sustainable open source business models

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Sustainable Open Source Business Models Prof. Dr. Dirk Riehle, M.B.A. Friedrich Alexander-University Erlangen-Nürnberg OGD 2012 – 2012-06-26

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Page 1: Sustainable Open Source Business Models

Sustainable Open SourceBusiness Models

Prof. Dr. Dirk Riehle, M.B.A.

Friedrich Alexander-University Erlangen-Nürnberg

OGD 2012 – 2012-06-26

Page 2: Sustainable Open Source Business Models

ETAS GmbH - 2012-05-31

© 2012 Dirk Riehle - All Rights Reserved 2

Open Source Definition

Legal● Open source license [1]

● Free use allowed

● Source code available

● Modification of code allowed

● Distribution of modifications OK

● Open source initiative● Approves open source licenses

● Permissive vs reciprocal licenses

● Permissive code growing [3]

Process“Open source is a development method for software that har-nesses the power of distributed peer review and transparency of process. The promise of open source is better quality, higher reliability, more flexibility, lower cost, and an end to predatory vendor lock-in.” [2]

[1] See http://www.opensource.org/osd.html [2] See http://www.opensource.org/ [3] See http://bit.ly/xbYEYP

Page 3: Sustainable Open Source Business Models

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© 2012 Dirk Riehle - All Rights Reserved 3

Economic Significance and Growth

● Open source is in wide use in enterprises

● In a large 2009 survey, Forrester Research found that 46% of all responding enterprises were using or implementing open source software [4]

● Most software firms use open source in products

● In 2009 Gartner Group estimated that by 2012, at least 80% of all software product firms will use open source software in their products [5]

[4] Jeffrey S. Hammond. “Open Source Software Goes Mainstream.” Forrester Research: 2009.

[5] Mark Driver. “Key Issues for Open Source Software, 2010.” Gartner Research: 2010.

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Who Wrote Linux 2.6.20?

“At least 65% of the code which went into 2.6.20 was created by people working for companies.” [6]

[6] See http://lwn.net/Articles/222773/

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Sustainable Open Source Business Models

For Profit (“Commercial”)1. Single-Vendor Open Source Firms

2. Open Source Distributors

Not-for-Profit (Subsidized)3. Developer Foundations

4. User Foundations

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1. Single-Vendor Open Source Firms

“Single-vendor commercial open source software projects are open source software projects that are owned by a single firm that derives a direct and significant revenue stream from the software.” [8]

“By 2012, at least 50% of direct commercial revenue attributed to open-source products or services will come from projects under a single vendor's patronage.” [5]

[8] Dirk Riehle. “The Single-Vendor Commercial Open Source Business Model.”Information Systems and e-Business Management. Springer Verlag, 2010.

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Why Pay for Open Source Products?

[9] Marten Mickos. “Open for Business.” Talk at PARC Forum, 2010.Abstracted: http://bit.ly/bmSUga

“Some people spend time to save money, some spend money to save time.” [9]

Page 8: Sustainable Open Source Business Models

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Commercial Open Source Products [10]

UTIL

INC

UPD

LIC

DOC documentation

incident-basedsupport

utilities

TRN

24x7

training

24x7 hotline

commerciallicense

updateservice

...

Op

en

So

urc

eC

om

mu

nit

yE

nte

rpri

se

Cu

sto

me

rsIS

V/O

EM

Web Store Direct Sales

LIC

TRN

UPD UTIL

DOC 24x7

LIC

TRN

UTIL

DOC 24x7

UTILINCDOC

[10] Florian Weikert. Product Features in Commercial Open Source Software. Bachelor Thesis, Friedrich Alexander-University of Erlangen-Nürnberg: 2012.

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Community vs. Commercial Edition

Community Edition● Core product

● Open source license

● No warranties, no indemnification

● Whole product● Enterprise features missing

● Operational comfort● None or limited

● Consulting services● None or limited

Commercial Edition● Core product

● Commercial license

● “Dual-license” strategy

● Whole product● Enterprise features

● “Open core” model

● Operational comfort● Subscription, updates

● Various support contracts

● Consulting services● Various consulting services

● Second-level support

Page 10: Sustainable Open Source Business Models

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© 2012 Dirk Riehle - All Rights Reserved 10

Sales Best Practice: Create Champions

MarketProduct Win Sale!Engage in

Comp. Sales

ProvideOpen Source

Connect Usersof Organization

Track Users

Make SalesCall / Visit

IdentifyChampion

Generate LeadsFrom Behavior

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© 2012 Dirk Riehle - All Rights Reserved 11

2. Open Source Distributors [12]

new features

10.04EOL

10.04

10.10 10.10EOL

bugfix

new

feat.

bugfix

new

feat.

bugfix

bugfix

new

feat.

backpo rt

backpo rt

backpo rt

backpo rt

commercialfeatures

commercialfeatures

[12] Dirk Riehle. “The Economic Motivation of Open Source.” IEEE Computer vol. 40, no 4 (April 2007). Page 25-32.

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3. Open Source Developer Foundations

Definition1. A developer foundation is

a non-profit organization(foundation, consortium)

2. with the purpose of

managing and performing

3. the development of

(non-differentiating)open source software

made available tofoundation members(and the general public).

Purpose● Lower development costs● Increase share of wallet● Reach more customers● Grow addressable market● Reduce strategic lock-in

Downsides● Higher engagement

Page 13: Sustainable Open Source Business Models

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Examples of Developer Foundations

Page 14: Sustainable Open Source Business Models

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Increase Share of Wallet [15]

without open source

closed-sourceoperating system

businessapplication

$$$$

$$$$

open-sourceoperating system

businessapplication

$$$$$

$$

customer cost savings

mon

ey s

pent

on

bund

led

solu

tion

with open source

[15] Dirk Riehle. “The Economic Case for Open Source Foundations.” IEEE Computer vol. 43, no. 1 (January 2010). Page 86-90.

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Reach More Price-Sensitive Customers

potential profits forbusiness application vendor

cost of providingopen source operating system

cost of providingbusiness application

mon

ey s

pent

on

bund

led

solu

tion

number of customers sold to

customer demand curve$$

$$

$$$$$

Page 16: Sustainable Open Source Business Models

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© 2012 Dirk Riehle - All Rights Reserved 16

Grow Addressable Market

two competing platformswith equal total market size

tota

l ma r

ket

siz e

dominant open source platformwith larger total market size

closed-sourceplatform open-source

platform

applications

applications

market 2market 1

closed-sourceplatform open-source

platform

applicationsapplications

market 2

market 1

customercost savings

$$$$

$$$$

$$

$$

$$$$$$

$$

$$$$$$$

$$$$

Page 17: Sustainable Open Source Business Models

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© 2012 Dirk Riehle - All Rights Reserved 17

4. User Foundations

Definition1. A user foundation is

a non-profit organization(foundation, consortium)

2. with the purpose of

sponsoring(financing and managing)

3. the development of

(non-differentiating)open source software

made available tofoundation members(and the general public).

Purpose● Lower TCO● More flexibility● More predictability● Reduced vendor lock-in

Downsides● Higher engagement

Page 18: Sustainable Open Source Business Models

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© 2012 Dirk Riehle - All Rights Reserved 18

Ecosystem of User Foundations 1/2

UF: User FoundationAM: Alliance ManagementSD: Software Developer

owns

UF selects + pays S

D

AM manages SV

developscontro

lsUF

empl

oys

AM

UF

SD

OSS

AM

Page 19: Sustainable Open Source Business Models

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© 2012 Dirk Riehle - All Rights Reserved 19

Ecosystem of User Foundations 2/2

SU: Software UserSV: Software VendorCF: Consulting Firm

uses

SU

pays for CP custom

.

collaborate

customizesdevelops

SU

pay

s fo

r CP

licen

se

SU

CF

(OSS)

CP

SV

Page 20: Sustainable Open Source Business Models

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© 2012 Dirk Riehle - All Rights Reserved 20

Conclusions

1. Open source is here to stay

2. Four sustainable business models

3. Open source simplifies consortia

Page 21: Sustainable Open Source Business Models

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Thank you! Questions?

[email protected] – http://osr.cs.fau.de

[email protected] – http://dirkriehle.com – @dirkriehle

DR