1 / 40

Open Source Business Models

Open Source Business Models. Alan Kelon Oliveira de Moraes <alan@kelon.org> IN953 – Software Engineering 2006.1 May 8, 2006 :: Recife – PE. The community. 6. Treating your users as co-developers is your least-hassle route to rapid code improvement and effective debugging.

teresa
Download Presentation

Open Source Business Models

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Open Source Business Models Alan Kelon Oliveira de Moraes <alan@kelon.org> IN953 – Software Engineering 2006.1 May 8, 2006 :: Recife – PE

  2. The community 6. Treating your users as co-developers is your least-hassle route to rapid code improvement and effective debugging. 7. Release early. Release often. And listen to your customers. 8. Given a large enough beta-tester and co-developer base, almost every problem will be characterized quickly and the fix obvious to someone. 10. If you treat your beta-testers as if they're your most valuable resource, they will respond by becoming your most valuable resource. 11. The next best thing to having good ideas is recognizing good ideas from your users. Sometimes the latter is better. Raymond, E. S. 1999 The Cathedral and the Bazaar. 1st. O'Reilly & Associates, Inc.

  3. Innovation Happens Elsewhere • High productivity requires doing less to produce as much or more [...] in general, than one that can take advantage of the efforts of others. In most cases, this means that a company wishing to innovate productively must recognize that valuable work and talent exist outside the confines of the company and that it must find ways of using that outside material and expertise while still maintaining a competitive edge

  4. Some reasons to engage with open source • Getting high-quality, free software and software design and development help • Making your software ubiquitous through participation and low cost • Engaging end-users in design and testing • Reducing time to market • Working with partners who prefer a loose relationship • Positioning a company • Harvesting innovation • Making standards

  5. Some reasons to engage with open source • Changing the rules • Changing pricing practices • Adopting transparent development processes • Injecting discipline into the development process • Satisfying more customers • Avoiding lock-in • Creating markets [and doing m.a.r.k.e.t.i.n.g]

  6. “Boss, let‘s start an Open Source group” “OK” Him: - But it must make economic sense Me: - Sure – no problem *gulp* Langham (2005) Surviving the five year itch: A tale from the trenches of European Open Source business models

  7. What is a business model? • The way a company makes money • The financial and operational essence of a company

  8. Business models for technology & non-tech companies • Conventional • Selling a product through a distribution channel • “Loss leader” • Offer low price or free product to sell product(s) or service(s) • Give away razors to sell razor blades • “Web Model” • Aggregate eyeballs and sell advertising • Value Apportion • Provide valuable data or service over time via subscription

  9. Setting Up Shop: The Business of Open-Source Software • Few companies have enough people, money, or time to do everything that needs doing, especially when competing against larger companies with greater resources. • A strategy exists to address all these challenges at once: turning some (or in exceptional cases all) of a company’s software products into open-source ones. • Much of the value provided to customers will not be provided solely by you, but rather by other developers who are attracted to working on your open-source products Hecker, F. 1999. Setting Up Shop: The Business of Open-Source Software. IEEE Softw. 16, 1 (Jan. 1999), 45-51.

  10. Setting Up Shop: The Business of Open-Source Software • Support Sellers: Revenue comes from media distribution, branding, training, consulting, custom development, and post-sales support. • Loss Leader: A no-charge open-source product is used as a loss leader for traditional commercial software. • Widget Frosting: Companies in business primarily to sell hardware use the open-source model for enabling software such as driver and interface code. • Accessorizing: A company distributes books, computer hardware, and other physical items associated with and supportive of open-source software. Hecker, F. 1999. Setting Up Shop: The Business of Open-Source Software. IEEE Softw. 16, 1 (Jan. 1999), 45-51.

  11. Setting Up Shop: The Business of Open-Source Software • Brand Licensing: One company charges other companies for the right to use its brand names and trademarks in creating derivative products. • Sell It, Free It: A company’s software products start out their product life cycle as traditional commercial products and then are continually converted to open-source products when appropriate. Hecker, F. 1999. Setting Up Shop: The Business of Open-Source Software. IEEE Softw. 16, 1 (Jan. 1999), 45-51.

  12. Seven open source business strategies for competitive advantage • The Optimization Strategy • The Dual License Strategy • The Consulting Strategy • The Subscription Strategy • The Patronage Strategy • The Embedded Strategy • The Hosted Strategy Koenig (2004) Seven open source business strategies for competitive advantage. IT Manager’s Journal

  13. The Optimization Strategy • Either the integrated system or the subsystems need to be modular (“suboptimal” and “inefficient”) and comfortable in order to optimize performance for the other. • The modular and conformable layers are commodities • Make money at the borders to the modular layers • E.g.: Linux & Oracle Koenig (2004) Seven open source business strategies for competitive advantage. IT Manager’s Journal

  14. The Dual License Strategy • A software company offers free use of its software with some limitations, or alternatively offers for a fee commercial distribution rights and a larger set of features. • Some restrictions • Any modifications that are distributed must also be made public in source code form • Cannot use the free version as a component of any commercialized product or solution • Advantages: Improved customer awareness and faster adoption, stronger competitive positioning, and a large base of users to find bugs and recommend improvements to the software. • E.g.: MySQL, Sleepycat (Oracle) Koenig (2004) Seven open source business strategies for competitive advantage. IT Manager’s Journal

  15. The Consulting Strategy • Delivering a customer solution involves integration of hardware, software, and maintenance • middleware integration • Custom application consulting • E.g: spikesource.com Koenig (2004) Seven open source business strategies for competitive advantage. IT Manager’s Journal

  16. Maintenance Services E.g.: Linux distros (Red Hat, Novell) The Subscription Strategy Koenig (2004) Seven open source business strategies for competitive advantage. IT Manager’s Journal

  17. The Patronage Strategy • To drive standards adoption • To anticipate a de-facto standard and the supporting community will converge around that contribution • Advantages: • Commoditize a particular layer of the software stack • Eliminate competitors that are extracting revenue from that layer • E.g.: IBM & Eclipse Koenig (2004) Seven open source business strategies for competitive advantage. IT Manager’s Journal

  18. The Embedded Strategy • Reuse and tailor existing platforms • E.g.: Linux Koenig (2004) Seven open source business strategies for competitive advantage. IT Manager’s Journal

  19. The Hosted Strategy • Don't sell your software, let users use it or rent it • E.g.: SugarCRM Koenig (2004) Seven open source business strategies for competitive advantage. IT Manager’s Journal

  20. Open Source Paradigm Shift • Commoditization of software • Network-enabled collaboration • Customizability and Software-as-Service O’Reilly (2005) The Open Source Paradigm Shift. In Perspectives on Free and Open Source Software, eds. Feller et al., MIT Press

  21. How open is open enough? • Leveraging openness while keeping differentiation • Apple • IBM • Sun J. West. How open is open enough? melding proprietary and open source platform strategies. Research Policy, 32, 7 (July 2003), 1259--1285.

  22. Apple: reuse and leverage J. West. How open is open enough? melding proprietary and open source platform strategies. Research Policy, 32, 7 (July 2003), 1259--1285.

  23. IBM: from platforms to applications • Phase I: application software • Phase II: system software J. West. How open is open enough? melding proprietary and open source platform strategies. Research Policy, 32, 7 (July 2003), 1259--1285.

  24. Sun: opening new platforms • Strategy 1: new platforms • Strategy 2: partly-open source • Strategy 3: if you can’t beat them, join them J. West. How open is open enough? melding proprietary and open source platform strategies. Research Policy, 32, 7 (July 2003), 1259--1285.

  25. Proprietary platforms Open standards Open sources Shifting from proprietary to open source strategies J. West. How open is open enough? melding proprietary and open source platform strategies. Research Policy, 32, 7 (July 2003), 1259--1285.

  26. Towards a Product Model of Open Source Software in a Commercial Environment Deng et al. (2003). Towards a Product Model of Open Source Software in a Commercial Environment. In 3rd International Workshop on Open Source Software Engineering. ICSE 03.

  27. Apache chairman: Days numbered for commercial software • As the open-source stack grows and grows and takes over more areas, there's less money available in packaged products • All of your software will be free. It means that, over time, you aren't going to be paying for software anymore but will instead pay for assistance with it • A license can ruin a perfectly good piece of software […] A bad license can make it so restrictive that nobody wants to use the software Krill (2006) http://www.macworld.co.uk/news/index.cfm?RSS&NewsID=14172

  28. Licensing and Sponsorship • Several project characteristics may be important to OSS success including • project age • project development status • programming language • type of software developed • intended audience • reputation of participants • licensing issues • organizational involvement in the project Stewart et al. (2005) A Preliminary Analysis of the Influences of Licensing and Organizational Sponsorship on Success in Open Source Projects. In Proceedings of the 38th Annual Hawaii International Conference on System Sciences (HICSS'05)

  29. Licensing and Sponsorship • 147 projects on Freshmeat.net • Dependent variables: • Change in subscribers (popularity) • New releases (vitality) • Independent variables • License restrictiveness • Is the project sponsored? • Initial popularity • Control variables • Project category • Project age Stewart et al. (2005) A Preliminary Analysis of the Influences of Licensing and Organizational Sponsorship on Success in Open Source Projects. In Proceedings of the 38th Annual Hawaii International Conference on System Sciences (HICSS'05)

  30. Licensing and Sponsorship • Hypothesis 1: OSS projects that use a nonrestrictive license will become more popular over time than those that use a restrictive license. • Hypothesis 2: Sponsored OSS projects will become more popular over time than non-sponsored OSS projects. • Hypothesis 3: OSS projects using a restrictive license will experience higher levels of vitality than those using a non-restrictive license. • Hypothesis 4: OSS project popularity will have a positive effect on OSS project vitality. Stewart et al. (2005) A Preliminary Analysis of the Influences of Licensing and Organizational Sponsorship on Success in Open Source Projects. In Proceedings of the 38th Annual Hawaii International Conference on System Sciences (HICSS'05)

  31. Guide to Legal Issues in Using Open Source Software • A guide to help New Zealand government departments assess and mitigate the legal risks of using open source software. New Zealand’s State Services Commission (2006) [http://www.e.govt.nz/policy/open-source/open-source-legal/guide-to-legal-issues-in-using-open-source-software.pdf]

  32. Guide to Legal Issues in Using Open Source Software New Zealand’s State Services Commission (2006) [http://www.e.govt.nz/policy/open-source/open-source-legal/guide-to-legal-issues-in-using-open-source-software.pdf]

  33. Guide to Legal Issues in Using Open Source Software New Zealand’s State Services Commission (2006) [http://www.e.govt.nz/policy/open-source/open-source-legal/guide-to-legal-issues-in-using-open-source-software.pdf]

  34. Guide to Legal Issues in Using Open Source Software New Zealand’s State Services Commission (2006) [http://www.e.govt.nz/policy/open-source/open-source-legal/guide-to-legal-issues-in-using-open-source-software.pdf]

  35. Proposal of licensing guide Ribeiro (2006) Potencial e Modelos de Negócio para novos empreendimentos em Software Livre, TG, CIn-UFPE.

  36. The real development community? • The myth of a global, expansive open source development community is just that: a myth. • The reality is more like severe clumping of development around Linux, Apache, and very few other projects. • Even JBoss and MySQL are overwhelmingly developed by those respective companies, and not by a crowd of outside developers (95% and 85%, respectively, I believe) [Asay 2005] Asay (2005) So you want to build an open source community... [http://asay.blogspot.com/2005_09_01_asay_archive.html]

  37. The real development community? • Between 80 percent and 85 percent of persons working on Eclipse projects are paid salaries by their employers who send them to work for Eclipse. Krill (2006) Death of the software salesman? http://www.infoworld.com/article/06/02/16/75460_HNdeath_2.html

  38. Community tensions Sebastian Rahtz (2005) OSS Watch

  39. In the end… • There is no “right” business model for Open Source. • Whatever works for you, your customers and the community you participate in, is right. Langham (2005) Surviving the five year itch: A tale from the trenches of European Open Source business models

  40. Open Source Business Models Alan Kelon Oliveira de Moraes <alan@kelon.org> IN953 – Software Engineering 2006.1 May 8, 2006 :: Recife – PE

More Related