Thoughts on Xeround and Free!


Everybody loves free. It is the best marketing term one could use. Once you say “FREE” the people come running. Free makes you very popular. Whether you are a politician offering something for free, or a company providing free stuff, you gain instant popularity.

Xeround is shutting down their MySQL Database as a Service (DBaaS) because their free instances, while popular, simply did not convert into sufficient paid instances to support the company. While I am sad to see them fail, because I appreciate the hard work required to deliver database technology, this announcement was not unexpected.
My company was at Percona Live, the MySQL conference, and I had some additional conversations along these same lines. One previously closed source company announced that they were open sourcing their code, it was a very popular announcement. A keynote speaker mentioned it and the crowd clapped excitedly. Was it because they couldn’t wait to edit the code? Probably not. Was it because now the code would evolve faster? Probably not, since it is very low-level and niche oriented, and there will be few committers. No, I think it was the excitement of “free”. The company was excited about a 49X increase in web traffic, but had no idea what the impact would be on actual revenues.
I spoke with another company, also a low-level and niche product, and they have been open source from the start. I asked about their revenues, they are essentially non-existent. Bottom line is that the plan was for them to make money on services…well Percona, Pythian, SkySQL and others have the customer relationships and they scoop up all of the consulting and support revenue while this company makes bupkis. I feel for them.
I had a friend tell me that ScaleDB should open source our code to get more customers. Yes open source gets you a lot of free users…not customers. It is a hard path to sell your first 10…25…50…etc. customers, but the revenue from those customers fuels additional development and makes you a fountain of technology. Open source and free are great for getting big quickly and getting acquired, but it seems that if the acquisition doesn’t happen, then you can quickly run out of money using this model (see Xeround).
I realize that this is an unpopular position. I realize that everybody loves free. I realize that open source has additional advantages (no lock-in, rapid development, etc.), but in my opinion, open source works in only two scenarios: (1) where the absolute volume is huge, creating a funnel for conversion (e.g. Linux); (2) where you need to unseat an entrenched competitor and you have other sources of revenue (e.g. OpenStack).
I look forward to your comments. We also look forward to working with Xeround customers who are looking for another solution.
8 replies
  1. shlominoach
    shlominoach says:

    Hi,

    No arguing a company should make money; and going closed source and billable is a fine way to go.

    I think the model of “free” as we see it today, relies on various models:

    - Support is not free
    - Really-important complementary products are not free (e.g. in the case of company you mentioned going free this would be a non-free “enterprise backup”). I think this works for at least two companies in the MySQL market that I can think of
    - Like the above, but even tighter: only the very core is free, and if you have any bug to report you may just go and fix it yourself, since only paying companies get bug fixes

    I don’t know that Xeround fits any of the above, since it provides with DBaaS; so going open source is irrelevant. But pricing is well accepted in this type of business. It’s well understood today that we should pay for online services, from Amazon to Rackspace to other clouds; I don’t actually think the Xeround issue has to do with “free”. It’s not in the same company as other products you mentioned.

    Could you please provide link to said Xeround demise? I didn’t see this anywhere.

    Reply
    • Mike Hogan
      Mike Hogan says:

      Shlomi: I appreciate that support is not free, but an open source company can support only their product, while a big consulting shop (Percona, SkySQL, Pythian, etc.) can provide a single source of support and consulting across many products.

      I understand the add-on market, but you must also appreciate that the OSS product must have enough value to gain momentum. It is a fine line and can lead to cannibalization by yourself and others. What if the other engine was bundled by Oracle in the Free MySQL? What if Oracle provided the backup solution for it? The same issue of “enough value” gets to the OSS core issue as well. It is a very tough market.

      As I understand it, the freemium model by Xeround did not lead to the anticipated upgrades to paid versions, for whatever reason. I feel for them. Here is a link: http://gigaom.com/2013/05/01/xeround-pulls-the-plug-on-free-cloud-database-option/

      Reply
  2. Anonymous
    Anonymous says:

    OSS business model is tricky indeed, as not as well established as the “plain” one.

    But I do not agree that the only two options are sellout (mysql) or being redhat (there is only place for so many redhats in this world).

    If you look at the CMS space, there are many commercial-opensource ventures. Sure, they started out by unseating costly, complicated, proprietary vendors. But they now have to fiercely compete with each other, as well as with their own “free” version.

    Reply
    • Mike Hogan
      Mike Hogan says:

      Drupal, Joomla, etc. appear to be more a labor of love by a community. WordPress is successful, but the volume for this stuff is HUGE, going back to my big funnel/market idea.

      Reply
  3. Amnon Raviv
    Amnon Raviv says:

    Mike, I am too very sad for Xeround and my friends there. I hope you and Moshe will have a happier ending.
    I couldn’t agree with you more about the 2 scenarios where OSS works for the company behind it. Very true.

    Amnon Raviv,
    GigaSpaces.

    Reply
    • Mike Hogan
      Mike Hogan says:

      Yes Amnon. Anyone who has worked in the area of database kernel appreciates the effort involved to make the DBMS provide uptime, compatibility and so many corner cases and competitive performance. I can think of no greater challenge in the world of software. My heart goes out to them watching their hard work, long hours and personal sacrifice unceremoniously shuttered and shelved. In reality, the hard work to make the DBMS hit all of the above goals can be undone without the right positioning and business model…among other things. Thank you for your well wishes.

      Reply

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