This is ahigh qualitysoftware product

They never ever bake it alone

There are at least

three partsthere

design &coding

shipping &install

support &service

They all add essentialspices to the mix

The three parts arealways there

They bring required but different mind setsand skills to the table

Customers tend to emphasizecertain product components

Customers distinguish componentsvery well and pick what they need

A stress on one product’scomponent doesn’t mean thatothers don’t exist

The components are just hidden by the vendors

This gamesimplifies messagingto the customers

The simplificationis causing expenses

Vendors charge forthe convenienceThey call it a

Customers see design-to-order

custom built code

Vendors see business model #1

contracting

uniqueness grants competitive potential

• Project Ware• Program Ware(Need something done? Specify. We will code it, delivery and service included)

The most lucrative model

contracting

secure,unique,efficient

up-frontexpensive,quality isn’t granted

no-risk,get paid before you deliver, limited QA

no scaling,a lot of hand-holding

customer

vendor

Consumers pick off-the-shelf

packaged code

Companies use business model #2

software vendor

We have already coded and shipped a software that does many things. Adjust your needs. We will help.• Product Ware, Share Ware(buy the box or license)• Cloud Ware(buy the functionality set)• SaaS Ware(rent the license)• Open Source Ware(buy the license, fix and service the code yourself)

lucrative and robust model

software vendor

universal,cheap,immediately available

up-frontcosts,quality isn’t detailed

scaling,no depen-dency on a single cus-tomer

up-front investment,many eye-balls track quality

customer

vendor

A buyer wants customization or

on demand fixed code

Vendors think business model #3

free, free open source

We have a software that can do some things. It is delivered to your door and free to try • Free Ware(use it or leave it)• Share Ware(take it, pay for updates and support)• Free & Open Source Ware(take it, adjust it or pay us to do so)

easy to enter model

free & open source

no up-front investment,quality is granted or no payment

limited or expensive features,hassle

scaling,simple shipping, cheapest foot in the door

huge up-front investment,return is not granted

customer

vendor

http://www.flickr.com/photos/mrtruffle/140233293/

WTF

Howcan I eat my

three options to bite

#1

#2

#3

bake it

Buy all ingredients

time costs quality

progress bar

let them mix &put it in stove

time costs quality

progress bar

pull out and eat

time costs quality

progress bar

buy it

Figure outwhat kind of cakedo you need

time costs quality

progress bar

go to the store.does it smelllike cake? buy

time costs quality

progress bar

eat

time costs quality

progress bar

feastjunk yard

sneak to the buffetat a late nightparty

time costs quality

progress bar

grab what likelyhas been a cake

time costs quality

progress bar

mix it with salt,sugar and pepperto taste. eat

time costs quality

progress bar

get a drink

time costs quality

progress bar

Seriously!

http://www.flickr.com/photos/mrtruffle/140233326

HOWcan I eat my

There are three options

#1 #2 #3

If you know what you do…

#1

…and can afford it

#1

Go ahead. Buy a locomotive

#1

your custom built wagons arecomplimentary

code delivery use

#1

time

so you can reachyour destinations

#1

If you are shortof money or time

#2

Buy ready-to-ship solutions

delivery

#2

Buy ready-to-ship solutions

One ticket to Choo-Choo City!

#2

Your wagon is meant to be there

delivery use

#2

But don’t expect much

#2

It is one size fits allsomewhere

#2

The trouble there: it is hard to find right train

One ticket to Choo-Choo City!

There is no such destination

#2

You know it after you boughtsoftware. Media reviews don’tconsider your specific needs

One ticket to Choo-Choo City!

I’m sorry, we’ve sold you a ticket

to Cha-Cha

#2

Outgrown it?

#3

Can’t stand it?

Wait!

#3

or no money to invest now?

#3

Here you are. Free software

usecode delivery

#3

…if it movesthe wagon won't be roomy

#3

Free and open source softwareenables you any wagon size

#3

…but eventually you willneed to spend money & time

usedeliverycode

#3

More likely like this

#3

some day

Then you startto think about this

#1

http://www.flickr.com/photos/mrtruffle/140233345

Basically the entire spectrum of business models can be placed on a line

pick yours bysetting up a screen

Project Ware

Program Ware

Product Ware

SaaSWare

Open Source Ware

Cloud Ware

Share Ware

Free Ware

Support Ware

Ad Ware

Sponsor Ware

Beg, Mascot Ware

line is looped

A softwareproduct driftsthe cycle over time

…following business sensefor a consumable value thatthe product contains

1 2

3

4

A text editor is createdas custom built code

The idea is picked up. Mass product

Cheaper and adjustable replicas of the editor

The editor’s functionality is integrated in other products as a component

From an innovative codeto a standard component.New loops continue the life cycle

Text editor’s life cycle as a stand-alone product

Text editor’s life cycle as a product component

inception

pervasion

So..do I really

choose?http://www.flickr.com/photos/mrtruffle/140233326

Do I choosehow I get my ?

Yes!read again

slide 28

No!You have no choiceif the desired functionalityis at the technology edge

Industry produces pies“on a conveyor belt”

Industry has its own dynamicand macro-sized forces

industryyou

You probablycan’t pull the rope alone

…but at any moment you canchoose the best bit

#1

#2

#3

http://www.flickr.com/photos/mrtruffle/140233345

Organizational constrainstheory

Two organizational formsas a Fn of product complexity

Market exchangeis more efficient

In-house production is

better than procuring the

product

Coase’s firm theory

Two ownership formsas a Fn of asset building costs

Demsetz’s property theory

Implementationcosts are higher than the value of property that controls an opportunity

Property is more valuable than implementation costs

Organizational formsas a function of relative costs

Markets Commons

FirmsProperty regimes

Cheaper

goods

exchange

Cheaper

to build

in-house

Coase’s firm theory +Demsetz’s property theory

Value > property costs

Costs > property value

Organizational formsas a Fn of software eco-cycle

Goods

exchange

Build

in-house

Value > property Costs

Costs > property value

Markets

Firms

Commons

Property regimes

Efficient production formsas a Fn of product attributes

Abundance of market players, universal product

Complex, unique

product in monopoly

Commodity product

that serves significant

need

Hygienic product in an inapt providers’ market

buying entities

costs/profitProduct A

Product B

product-market-costs-timeoptimization cycle

entities

costs/profit

Break-through products

“final touch” phase

next levelinfrastructure phase

the tipping point

pop share

demands

coverage

entities

costs/profit

Mass market productspop share

demands

coverage

entities

costs/profit

Saturation productscommon base standards

pop share

demands

coverage

This phase deliversflavors to any taste.That makes the corefunctionality a commongood and knowledge

You can use any product formfrom the previous complexity cycle

inception

pervasion

components cycle

http://www.flickr.com/photos/mrtruffle/140233345

Resources constrainstheory

Producing software requires resources

infrastructure skills money

Somebody has to payto keep the talent alive

supply

train,feed

work

FOSS

Resources come from

1institutions

individuals2

1seeking an infrastructure leap

system components are open sourced

in the “final touch” phase

typical product is an integrated system complexity

A. ambitious to wait until a system becomes ubiquitousB. creative to dare the proliferation semi-cycleC. resourceful to support the components development

1requirements

North America

United Europe

Asia & Oceania

Others

38%

41%

9%

7%

Debian developersreside in rich countries

http://widi.berlios.de/paper/study.html

A. resources B.incentive to close the source after the tipping point

BOTTOM LINE: projects are rarely started, and eventually shut off

1constrains

2the skilled workersbridging the gap of underemployment

civilians unemployed 27+ weeks

Bureau of Labor Statistics

2requirementsA. critical mass, i.e. industry wide unemployment trigger B. personal resources, i.e. credit access or savings

A. industry changesB. limited personal resources can’t sustain the movement in the long run

BOTTOM LINE: rare temporary opportunity

2constrains

http://www.flickr.com/photos/mrtruffle/140233293/

CANI eat my

Belongs toendangered

species

Free, collectively builtsoftware is essential

enabling expedient leaps into the next generationsoftware products

FOSS does to software whatuniversities did to knowledge

1 2

4

commercialization

mass production

knowledge propagation and settle down to standards

ideation by individuals

today huge ”fired” IT-force seeds the FOSS

This is a life time opportunity that is not sustainable unless systemic changes occur

US information services employees

Bureau of Labor Statistics

entities

costs/profit

software proliferation is a fragile business process

Startup drivendevelopment

Customization drivendevelopment

an overarching systemis required

a raw model for free software on a sustainability rail

ContributorsKonstantyn Spasokukotskiy

Yochai Benkler http://www.yale.edu/yalelj/112/BenklerWEB.pdf

Mykola Dimura

http://widi.berlios.de/paper/study.html

References

Dana Blankenhorn - ZD Net publication on software business models

http://modeledbehavior.files.wordpress.com/2010/07/image5.png

free to copy and reusewith proper attribution