Doug,
I agree that perception is everything! I have exactly the same issue to face over the next 6-12 months here: Two universities merged, one using Moodle one using Bb. I am the Moodle support, advocate, manager, evangelist, ninja - but Bb have already had marketing people in talking to those higher up the decision making tree than I am, sponsoring events and so on, ever since the merger was first talked about (and before) even though all the users I've spoken to on the ground who have experience of both systems want Moodle.
And your comments about 'being on the cutting edge' - Moodle is already using HTML5, it has responsive themes (even more coming now bootstrap is included - although other responsive flavours have been available for a while) It also has device detection which allowed separate Mobile themes to be used, it has a mobile app, and mobile/responsive seems to be the main priority for the frontend team at HQ - so I think Moodle is already there (as in pushing things forward on the cutting edge, not as in being at the end of the race!) and these things seem to happen much faster in Moodle than in commercial equivalents. The difference, which does tie in to your point, is that as you say, the commercial marketing departments create one heck of a song and dance about it - quietly covering up the bits that their products DONT do, until they launch them with an even bigger song and dance when they do. Is Moodle behind its competitors - I don't think so in general, although I'm sure we can all pick on specifics of Moodle that a particular other product does in a really nice way that we'd love to see in Moodle: But the 'this works in facebook' and 'that works in Wordpress' and 'such and such works in XYZ' is not always easy (or appropriate) to apply to a.n.other piece of software - Would the Wordpress back end work well for Twitter? Yes, there are definitely things Moodle can learn from all of them, but perhaps we also need to start shouting back about some of the things they could learn from Moodle . If someone like yourself or Frankie or myself, all active in the community, find it difficult to highlight these things, how much harder is it for a decsion-maker faced with a keen teacher advocating Moodle on one hand and a slick marketing rep drilled in all the strong points of their product (and how to cover the rest) on the other.
However, I don't think you are correct that moodle needs to change in order to offer the two-tiered business model: Its already in place isn't it? The work done by many moodle partners, and products like Totara being built on top of 'free moodle' would suggest that this already happens, within the existing structure. This is exactly what happens in the Linux world - its not Linux (the kernel) that comes as paid-for commercial versions, but the bells and whistles of the distribution and the support packages. Those commercial companies do not sell 'Linux' - they can't its open source (or at least without being an open-source/copyright lawyer I'll just say there's no point as Linux itself is freely available), just like Moodle - what they sell is the extras and the services, which as I understand it is the same model that the likes of MoodleRooms et al already use.
Its often easy to look at moodle and the community and say how much better the 'product' could be, because as so many of the community are developers, we are always trying to push Moodle further and further forward, so it always seems like we are addressing weaknesses, while other companies develop (or buy up!!) in the background, shouting about what their existing product can already do, almost hiding the weaknesses until they have something new to offer. And also because we are constantly striving to address the edge cases (or not so edge, but institution specific) that people come to the forums for help to address, with the usual response, of 'OK lets see what can be done to get it working like that for you' - while my own experience of dealing with those sorts of issues in a closed source product is that the response is generally 'Sorry, XYZ doesn't work like that', issue closed, no further comment, no ongoing discussion, just 'sorry' (or not in most cases!!!)
All that said, your basic point about MARKETING MOODLE, and the perceptions of Moodle (but also of open-source software in general) is, as you rightly say, where the battle needs to be fought. So maybe a large part of the issue should be whether Moodle HQ needs a (bigger) marketing budget - but as a community member, please don't ask me where that budget would come from!!! ;) Maybe just putting out some professional quality presentations/videos and printables that those of us in the position of being the institutional moodle evangelist can use/tweak to balance up against some of the commercial offerings.
Moodle is an incredibly strong product NOW - but it needs (we need) help shouting about it against the marketing/pr blitz from 'the dark side'. We shout a lot about the way forward, the work going on to make Moodle better (all necessary, all good), we don't do enough shouting about how great Moodle is already! I'm not advocating sitting there with what we have and not continuing to push the boundaries, just advocating 'selling' Moodle as the great tool it already is (while continuing to push it forward)!
All of which is a very long-winded way of saying you are right that PERCEPTION is the key!
Richard