The Business of Open Source

Richard T. WatsonMarie-Claude BoudreauMartina GreinerDonald WynnPaul T. York

Terry College of BusinessUniversity of [email protected]

The Business of Open Source

What do customers say?

Weather.com

• Dan Agrow (CIO) My experience is we have actually received

better support of open-source software than we have with commercial software

Lots of open-source products work very well and can be deployed and run for about half the cost of commercial products

Sabre Holdings

• Moving off fault-tolerant Compaq Himalaya servers onto a combination of Linux and the MySQL database running on clustered Intel servers

• Total cost of ownership will be at least 40% cheaper, with anticipated savings of “tens of millions of dollars” [Craig Murphy (CTO)]

La Quinta

• Shifted online reservation system from BEA’s WebLogic to JBoss

• Rationale Good service Increased flexibility Lower costs

What do suppliers say?

MySQL

• Mårten Mickos (CEO) How do you turn a $9 billion market into a $3

billion market and dominate what is left?

TrollTech

• Haavard Nord (CEO) By next year, it may sound bold and stupid,

but in fact we are going to overtake Microsoft in terms of device shipments

Mozilla

• Bart Decrem, spokesman for the Mozilla foundation, about Firefox I think we'll get to 10 percent over the next

year… we have the momentum… The move from IE to Firefox is also shown by the fact that half of Firefox downloads are from IE users

A trend

• Open source works for some customers and suppliers

• It might not be the answer for everyone, but it is the answer for some

Business Models

MS Office

MS Windows

Acrobat

Linux

Star Office

Perl

Emacs

Apache

GNU C++

BEA Weblogic

Websphere

Netscape

Solaris

Mac OS

Open Distribution /Open Source

Proprietary /Closed Source

Business Models

Proprietary / Closed Source

• Developed and supported by employees

• Funded by customers• Recognized viability• Offer support & education• Traditional marketing & distribution

Open Distribution / Open Source

• Developed by volunteer developers• Supported by volunteer community• Completely free of cost• Viability?• Nano markets?

MS Office

MS Windows

Acrobat

Linux

Star Office

Perl

Emacs

Apache

GNU C++BEA Weblogic

Websphere

Netscape

Solaris

Mac OS

Red Hat

SUSE



Business Models

Corporate Distribution / Open Source

Corporate Distribution / Open Source

• Bundlers / value added resellers• Do not necessarily contribute code

to OS community• Usually make installation /

configuration easier• Offer support & education• Viability signal



Business Models

MS Office

MS Windows

Acrobat

Linux

OpenOffice

Perl

Emacs

Apache

GNU C++

BEA Weblogic

Websphere

Netscape

Eclipse

Solaris** Mac OS

Darwin

Red HatSUSE

Mozilla

Star Office

Corporate Distribution /Open Source

Funded Open Source

** Open-source release is still pending

Funded Open Source

• Some support provided by external agents Most often provided as code/support from

salaried employees of sponsor Sometimes provided as direct or indirect

monetary contributions

• Viability signal• Brand inheritance• Sponsors often bundle / enhance OS

projects in proprietary products



Business Models

MS Office

MS Windows

Acrobat

Linux

OpenOffice

Perl

Emacs

Apache

GNU C++ BEA Weblogic

Websphere

Netscape

EclipseSolaris

Mac OS

Darwin

Red HatSUSE

JBoss MySQL

Star Office

Corporate Distribution /

Open Source

Funded Open Source

Professional Open Source


• Funded by customers Free or “dual” licensing For fee professional service, support, and

education

• Low marketing and distribution costs• Viability• “Always low prices. Always.”

Professional Open Source Players

• JBoss Application Server

• MySQL Relational Database

• Sleepycat Developer Database

• Trolltech Framework for Cross-Platform Development

JBoss

• Marc Fleury (CEO) We think we’re inventing the new open

source. It’s not the pony-tailed faction on the communist fringe. There needs to be professionalism and credibility. There needs to be sales and marketing, and all the things that make a business. People say you’re either a company or a starving poet. Why can’t we be both?



Business Models

MS Office

MS Windows

Acrobat

Linux

OpenOffice

Perl

Emacs

Apache

GNU C++ BEA Weblogic

Websphere

Netscape

EclipseSolaris

Mac OS

Darwin

Red HatSUSE

JBoss MySQL

Star Office


Open Source

Funded Open Source


Supported Open Source


• IT service firm supports a range of open source products as part of a service contract HP Unisys SoftPro

• Level 1 & 2 support

Business models

Product price

Installationeffort

Distribution costs

Marketing costs




Open Source

Funded Open Source



. . . . . . . . . . . . . . . . .

low high

* fewer ’s = better

Licensing

Licensing models

• “Copyleft” licenses Exemplified by the GNU General Public

License (GPL) All contributions and modifications are

guaranteed to be “open”

• “Non-copyleft” licenses Apache and Berkeley Software Design (BSD)

Licenses are two prominent examples Code is free to be modified and incorporated

into proprietary products without contributing any changes back to the community

Licensing models

• “Free” licenses “Free as in freedom” Code can be used in any way desired by anyone GPL, Apache, and BSD are all “free” licenses

• “Non-Free” licenses Any license that does not provide free access to

source files or restricts use of source in some way

• “Dual” licenses “Free” for private and “Non-free” for commercial use

Customer value

Supply side

• Open source emerges when there is a perceived customer value gap

• Open source serves national interests in some cases

Demand side

• Customer value Benefits > risks

Customers’ risks (1)

• Viability of supplier’s business model• Availability of support• Availability of education• Potential for lawsuits


Viability Support Education Lawsuits




Open Source

Funded Open Source



. . . . . . . . . . . . . . low risk high risk



• Compatibility with other applications • Maturity of software product• Availability of documentation• Security


Compatibility

Maturity Documentation Security




Open Source

Funded Open Source



. . . . . . . . . . . . . . low risk high risk


Customers’ benefits (1)

• Access to code• Reduced dependence on single

source• Reduced dependence on single

platform


Access to code

Reduced dependence on single source

Reduced dependence on single platform




Open Source

Funded Open Source



. . . . . . . . . . . . . . .

low benefit high benefit

* more ’s = better


• Higher quality code• Increased innovation• Reduced TCO


Quality of code

Increased Innovation Reduced TCO



Corporate Distribution /Open Source

Funded Open Source



. . . . . . . . . . . . . . . low benefit high benefit

* more ’s = better

Total Cost of Ownership

• OS is not cost-free!• Numerous studies comparing OS to

proprietary Mixed results

• “TCO is like fine wine: it doesn’t travel well. What may be true in one situation is reversed in another. What gets trumpeted as a universal truth may or may not be true in a specific case, but it is most certainly false when claimed universally.”

Joe Barr, freelance journalist

Total Cost of Ownership

• Some important costs to consider: Initial purchase costs Upgrade and maintenance costs Hardware costs Administration of licenses costs Staffing costs Downtime costs System administration costs

Take aways

POS & strategic risks

• Demand risk Pricing strategy

• Innovation risk Open source

• Efficiency risk Hiring practices

Insights

• Intellectual knowledge matters more than intellectual property

• Intellectual knowledge is hard to scale

• Hybrid Birkenstocks / business suits culture

• Professional and supported open source are key developments

Insights

• Business model Vendor

Determines viability Customer

Determines risks and benefits

• Professional open source might provide greater customer value than other models for software development

• Scalability?

Scalability

• Marc Fleury (CEO), JBoss A challenge for JBoss is scaling this business in

the revenues. Red Hat has set a precedent, there are 250 million bookings, 100 million revenue, and market is paying 40X in capitalization, so it is a 4 billion dollar company on the market. So 40X on the revenues, 20X on bookings, and they sort of set the bar. An open source company can make 250 million dollar revenues. And you know that is going to be a challenge. Getting there, you got to be very lucky and execute well in many steps, and a lot of people is on that way. So, I think that is going to be a challenge.

Scalability

• Forester Research report The organization is very happy with the current

support services they receive from JBoss, Inc., but expressed some concern regarding future growth rates exceeding JBoss, Inc.’s ability to continue to provide excellent support

Commercial open source providers are also small companies, and like many small software companies, they may go out of business

POS development model

• Innovate• Collaborate• Plan• Develop• Package• Partner• Enable

QuickTime™ and aTIFF (Uncompressed) decompressor

are needed to see this picture.

Why does this matter?

Conclusion

• There are different business models• Business model -> risks and benefits• Professional open source might be a

disruptive technology

Documents

The Business of Open Source