the product that creates passive revenue
bundle support, documentation or training for it
create a distribution, package or integrated product from it

IF YOU ARE NOT WILLING TO INVEST...


...that doesnt mean an unsustainable business. Instead...
first leverage Drupals popularity for lead generation
master services / deliver them successfully
corner specific Drupal niches for competitive advantage
invest in packaging your services, automating aspects of them, or
finding ways to build greater margin in them
use increased margin to re-invest in more process and automation

AND IF YOURE BORED...

SUMMING IT UP

DRUPAL IS MORE THAN A CODE


BASE.
IT HAS A GIGANTIC USER BASE;
A POWERFUL BRAND;
TOOLS & RESOURCES THAT CAN DRIVE DOWN
COSTS AND DRIVE UP REVENUE

WE HAVE DRUPAL.
HOW CAN WE START USING IT AS A TOOL TO
BUILD NEW LINES OF BUSINESS?
NOT JUST A TOOL FOR BUILDING OUR WEB SITES.

CHANGE THE OUTLOOK:


LETS STOP THINKING ABOUT DRUPAL AS A CODING
PLATFORM WE USE AND START THINKING ABOUT IT AS
A BUSINESS PLATFORM WE LEVERAGE.

THANKS! QUESTIONS?
JEFF WALPOLE

jwalpole@phase2technology.com

t: @jeffwalpole
www.linkedin.com/in/jeffwalpole

phase2technology.com
@phase2tech