Presentation for TECHNOLOGY & INNOVATION MANAGEMENT

at CERAM on 16-Oct-2007 by Mikko Riepula, Researcher, Helsinki School of Economics

Business and Economics of Open Source Software

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Contents

IntroAcademic Background and Current FocusOn motivational factorsLicense typesWhy use OSS?Business models around OSSSome pointers for further info

COSI/Shared source ppt

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Introduction

Definition of OSS by OSI: (1) freely redistributable, its license not restricting any party from bundling it for

sale or giving it away and not requiring royalties, with (2) source code made available in a way that also (3) allows any modifications and derived works to be distributed under the same license terms. … An OSS license (7) automatically applies to those who use it, with no need to execute additional agreements, (8) must not be specific to a given product and (9) must not restrict other software. …

Terminology: Free, Open, OSS, F(L)OSSMotivationExamples:

OSS as such: Linux, Apache web server, Jboss, MySQL, Mozilla Firefox, the whole GNU project, OpenOffice…

OSS as enabler: IBM, Sun, HP, Novell…

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Classic Papers

Academic research of OSS has its underpinnings in Transaction Cost Economics (Williamson, 1975-) Diffusion of Innovations (Rogers, 1983) Teece’s appropriability regimes (1986) Resource-based theory of the firm (Conner et al., 1996)

Seminal works on OSS: Eric S. Raymond (1997): The Cathedral and the Bazaar Hecker (1999): Setting up the Shop

Experiences from Hecker’s time with Netscape von Hippel (2002), Lakhani and von Hippel (2003),

Thomke and von Hippel (2002)End users as innovators

von Hippel and von Krogh (2003): private-collectiveas opposed to either private investment or collective action

Lerner and Tirole (2002): “Some simple economics of OSS”

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Recent Research on OSS

OSS research interests in academia revolve around Motivational factors: what drives these developers,

or even companies, to work “for free” for the community? E.g. Intrinsic vs. extrinsic motives

Legal issues Business models of OSS companies Practical issues with use of OSS by ISVs Development economics and efficiency in OSS Effect of OSS on quality, timeliness, budget etc.

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Some Motivational Factors

Intrinsic creative pleasure, i.e. intellectual reward (“programming

is fun”), altruism, and sense of belonging to a community

Extrinsic low opportunity costs, monetary rewards, reputation among peers, future career benefits, learning, contributions from the community, technological concerns, and filling an unfilled market

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OSS Licenses and Legal Issues

GNU General Public License (GPL) GNU Lesser/Library GPL BSD-style Others… (in total, OSI lists 60 “approved” licenses

as of Oct 15th, 2007) Non-OSS, e.g. Microsoft Shared Source licenses,

Sun Community license

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Summary of Licenses8

License Type Can be mixed with non-free

software?

Modifications can be taken private and not returned to

original author?

Can be re-licensed by

anyone?

Special privileges for

original authors?

Restrictiveness

GPL No No No No Strong reciprocity

LGPL YES No No No Standard reciprocity

BSD YES YES No No PermissiveNetscape Public License

YES YES No YES Standard reciprocity

Mozilla Public License

YES YES No No Standard reciprocity

Public Domain

YES YES YES No Permissive (not OSS)

Table 1. Main differences in OSS license types according to Perens (1999) and Välimäki (2005)

The Business Case for Inbound OSS

Free, but not without cost (consider TCO)Support on forums: very reactive to non-existentAvoidance of single-vendor lock-inFlexibility and (at least seemingly) direct access

to developers, possibility to make improvements Quality: Linus’s law: “many eyes makes bugs

shallow”; peer review process.Lower initial deployment cost, lower risk to trial

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OSS Business Models (1/2)

Distributors/Software Integrators strictly in the sense of selling packaged OSS.

Hardware Integrators: Companies in this category would include IBM and VA Linux,

Widget Frosters, or Specialized (Hardware) Product Vendors

Support Sellers: E.g. RedHat Contract Developers: Consulting activity Loss-Leaders, or Commercial Value-Adders,

bundle OSS with proprietary software. Cont’d…

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OSS Business Models (2/2)

…Cont’d Dual Licensors Commercial Enhancers of OSS: Otherwise the

same as Commercial Value-Adders above, but entails modifying the original product instead of treating it as a separate module.

Service Enablers refers to OSS companies creating and distributing OSS primarily to support access to the their revenue-generating on-line services.

Accessorizers, mainly Publishers and Training Houses: e.g. O’Reilly Associates

“Sell It, Free It” Companies are those who have nothing more to lose by releasing their product as OSS.

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Further Info

Open-Source Initiative , see http://www.opensource.org/ Sourceforge.net, ~100’000 OSS projects FLOSSMole (ossmole.Sourceforge.net) The Free Software Foundation, http://www.fsf.org,

“ideological” Martin Fink (2003): The Business and Economics of Linux

and Open Source, see also list of books on the OSI site. Some more specific:

maemo.org: OSS for (Nokia) Internet Tablets French/PACA site: www.libertis.org/

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Closing Remarks

Today, OSS research seems to be fashionable even. OSS is still marginal as a revenue generator but has already

had a profound impact on the market OSS has brought some changes to the business models of

also “traditional” closed-source companies (opportunity or threat)

Inner Source (or ”Corporate Bazaar”) being introduced in companies

Shared Source (or “Gated Source”) – I claim – represents interesting middle ground between traditional licensing and OSS for certain kinds of ISVs.

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