Who are we? Which journey are we on?
These are the deep philosophical questions we at Frappe had been asking for years. In the capitalist world, it’s pretty simple for a company to nail their “why”. For a software company, it mostly revolves around product licensing. However, when you are building a business where the core offering itself is free and licensing isn’t an option to monetize, the journey of finding a business model could be as difficult as a monk subjecting oneself to wandering and meditating in the mountains, questioning, Who am I?
For us at Frappe, the simple answer for a business model was:
“Since we are making 100% open-source products, we don’t make money on the product, but around the product, by offering services”.
The above statement cleared two parts. As a company, we are “product builders”. And for earning our bread and butter, we would offer services like product warranty, implementation and hosting to our subscribers. Sounds sorted. right? Well, no.
SaaS model
For us, finding a business model was never this simple. Imagine, we have a SMB with five users, asking for the support and implementation service. How much should we quote them? At the same time, we have a multi-million dollar corporation, asking for the same service.
When we launched ERPNext in 2010, we opted for the typical SaaS model of per-user pricing as our multiplier. This was our tool to gauge the scale and ticket-size of the customer. This remained our multiplier for almost a decade.
The per-user model gave us year-on-year growth. We were acquiring thirty to forty customers each month. However, in the overall scheme of things, it formed a small portion. The actual adoption by the community partners was much better, to which we didn’t have visibility. You might ask, if partners were doing implementations, why weren’t they subscribing to Frappe’s per-user plans? Even we kept asking that question for a long time. At times, we even felt frustrated and disappointed with the community partners. However, when I reflected, I found a fair reason why the partner’s need didn’t align with our offering.
- Hosting away from Frappe allowed partners to offer unlimited users. This also resonated well with the open-source promise of “no licensing”.
- Secondly, self-hosting allowed them to handle customizations more efficiently. Even though Frappe’s deployment architecture allowed managing customization through custom applications, our hosting platform didn’t offer deployment of custom applications, and controlled upgrades.
While there was no match between our offering and partner’s needs, we also couldn’t frame our partnership model. There were a couple of attempts made to appoint community partners as Frappe Partners, who would upsell our SaaS plans. Each time, it ended-up being a Partner Listing portal, where partners were happy to pay for listing their company profiles, but didn’t resell our plans enthusiastically.
For us at Frappe, though yearly growth was there, the retention of the customers was a concern. The SaaS model had become a leaky bucket. While we were adding 30-40 customers each month, 50% of them churned later. The oldest and most-loyal customers also moved to self-hosting to address their customization and scaling needs.
Fixing the Leakage
The churn and various other factors helped us realize that we needed a platform which would plug the leakage causing customers to host elsewhere. We needed a platform which would allow customers to create their Frappe site on our hosting, which offered services and flexibility as our cloud competition offered. With lots of brainstorming, we identified the need for Frappe Cloud. A platform, which will have a new architecture to address the complex deployment needs. Also, we ensure it offered important competitive benefits like:
- A hosting for Frappe site, with unlimited users
- A freedom to customize their sites by installing custom Frappe apps
- A monitoring and analytics dashboard
- Flexibility of upload and download the database back-up files
It was in the year 2019 when humble beginnings were made to build Frappe Cloud. While this was cooking-up, the business side of Frappe was reliant on the SaaS model, hedged by implementation services.
Consulting Services
In those days, income from the services was a saving grace. While SaaS kept the counter ticking of small SaaS subscriptions (around $600), the news of a customer paying $15,000 for enterprise warranty felt great. Ahh, the services businesses! If you are in the ERP business, but not doing services. It’s just unthinkable.
For us at Frappe, doing services was quite a bumpy ride. We quickly scaled-up to a team of twenty consultants, and started winning projects. The reality of services businesses hit us pretty soon, but we kept on making peace with it. I mean, it's hard to give-up on decently sized subscriptions and named enterprise customers.
After multiple attempts, we realized that implementation is not our cup of tea. More so, being the OEM of ERPNext, we just cannot operate like other ERP implementers. We are the product company (remember)! As a product company, you cannot put your legs in two boats. If you are doing services all the time, it’s very likely that you won’t be able to do justice with the product.
We had to take a hard call, product or services. After lots of back-and-forth, heated discussions, we took a call. Only the product - no implementation services! We actually found a better answer to “no-services“. We initiated offloading services to partners, who would give a separate contract for the customers for implementation, customization and support.
Final Discovery
As the implementation and customization services were on its way out, the Frappe Cloud kept on picking pace in terms of adoption and revenue. Surprisingly, it was not just customers, but community partners also started using Frappe Cloud in large volumes. I recollect New Indictrans migrating about 70 sites in the year 2022, when it was just one year for Frappe Cloud’s launch. In the year 2023, the steady growth trajectory clearly established that it offered the repeatable and predictable business model.
With Frappe Cloud, we were just selling hosting for the Frappe apps! It didn’t even include support (in those days). On the other side, Frappe’s product stack was transformed from just ERPNext, into a stack of about ten products. But how could we build those ten products in the span of two to three years? Because we built our own tools like Frappe Framework and Frappe UI. That’s the whole different story in itself, which enabled one Frappe engineer to build a product alone like Frappe Insights, Builder and CRM. If you can’t get your head around it, I won’t blame you. At times, even I can't.
Conclusively, we were not just making softwares products. We were developing the technology, using which Frappe and everyone in the Frappe community were making software products.
This brings us to square one. What is Frappe and from where it earns bread and butter? The latest version of Frappe says:
- Frappe is a technology company, which makes tools, so that everyone can build better softwares
- For the business, Frappe is primarily offering cloud hosting services. Understanding that business software is high-touch, the support services are bundled with Frappe’s primary service only, which is Frappe Cloud.
Will Frappe survive with this model
We survived for sixteen years, grappling with multiple business models, and scaling at each. Finally we have a model which offers predictable growth, as well as answers the needs of customers and partners.
This positioning complements well with the core strength of Frappe, building technologies and open-source products, for everyone. In sixteen years, for the first time, we can claim to have a clear business model. If you still have reservations, trust open-source. It gives you a clear entry as well as exit route. No lock-ins! The very reason we talk about exit routes so confidently is because we see our customers themselves lock-in to Frappeverse, for the quality and flexibility our platforms offer.
With Frappe, you choose an ecosystem which always keeps you in power on how to utilize our products, which partner to work with, and how to end the relationship. It gives you complete power to decide, always.