From Open Source to long-term sustainability: Review of Business Models and Case Studies

1. From Open Source to long-term sustainability: Review of Business Models and Case Studies Victor Chang, Hugo Mills, Steven Newhouse, OMII-UK 10th September 2007, AHM 2007

2. Content for this Presentation • Motivation • Introduction • Software Business Models & Classifications • Case Studies: Red Hat, MySQL, Apache, XandrOS, OMII-UK & Business Model Comparisons • Special Case Studies • Further Discussions • Conclusion • Questions and Answers

3. Motivation • Study successful methods of generating money/ revenues from open source projects. • Review and Classify Open Source Business Models. • Achieve sustainability.

4. Open Source Software (OSS): - Source code is freely available under a licence or agreement. - allows users to study, change, and improve software, and to redistribute it in modified or unmodified form. Typical OSS projects criteria: (1) User Support and (2) Development Activities. Proprietary Software: - Close Source. - Requirement payment for licences, software or service. Popular models for commercial firms such as Microsoft, Adobe & MATLAB. Introduction: OSS & Proprietary Software

5. Introduction: OSS Licences • 50 OSS Licences and list 5 popular ones: • The GNU General Public Licence (GPL) • The GNU Lesser General Public Licence (LGPL) • Modified BSD (Berkeley Software Distribution) Licence / new BSD • Apache Licence • Mozilla Public Licence (MPL)

6. Introduction: Sustainability • A lot of academic projects die off. • Essential for OSS projects. • Definition for the paper: - Long Term Maintenanceof organisation, particularly securing funding, resources, operations and clients. • How? We need to study and understand business models.

7. Literature Review: Open Source Models by JISC • (a) Community Model: Apache. • (b) Subscription Model: SAKAI & Red Hat. • (c) Commercial Model: proprietary software. • (d) Central Support Model: OMII-UK. - “A Central Body that provides robust releases and support for open source products that are of strategic importance to community”.

8. Literature Review: Commercial Models by Forta & IDC • Require a subscription fee of the product. Referred as Product in the IDC Model. • Sell paid-for services. Referred as Services in the IDC Model. • Selling intellectual properties or licences (Split-Licencing). Referred as Resale in the IDC Model.

9. Literature Review: Commercial Models by Forta & IDC

10. Our Model Classifications • Subscription & central model, can be regarded as one – Support Contracts (Red Hat) based on different business requirements. • Split-Licencing (MySQL): Sale Licence. • Each OSS organisation needs a Community (Apache). • Valued-added Closed Source (XandrOS): proprietary. • Macro R&D Infrastructure (OMII-UK): R&D based; involved in high-level complexity challenges; collaborations & partnership between local/international institutes; come from government fund initially.

11. Support Contracts: Red Hat • 24/7 service, 3 levels of support subscriptions. • Obtain revenues from - RHEL subscription per system or per server; - Subscriptions from commercial open source applications (JBoss et al) - System/Architecture management services; - Support services; - Red Hat Certification & Training.

12. Advantages - Ensuring long-term sales and profits. - Provides a more predictable & dependable revenue. - Provides diff level of support. Provides users more options. Disadvantages - Customers may feel no need to pay due to large amount of free info. - Needs to ensure a large number of users already available. - Easy for others to clone full architecture & services, having more competitions to deal with. Business Model Comparisons: Support Contracts

13. Split-Licencing: MySQL • Offer both free & also commercial editions. • Primarily obtain income from selling commercial licence, allowing them to use product without being restricted by GPL. • Customers can include MySQL in their product for resale. • Suitable for firms not wishing to release source code, or those not wishing to comply with GPL.

14. Disadvantages - Could be confused with boundary between commercial or GPL licence under the same product. - If users switch to GPL licence products, might reduce income. Less predictable for income. Advantages - Provides a high level of flexibility for users & organisation. - Allows clients to customise software for sales without licencing restrictions. - If software include popular enterprise ones, it could increase sales & users. Business Model Comparisons: Split Licencing

15. Community: Apache Software Foundation (ASF) • Apache HTTP server- 1994. ASF was started in June 1999. Non-profit organisation. • Decentralised community of developers. • Apache Licence – similar to new BSD Licence. • Largest OSS organisation along with Red Hat. 66.9 million sites using Apache web server.

16. Advantages - Backed up by large community effort, it can become a main stream. - Presented and appealed to a wider range of users & firms. - Become a main component in the market such as Apache HTTP, Tomcat, IBM Eclipse etc. Disadvantages - Leading developers or donators/investors may influence its development cycle and direction. - Find it difficult to sustain and often request community donations. Business Model Comparisons: Community

17. Value-added Close Source: XandrOS • Founded in 2001, to make easy-to-use Desktop Linux. • Earns income from business & educational partners. Operating like Split-Licencing at the beginning, then switching to this model in 2006. Recent partnership with Microsoft. • Characteristics: (a) Pay for software; pay for service; attract investors & venture capitalists (b) Add new proprietary software & improve functionality.

18. Advantages - Can receive additional funds from share, investor’s funds, sales commission, retailers. - May generate higher revenues if targeting the right market or products (VoIP, gaming). Disadvantages - If failing to impress users, clients and investors, may fail to sustain themselves. - Certainly not OSS developers’ favourite. Business Model Comparisons: Value-added Close Source

19. R&D project. Come from government funding initially. Traditional ways of funding academic projects. Can be viewed as a commercial model, or commercial operations. Macro R&D Infrastructure Projects / organisations Products & services Funding Customers/ Users Funders Positive feedback

20. Macro R&D Infrastructure: OMII-UK • Founded in JAN 2006, partnership between Southampton, Edinburgh and Manchester. • Presents engineering/Grid challenges, integrating 15 components for solution-focused projects. • Offers a secure, robust & fully integrated Software Solutions for e-Research & e-Science. • Involved in international partnership, community expansion, research & development.

21. OMII-UK e-Science Value Chain Infrastructure Provider Component Provider Solution Provider e-Science End User OMII

22. Advantages - Attract funds if meeting a specialised area with high demands. - Merge together to form a powerhouse in a specialised area to attract funding & expertise. - Create spin-offs to generate more revenues & research outcomes, particularly for bioscience or medical or e-Science R&D projects. Disadvantages - Sustainability model is under development & influenced by investors. - Seek funding at regular intervals, creating a sense of instability and insecurity at those periods. - Might be difficult to integrate academic theories and industrial perspective in some organisations. Business Model Comparisons: Macro R&D Infrastructure

23. Special Case Studies: XenSource • Move between business models. • Hypervisor / virtualisation software. • Before JAN 2005, Macro R&D + Community at Cambridge. • £23.5 M venture capital in JAN 2005. • Provides Split Licencing Model: free OSS and Enterprise version. • Acquired by Citrix for $500M (£250M).

24. Special Case Studies: National Computer Systems, Singapore • Dual Business Models. Started in 1981 as Macro R&D Infrastructure. • In 1996, became a close source model. • Singapore Government as its main client. • Partners with Singapore Telecom (£1.623 B value). Overseas offices in 8 countries. • Running support-contract and valued-added close source model.

25. Special Case Studies: Sun and OpenJDK • More commercial firms starting OSS projects. • Advantages: - Consolidate a stronger community; - Build up a more robust, reliable & user- oriented software. • OpenJDK in 2006, under GPL Licence. • IBM too – Eclipse, IBM JDK, Apache etc.

26. Discussions: Merger & Acquisitions (M&A) • M&A: Useful business strategy & have a direct impact on OSS organisations. • SuSE: Acquired by Novell with $210M (£105 M) in NOV 2003. Partnerships with IBM, AMD, ITV & Microsoft. • Novell’s Benefits: (a) Provide enterprise-class services & support for Linux; (b) expand its business territory to get revenue from open source community.

27. 5 OSS business models. Long term sustainability depends on adopting relevant business models; securing funding or revenues; reviewing the needs to move one model to another or use multiple business models. UK e-Science Programme helped setting up many e-Science organisations => Now facing long-term sustainability challenge! Worth to consider these models (esp. Macro R&D) if setting up spins offs from research projects, or setting up long-term entities from e-Science or OSS community. Conclusions

28. Where is your organisation? customers / users funding / investors OpenBravo, Compiere OMII-UK XandrOS Red Hat MySQL Canonical Sugar CRM Interface21 Hyperic business partners