The part of my job I enjoy the most is meeting interesting people and companies from all over the world.
One such company is Allevo in Romania. They have decided to open source their core business.
A bold move, to shift the business model and competition from a pure commodity space to a more diversified services space. I’m following their progress in this endeavor – initially surprising, their analysis and reasoning is I think valid and innovative.
Who is Allevo and what do they do? They are a software vendor and consultancy in financial transactions and payment processing, focusing on banks, micro-finance institutions and corporate treasury departments. An important part of their business is related to connecting the back-office payment related systems of their clients to SWIFT. As such, they are a SWIFT partner in Romania and some Eastern Europe countries. The reason I noticed them is because their 30-ish strong team has a strong innovation culture, and have been in touch at several occasions with Innotribe. They participate to and love the Innotribe events, to the point of adopting some of our tools and techniques themselves.
And they also walk the innovation talk. Because innovation is needed in their market segments.
Sorin Guiman, the general director of Allevo, explained it to me like this – ”Allevo has recently become aware of a perception paradox: perceived on the local market of being expensive, the company discovered that potential customers outside Romania hesitated to invest because the solutions sold by Allevo were in fact considered too cheap. Different markets and practices led to different perceptions of value: the same product was labelled both expensive and cheap”. Indeed, Eastern Europe is a mosaic of countries, some part of the European Union and using the Euro, some part of the Union with their own currency, and some not part of the union. All with very different standards of living and thus perceived values, in everyday life and in business.
Sorin elaborated further – “At the same time, we noticed that the technological shift makes hardware & software products more and more affordable, therefore accessible to larger and larger consumer communities. Automation of business flows, processing of financial transactions and everything related is no longer something considered premium or disruptive or innovative, this has already become a commodity”. Very true as well.
So far, nothing really new. What is interesting is the next step in their reasoning.
When faced with the same pressure, many companies adopt the “milk the cash cow” strategy: make the existing product “stickier”, so that existing clients remain as long as possible with the product. The product evolves to a very bespoke, proprietary format and customers, the price actually increases over time and customers are more and more captive. But the market doesn’t grow. Another possible strategy is product diversification – for example, evolve the product to a cloud-based service, for a different market segment and using different business and pricing model. This is not always possible though, especially in the case of very monolithic products.
Allevo have diversified some of their offerings. However, for their core product, called qPayIntegrator, Sorin decided on a totally opposite strategy: open-source. Make the source code available to anyone to use and adapt. Sorin explains: “Allevo needed to change its business model in a way that would allow further development of the company’s operations, that would attract new customers, that would create awareness and help build trust within the financial services industry. We have chosen to publicly share the value we’ve created. The product is free, thus the perception dilemma changes from ‘can I trust this vendor?’ and ‘it is expensive/ridiculously cheap’ to ‘does it solve my business need?’ “. The qPayIntegrator product becomes FinTP, the open source version.
Of course, the first, probably surprised, reaction will be – “how do you make your revenues if your core product is now free?”. Sorin answers: from services around the product. Remember, Allevo has a consulting arm. What they hope to achieve is to expand the market that would benefit from these services, by making as many companies as possible adopt the now free product.
My understanding is they want to be the equivalent of what Red Hat is for Linux, in the financial transactions processing space. Linux is a computer operating system, and is the best known example of open source development. Red Hat is a software company that distribute a version of Linux with associated services such as support, training and consulting.
If that is the case, then two conditions are necessary for success –
- The product better be good, in fact so good that it gets adopted by a very large community, an order of magnitude larger than today. Linux got adopted widely because it was a pioneering operating system when it was first developed.
- They have to create a community of software developers around FinTP, to maintain and nurture the open source version. This requires a lot of activity, promotion and community leaders, such as Linus Torvalds in the case of the Linux community. Plus there’s the question of the sequence – in the case of Linux, the operating system and the community came first, and then distributions such as Red Hat came later.
These are Allevo’s and Sorin’s big bets. Creating the open source community and at the same time capitalizing on it to provide consulting services will stretch the team. But they have lots of passion, and passion helps when facing challenges.
Allevo have kindly invited me as a speaker to the launch event, and I’ll be there. I’m very interested by this experiment, and will remain a close observer and will help when I can. SWIFT has several software products in markets with similar characteristics as those outlined by Sorin, and perhaps we can learn from Allevo.