October 2007

Q. I've read that commercialization has both a supply and a demand side. What effect do these two sides have on open source commercialization, specifically in Canada?

A. The seminal document covering the state of commercialization in Canada today is People and Excellence: the Heart of Successful Commercialization written by the expert panel on commercialization. The panel has taken a balanced approach to assessing the current situation and formulating a number of recommendations for improvements in commercialization in Canada. The committee has also gone where few Canadians have gone before by looking at commercialization in a holistic sense where commercialization is the sum of its parts; the two parts of the commercialization puzzle are the supply side and the demand side.

I like to use the mousetrap analogy when talking about commercialization's supply and demand sides. The supply side is all of the ingredients necessary to build the mousetrap whereas the demand side is the ingredients necessary to achieve marketplace success with that mousetrap. Supply side commercialization includes public and privately funded research which generates product ideas and the product itself. Demand side commercialization is all about business models, strategy and market place implementation. Both supply and demand side are essential for successful commercialization.

The Conference Board of Canada in their 2007 How Canada Performs: A Report Card on Canada gives Canada a D in innovation and cites our lack of ability to commercialize as a key contributing factor. Canada is generally acknowledged as doing well at the supply side of commercialization; however, we are notoriously less proficient at marketplace success with the demand side.

I believe the root cause of Canada's lack of commercialization excellence is related to the Canadian commercialization paradigm. This isn't to say that there aren't Canadian success stories; however, on average, Canadian companies underperform most OECD nations in commercialization. A telling sign is the ever widening productivity gap between Canada and the US. For many generations, Canadians have placed maximum emphasis for commercialization success on building the mousetrap while minimizing or ignoring demand side commercialization.

Two indicators of the current supply side paradigm are commercialization incentives and linear commercialization. Commercialization incentives are essential for rewarding the behaviours the government wants to encourage. There are a number of government programs targeted at supply side commercialization; two examples are SR&ED and IRAP.

While there are a number of government programs geared toward building mousetraps, there are far fewer incentives targeting demand side commercialization excellence. But, virtually all other sources of funding such as angels, Venture Capitalists, and junior public markets, prefer that the funds are used for marketing an existing product. Research and Development (R&D) is considered too risky!

Linear commercialization views supply and demand side as separate components. The typical linear commercialization sequence involves bright young engineers developing a leading edge mousetrap. The focus right from the start is on R&D excellence and building the best darn mousetrap in the world. Upon completion there is an innovative mousetrap but the world has not beaten a path to the company's door; the next logical step is that the young company switches focus from supply to demand side commercialization. The net result is supply and demand is completed in a linear fashion rather than in parallel.

How does the problem of a supply side centric commercialization paradigm affect an open source business? Well, your choice of commercialization paradigm will have a direct and more significant impact on your open source business than likely any other single factor. In fact, choosing the commercialization paradigm for your open source project will be one of the most important decisions that you make as a business. If you apply the commercialization supply and demand side model to an open source model, your supply side is primarily the code you are developing, while the demand side is the business model you choose. In order to succeed in commercializing your open source assets you will need a paradigm that balances both sides of commercialization.

If you look at some of the early entrants into the open source business market you'll see companies who were all about passion, code, and supply side commercialization. Marc Fleury, creator of JBoss, stated for BusinessWeek : "The origin of open-source was definitely non-profit, right? It was very high on passion and church, but not at all with a business model behind it". Marc Fleury quickly realized the need to develop a balanced commercialization paradigm for his organization that included a viable business model. One of the first incarnations of a business model for open source was to give the software away and charge for service. Rather simplistic, but it did work for JBoss. There are many more business models available to open source today, some of which are described in Seven Open Source Business Strategies for Competitive Advantage.

Perhaps one of the best studies in a balanced open source commercialization paradigm in Canada, and the world, is the Ottawa-based Eclipse Foundation. This organization started with a balanced commercialization paradigm which, summed up in a word, is collaboration. While many open source organizations foster collaboration in the development of code, The Eclipse Foundation has taken this a step further.

Mike Milinkovich, Executive Director of the Eclipse Foundation explains: "Eclipse has a corporate membership model that has resources (16 full-time staff) to help proactively foster collaboration. Also, the way we're set up and the way our organization is defined, we're explicitly set up and tasked with fostering collaboration and commercial adoption of our products (and commercialization of the application written on top of what we do)".

The Eclipse Foundation commercialization paradigm permeates everything they do and the collaborative environment applies equally to supply and demand side. The selection of incorporation as a non-profit business is a key enabler to their success. Mike continues: "You read the literature on ecosystems and there's always this expectation that there's a for-profit organization at its core that essentially makes things work. In the Eclipse context, at its heart is a not-for-profit organization with an open-governance and open-licensing model. Having a not-for-profit organization at the heart of Eclipse makes a big difference."

The Eclipse Foundation success can be attributed, in my opinion, to their selection right from the start of a balanced commercialization paradigm. To be successful in commercialization of an open source business you must select a balanced commercialization strategy paying attention to both supply and demand side.

Recommended Reading:

Canada's New Government, Mobilizing Science and Technology to Canada's Advantage

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