< borrowed from Wikipedia >Disruptive technologies are innovations that improve a product or service in ways that the market does not expect, typically by being lower priced (”low-end disruption”) or designed for a different set of consumers (”new-market disruption”). Disruptive technologies are particularly threatening to the leaders of an existing market, because they are competition coming from an unexpected direction.
In low-end disruption, the disruptor is focused initially on serving the least profitable customer, who is happy with a good enough product. This type of customer is not willing to pay premium for enhancements in product functionality. Once the disruptor has gained foot hold in this customer segment, it seeks to improve its profit margin. To get higher profit margins, the disruptor needs to enter the segment where the customer is willing to pay a little more for higher quality. To ensure this quality in its product, the disruptor needs to innovate. The incumbent will not do much to retain its share in a not so profitable segment, and will move up-market and focus on its more attractive customers. After a number of such encounters, the incumbent is squeezed into smaller markets than it was previously serving. And then finally the disruptive technology meets the demands of the most profitable segment and drives the established company out of the market. An example of low-end disruption is the way digital photography has largely replaced film photography.</ borrowed from Wikipedia>
No market is shielded against disruptive technologies, and the market of SMB servers is no exception. In fact, it shows all the conditions for such a disruption to happen, as it is a market in which:
- There is a clear leader (Microsoft)
- With a mature product (Windows Small Business Server)
- Over-provisioned product, providing more functionality than needed and overwhelming end users by the plethora of features
- Established on a continuous, evolutionary innovation cycle
- With little or no commercial interest in the lower segments of the market (WsSBS has no product or pricing segmentation for customers under 75 employees)
- With a strong motivation in abandoning the less profitable customers and focus in the more profitable ones (rising the license price by 80% is forcing customers in the low-end to look for alternatives)
Moreover, Linux and the open source tools for network management (Samba, Postfix, Squid, Snort, eGroupware, Spamassasin, ClamAV, etc) have a huge disruptive potential in the SMB server market, as they bring a great advantage in pricing (in fact, they are free). Besides, similarly to other disruptive technologies, they started offering a lower level of functionality than their closed source alternatives, but they have evolved and caught up or even surpassed them in many markets (close to 90% of the supercomputers in the world are based on Linux, which is a good indicator of the quality level this technology has reached).
However, in spite of these conditions, open source solutions have a very low presence in the market of SMB servers. The reason is simple: for a server solution to enter the SMBs, it needs all its components to be tightly integrated and be easy to administrate. SMBs do not have resources nor time to deploy complex high-performance solutions, so highly integrated products such as WsSBS cover pretty well SMBs’ technological needs.
This is where solutions such as eBox Platform, developed after the integration of standard open source components, have the required disruptive potential to change the market balance. On the other hand, as the software integrating these components is also open source, there are additional advantages, both in development costs (users community greatly helps reducing the effort needed for design, development and testing) and in sales and promotion costs (due to the word-of-mouth effect generated by the community and the option to try the product without previously paying for it). Thanks to this, it is possible to compete with the market leader with a lower cost structure, turning thus the market of lower-end customers profitable.
Finally, as it is not possible to use a traditional license-based business model, there is need to be innovative in the value proposition and bring it closer to customer’s needs. For us the solution came in the form of SaaS model (access to the eBox Control Center, offered mainly for VARs and MSPs) and subscription services (disaster recovery, cheap VoIP calls, security audits, reports and alerts, etc), which are not offered by the market leader.
In summary, the key points to disrupt the market of SMB servers are:
- Focus the product initially in the lower-end of the market, to later improve in functionality and start growing in the market stack
- Center the innovation effort in improving system integration and task automation, as well as usability and easiness of administration
- Use open source methodologies for development, distribution and commercialization of the product, generating a user community around the project
- Develop the value proposition in technologies and services that allow for a better convenience of use, such as SaaS or subscription to remote services
Tagged: business model, disruptive innovation, eBox, entry strategy, Linux small business server, Market, open source, small business server, SMB 29 December, 2009
On a day like this four years ago eBox Platform was first published as open source. Anniversaries such as this one are good chances to stop for a moment and look back to how everything started.
Before open-sourcing eBox code we had been working in it for some 20 months already, since before summer 2004. Originally the whole idea of eBox came up as a joint-project between DBS (now defunct) and Warp in order to develop an open source server to offer small and medium businesses all the functionality needed to run their computer networks and network infrastructure. The stress was put in simplicity and usability, as most small businesses do not have an IT expert nor the time to set complex systems up.
After some work we quickly realized that a Webmin approach of developing just a web interface on top of a Linux system could work fine for a single network service but it lacked the service integration required for an easy-to-use, all-in-one solution. That’s where we started developing eBox as an integration framework, an abstraction layer that could turn a bunch of independent network components into a single entity. A kind of “glue” for network services in a Linux server. It was a beautiful idea, though challenging and complex, and no one before had proposed it.
The initial business model that was conceived for eBox was to bundle it in a specific hardware (a box) and sell it like hot cakes. Hence its name “eBox”. Clever, eh? 
Well, the amount of work needed to develop it turned out to be much greater than expected and we did not have enough resources to fund such an adventure and its market introduction, so we turned to search for public funding.
Our initial idea had always been to make eBox open source so we organized an event at the Chamber of Commerce of Zaragoza to give solemnity to the moment (in those times open source was in fashion among the public sector, but cases of businesses open sourcing their products were really scarce). We got over a hundred attendants, including some of the most important local politicians and IT entrepreneurs, and initial interest on eBox was pretty high, at least in the local context. However, this interest faded away during the following months and it was not until October 2006, almost a year after its publication, that eBox downloads started to take off, climbing to 2,000 from a meager 500 the month before.
It is really gratifying to see how long we have gone since the kick-off of the project and since we started with the development of the community. Now, with more than 2,000 members in our community and 150 new members every month we are becoming a well-established solution in the open source market and we can soon fulfill our goal of becoming the Linux Small Business Server.
Tagged: Community, eBox, history, Linux small business server, open source, small business server, SMB 30 November, 2009
A few weeks ago I was playing with statistical data from eBox forum, trying to find some behavior pattern and to understand a bit better its dynamics. I tried in particular a couple of well-know principles applied to businesses:
- The Pareto principle, stating that 20% of your customers are behind 80% of your revenues
- The Long Tail distribution, described by Chris Anderson, stating that in an Internet-based business, sales tend toward a long tail graph
Well, as I wanted to see how well these two principles were applied to our community, I just had to change customers with forum members and sales with posts in the forum. The results were really surprising. I was expecting some correlation with the previous principles, but I found out that the behavior was exactly as predicted by the business principles. Here you can see the graph of our long-tailed community (data are freely available at our forum statistics).
So far, it was qualitatively well understood that in every open source community there is a core of very active members and a bulk of sporadic contributors. However, these results can give some quantitative and visual insights on this behavior. I believe they can be applied to other communities and I would love to hear of other examples where these principles work.
4 October, 2009
When I explain the benefits that a business can get from open sourcing a product, the contributions from the community in the technical aspect are well understood and accepted. But when I get to the point of sales leads and opportunities, the reactions are often skeptical. So far I could only come up with examples of other products and companies with just vague descriptions of the benefits in their sales process. Even when I tried to find more convincing figures I just could gather some more vague data.
Well, I finally have some real figures from our own product and company which I think are self-explanatory and I would like to share them as a snapshot of our current situation. My goal is that they could serve as a graphical example of how using an open source approach can help a start up increasing its sales and commercial opportunities. But first I need to explain a little background …
Our main market focus is through partners and resellers who can deliver eBox certified services locally, so for us a commercial opportunity is a system integrator or a managed service provider who contacts us interested in a partnership agreement.
It’s been less than three months since we launched our partnership program and the results so far are the following:
- We have received 50+ partner requests from 30 countries in every continent in the world, except Antarctica
- We have already signed up with close to 10 of them
- More importantly, over 80% of our partner requests have tested and deployed eBox in production environments, half of them at their customers’ premises, before contacting us, showing the value of allowing free download of your own product
- Surprisingly, one in every six is a member of our community, which shows that open source communities are not just “non-paying users”
Having this data would have been very useful for me some 5-6 years ago, when I had to do a lot of open source evangelizing. I hope they can be useful for someone else now.
28 September, 2009
I was used to think that in the open source world, business and community were always separated, that it was a bad idea to mix both worlds. That was the reason why I tried not to interact much with eBox community. Perhaps ill-advised, I thought that there was a natural mistrust in community members for everyone bearing a CEO title and talking business stuff. That was my main line of thought … until last week.
We got to a point where we needed to gather better information about how eBox is used, so I decided that we had nothing to lose if we asked our community. I prepared a poll in the forum and asked the members about the most critical environment in which they had deployed eBox. Not only I got a high number of votes (around 10% of all the members of the community in less than a week) but also a lot of replies specifying the environments eBox has been deployed, its functionalities, the best features of eBox and what should be included in our roadmap.
Moreover, it seems the information gathered was not only useful for us but also for the community itself, as a new poll was launched (thanks Elliot!) asking about the most important services in eBox. The results were not only extremely interesting, but also the subsequent debate and thoughtful analysis (thanks Sam Granf and SamK!).
I don’t think business people should be kept out of interacting with the community. Engaging in an open and honest conversation will be very gratifying and rewarding and it will favor community-driven development at all levels.
31 August, 2009
So, this is it, I am starting again a new blog. The fifth blog if I remember correctly. It is refreshing to start again from scratch, with new ideas, new challenges, new working mates, new context.
My previous professional blog, Embracing Open Sources, was written during my work as a CEO at Warp Networks, a Spanish open source system integrator, as a place to analyze the open source movement from a general point of view. Now that I got to become the CEO of eBox Technologies, the approach I want to follow with this new blog is completely different. My challenge has shifted from a project-based company mainly focused in a local-national market and where every partner is a worker, to an open-source product-based startup, going global from the beginning and with a non-negligible complexity in handling the relation with the different stakeholders. I think the challenges we are facing and the experience we will gain in doing so might be intrinsically interesting and that’s what this blog will be about: sharing the lessons we gain in learning to fly, in trying to make eBox one of the top solutions for the IT management for SMBs around the world. If you liked this introduction stay tuned for new posts!
Tagged: blog 21 April, 2009
