Deishin Lee of Harvard Business School, and Professor Haim Mendelson of Stanford's Graduate School of Business, eloquently lay out a strategy in a recent paper for squashing open source competition. Ironically, it's also a road map for open source companies to use to defeat their entrenched and expensive rivals.The "Divide and Conquer" strategy presented in the paper details a fairly obvious set of tactics for commercial software companies to employ in battling back cheaper open source alternatives. The Cliff Notes version of the paper recommends a three-pronged approach. First, get to market first (I asked my 5-year-old daughter about this, and she agreed this is pretty important, too). Second, come to market with distinguishing features (that sounds pretty important as well). Last, and most interesting, make skillful use of market segmentation.

Product segmentation is a powerful sales tool. I can't remember a time that I wasn't up-sold from the "Basic" version of a piece of software to the "Platinum" edition, but I'm out of the norm. While many IT shops are willing to pay for premium features, many also are revolting against the ridiculously high capital costs of some solutions.

Some vendors still aren't getting it. Commercialized open source shops do. They realize their value isn't necessarily in matching the market leader feature for feature. What's really important is cost, support, and the size of the community standing behind the product.

Take Zenoss as an example. Zenoss is a commercialized, but open source-based network management system that's increasingly taking business away from the Big 4 NMS's of Hewlett-Packard, BMC, IBM, and CA. Zenoss isn't gaining traction because it can do everything that OpenView can do, it's gaining traction because it's cheaper to implement and cheaper to license. Will Zenoss get gobbled up by someone eventually? You bet, isn't that the goal of startups commercializing open source platforms? Of course, the possibility that an open source alternative will disappear is the biggest risk for IT Shops, but I'd argue that it's still a risk worth taking. Just ask some large enterprise IT shops that have lived through failed implementations a couple of million dollars later.

The paper references the dominance of MS Office as an example of the need to get to market first, build your user base, and keep the technology closed and proprietary. Apple iTunes also was referenced as another success story. Hard to argue with the success that MS Office and Apple ITunes have enjoyed. Of course, iTunes is tied to Apple hardware, so it's tough for open source or third parties to compete there. And given Office and Windows are so dominant, and so closely tied, it's also tough for open source competitors to offer true value there.

But there's not much else that isn't fair game for open source vendors. The paper also makes the point that established commercial players can beat open source at its own game by offering free base versions of a product to build up the user base, then segment advanced product features and package them into premium offerings. Hmmm, sounds a little like what open source based startups are doing as well.

Open source has many detractors, but none can argue that the game has changed because of them.

Bill Snyder wrote a brief summary of the piece, which can be found here.