Open Source SW Business

Shin, Sanghee(shshin@gaia3d.com)
Open Source SW Business?

I.  Introduction of Open Source SW
I-1. What is Open Source Software?
I-2. Open Source Software Licenses
I-3. Benefits of Open Source Software
I-4. Growth of Open Source Software
II. Current Status of Open Source Business
II-1. Comparison between Proprietary and Opens Source Software
II-2. Chasm and Barriers
II-3. How to Cross the Chasm and Barriers
II-4. Chapter Summary
III. Proposed Open Source Business Framework
III-1. Basic Principles
III-2. Proposed Open Source Business Framework
III-3. Benefits
IV. Conclusions
V. References
Contents

I. Introduction of
Open Source SW

Open Source SW Business? Shin, Sanghee(shshin@gaia3d.com)
I-1. What is Open Source SW?
q  Open source SW(OSS) is the computer SW that is available in source code form under certain licenses.
q  Users of OSS are permitted to use, copy, study, change, improve and even redistribute those OSS freely.
q  ‘Free’ does not mean ‘Free of Charge’ nor ‘Free Stuff’ but ‘Freedom’
I. Introduction of Open Source SW
4
FREEDOM
Of
Software
Freedom
of
Redistribute
Freedom
of
Modify
Freedom
of
Copy
Freedom
of
Use

q  Open Source SW Criteria by OSI(Open Source Initiative)
5
1.  Free Redistribution
2.  Source Code
3.  Derived Works
4.  Integrity of The Author's Source Code
5.  No Discrimination Against Persons or Groups
6.  No Discrimination Against Fields of Endeavor
7.  Distribution of License
8.  License Must Not Be Specific to a Product
9.  License Must Not Restrict Other Software
10. License Must Be Technology-Neutral

q  Open Source SW vs. Freeware
6
•  Users have the right to access & modify th
e source codes.
•  In case original programmer disappeared,
users & developer group of the S/W usuall
y keep its support to the S/W.
•  OSS usually has the strong users & develo
pers group that manage and maintain the
project
OSS Freeware
§  OSS is different from Freeware
§  Antonym of OSS would be ‘Closed Source S/W’ or ‘Proprietary S/W’
§  Recently OSS is also regarded as ‘Commercial S/W’
•  Freeware is usually distributed in a form of
binary at ‘Free of Charge’, but does not op
en source codes itself.
•  Developer of freeware could abandon dev
elopment at any time and then final versio
n will be the last version of the freeware. N
o enhancements will be made by others.
•  Possibility of changing its licensing policy

I-2. Open Source SW Licenses
q  Copyright vs. Licenses
7
ü Set of exclusive rights granted to the auth
or or creator of an original work, including t
he right to copy, distribute and adapt the w
ork.
ü Rights obtained just after create the work
without any registration.
ü  Without any permissions, others could not
use, copy, distribute, adapt the work.
ü Permission to use the work under certain agreement.
ü A kind of contract agreement like EULA(End User License
Agreements)
ü If you buy Window7, it means you just buy a permission t
o install & use Windows7 S/W in your PC.
ü License is different from products buying.
Copyright License
Copyright Patent Trademark Trade Secret
IPR

q  Typical OSS Licenses
8
Free
Re-Distribut
able
Access to
Source Code
Modification
Obligation
to
Open
Derived Works
Combining
with
Proprietary
SW
GPL O O O O O X
LGPL O O O O O O
MPL O O O O O O
BSD Alike O O O O X O
Apache Alike O O O O X O
§  GPL : Application need to be licensed under the same GPL if redistributed with the GPL asset.
§  LGPL : Modified library need to be licensed under the same licenses as the originating asset.
§  BSD/Apache Alike : Much more permissive for combination with proprietary SW.

q  Open Source SW License Rate
9
Sourceforge.net, May, 2006.
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
Black Duck Software Knowledgebase, April, 2008.
§  More than 60% of OSS licenses are GPL based license.
§  Due to hard condition of OSS licenses, OSS is perceived to be difficult to be commercialized.
è How to commercialize the open source SW?

I-3. Benefits of Open Source SW
10
q  Benefits of Open Source Software purported by OSS Community
§  Save money, save resources, increase stability, access to source code, access to skilled community of dev
elopers
Develop the society by sharing technology & outcomes!!
1. Technological
Aspects
2. Economical
Aspects
3. Business
Aspects
4. Other
Aspects
Rapid development of high-
class SW
Increased stability by skilled
community review
Reduce technological gap t
o leading proprietary SW co
mpany
Internalize outside SW deve
loper resources
Very low adoption cost
Reduce SW development
cost
Easy to customize
Reuse successful story
Extend company’s product
s portfolio
Open up new market by pr
oviding diversified services
& products
Improve brand image of co
mpany
Reduce energy
Self-Satisfaction
Help society

11
q  Open Source Advantages over Commercial SW
§  Open source’s price tag is clearly important driver. OSS is practically cheaper than commercial one.
§  57% said that accessibility to source code really matters and 41% cited community code review as an imp
ortant benefit over proprietary.
80%
57%
41%
20%
18%
15%
15%
15%
10%
6%
5%
0% 20% 40% 60% 80% 100%
Price
Source Code Access
Community Code Review
Don’t Know
Bug Fix Turnaround
Security
Code Quality
Best Product Functionality
Easier to Adopt in Organization
Other
IP Protection
è Price & opened source code are key factors!
* Source : Barracuda Networks

12
* Source : Barracuda Networks
65%
47%
44%
35%
28%
23%
17%
9%
7%
4%
3%
0% 10% 20% 30% 40% 50% 60% 70%
Vendor Professional Services
Easier to Adopt in Organization
Automated Updates
Reduced IT Support
Best Product Functionality
Security
Code Quality
Don't Know
IP Protection
Other
Price
q  Commercial Software Advantages over Open Source
§  65% cited lack of professional services as a major defect point of open source software.
§  47% and 44% said that commercial software is easier to adopt and more automated. Users believe that op
en source software is good but lacks professional services and convenience.
è Professional services & convenience are key factors!

I-4. Growth of Open Source SW
13
q  Forecast of Open Source SW Growth
§  “By 2012, open-source software's impact on application software will grow to $19 billion, with a fi
ve-year compound annual growth rate of 44%.”, 2008
§  “By 2012, 80 per cent of all commercial software will include elements of open-source technolog
y”, 2008
§  “Worldwide revenue from open source software will grow at a 22.4 percent compound annual gr
owth rate to reach $8.1 billion by 2013.”, 2009
§  “Large software vendors like IBM, Sun, Dell, HP, and Oracle are making significant amounts of i
ndirect revenue from their activities with and support of OSS.”, 2009
§  “The notional value of Europe’s investment in FLOSS software today is Euro 22 billion (36 billion
in the US) representing 20.5% of total software investment (20% in the US)”, 2007
§  “FLOSS-related services could reach a 32% share of all IT services by 2010, and the FLOSS-re
lated share of the economy could reach 4% of European GDP by 2010.”, 2007

I-4. Growth of Open Source SW
14
<FOSS Projects Growth>
* Source : Amit Deshpande et al , 2008, “The Total Growth of Open Source”, In Proceedings of the Fourth Conference on Open Source
Systems (OSS 2008).
<FOSS Source Codes Growth>
q  Trends of Open Source Software Growth
§  With cumulative growth of open source software, open source software has now reached a turning point or
tipping point in terms of adoption of open source software and business.

II. Current Status of
Open Source Business

Open Source SW Business? Shin, Sanghee(shshin@gaia3d.com)16
q  SW Development Model Comparison
Closed Open
Developers to Customers Developers to Developers
<Proprietary Model> <OSS Model>
§  In-house development of SW and ‘Product’
§  Before beta-version, couldn’t review SW and product
§  Designed and developed by core programmers
§  Community based SW development and no ‘Product’
§  SW reviewed by community members at any time
§  Designed and developed by community developers
In-House
Development
Community
Development
è OSS does not care about customers real needs!
II-1. Comparison between Proprietary and OSS

17
q  Business Model Comparison : Proprietary Business Model
è In-house based development of SW and ‘Whole Product’
Proprietary Company
Customers
Partners
OEMs
SW Development
Engineering
Product Mgmt.
‘Go To Market’
Sales, Marketing, Support,
Services, Engineering, Pr
oduct Mgmt.
Money
Whole Product
§  Engineering has 2 roles : Development of SW and
participate in ‘Go To Market’ program.
§  Product Management ‘owns’ the product roadmap and has
the responsibility of creating product.
§  Sales, Marketing, Support, and Services departments are
focused on the customers.
§  ‘Go To Market’ program creates the ‘Whole Product’ that
mainstream customers require.
§  By collecting customers needs and feeding back those
needs to company, this model creates and deliver value to
customers
Resources
Software
* Source : James Dixon, The Beekeeper

18
q  Business Model Comparison : Open Source Business Model
è No ’Whole Product’ is the key barriers to adoption of OSS!
Core Developers
Administrators
Engineers
* Source : James Dixon, The Beekeepe
r
Community
Contributions
Contributions
Peer Review
Use Cases
Testing
Documentation
Translations
Features
Forum Help
Bug Fixes
Roadmap
Design
Software
‘The Project’
§  Administrators typically design
and develop ‘SW’ itself.
§  Roadmap is owned by the project
administrators.
§  Community participate in
designing, implementing and
testing the software.
§  Core developers and community
usually focus their resources on
‘Software’ development itself for
their use, fun and satisfaction.
§  No ‘Go To Market’ process.
Community usually does not care
about ‘Whole Product’.
§  No elaborate marketing
strategies.

q  Open Source Software in the Chasm
19
§  Innovators and early adopters are very enthusiastic at open source software in spite of its risk and lacking of supp
ort, since many of innovators and early adopters are technical person.
§  However many pragmatists are still reluctant to use open source software. That’s why OSS is in chasm.
ü
Open Source Software
in the Chasm

q  6 Barriers to Open Source Software Adoption
20
6 Barriers
Open Source SW Success Story
1. Lack of formal support a
nd services
2. Velocity of change
3. Lack of roadmap
4. Functional Gaps
5. License Types
6. Lack of endorsements b
y independent ISVs
* Source : Ray Lane, 6 barriers to open source adoption

II-3. How to Cross the Chasm and Barriers?
21
Crossing
The
Chasm
Target
the
Point of
Attack
Assemble
an
Invasion
Force
Define
the
Battle
Launch
the
Invasion
• Action Items :
- Clear target market for ‘Whole Product’
- Focus resource on achieving leadership
- Identifying market identifiers
- Target customer
- Compelling reason to buy ‘Product’
- Customer value proposition
- Create the ‘Whole Product’
- Focus on customer’s problem
- Job-to-be-done approach
- Considering complementary assets
- Partnership or In-house approach
- Marketing strategy
- Distribution channel
- Pricing policy
- Sales force
- Define positioning
- Focus the competition within target market
- Approach pragmatist with CVP
- Share CVP with company employee
- Demonstrate the validity of CVP
q  How to Cross the Chasm?
§  Change paradigm from open source ‘
Software’ to ‘Whole Product’

II-3. How to Cross the Chasm and Barriers?
22
q  How to Cross the Barriers?
6 Barriers
1. Lack of formal support a
nd services
2. Velocity of change
3. Lack of roadmap
4. Functional gaps
5. License types
6. Lack of endorsements b
y independent ISVs
Solutions
1. Provide professional support and se
rvices
2. Provide scheduled upgrade and pat
ch via subscriptions
3. Increase communication between c
ustomers & developer community
4. Critical functional gaps are narrowin
g down gradually
5. Offer hybrid licensing models or pro
vide solution instead of SW
6. Endorsement by standards
Risk
related
issues
Risk
related
issues
Feature
issues
Change
Open
Source
Software
to
‘Whole
Product’

23
q  Need to Change Paradigm from Open Source ‘Software’ to ‘Whole Product’
Software
Integration
Software
Services
Installation
Training
VARs
Other
SW/HW
Certification
Support
<Whole Product>
<Open Source SW>
§  Open source ‘software’ itself is mainly for developers not for real
customers.
§  Customers unmet needs could not be met with ‘software’ alone.
§  To monetize open source ‘software’, ‘Whole Product’ should be
offered to customers.
è OSS model is great at producing SW, but it doesn’t
produce ‘Whole Product’ for customers!

24
q  Need to Target the Clear Market
è To offer ‘Whole Product’ to customers, OSS compan
y need to focus on clear target market

III. Proposed
Open Source
Business Framework

26
q  Combining Advantages of Proprietary and Open Source Model into ‘Commercial’ Model
Advantages
of
Proprietary
1. Professional service
2. Continuous support
3. Easy to use
4. Reliability
5. Functionalities
Advantages
of
Open Source
1.  Cheaper price
2.  Source code access
3.  Community review
4.  Quicker bug fix
5.  More standard based
Commercial Open Source Software
‘Whole Product’
è Commercial open source company can exist to create ‘Whole Product’ around a
n open source project (software + community) and can deliver it to a mainstrea
m market.

27
q  ‘Commercial’ Open Source Business Model as Platform Business
Customers
Partners
OEMs
Open
Source
Software
Community
Commercial Open Source
Company
‘Go To Market’
oduct Mgmt.
+
+
+
Community can hear more functionalities & requests
Customers can gain higher quality software at a better price
The bigger community
the more resources

High quality
open source
SW
High quality
open source
‘Whole Product’
Attract
more
customers
Business
growth
&
Contribution to
community
Growth
Of
Community
28
q  Ecosystem of ‘Commercial’ Open Source Business Model
Commercial
Open Source
Business
Model

29
q  Respect Open Source Principles
"   Freedom of participation
"   Accepting feedback from members
"   Review/criticize design & code
"   Various contribution
"   Let community members know what
’s going on
"   Communication about schedules an
d hurdles
"   Public defect tracking system
"   Earliest draft version and updating it
often
"   Release of source code
"   Release of software design
"   Release of software roadmap
"   Do not treat community members a
s potential customers
"   Respect autonomy & activities of co
mmunity
"   Community is not the part of compa
ny
Openness Transparency
Early & Often Respect Community

30
q  Commercial Open Source Business Model
Commercial OSS C
ompany
Customers
Partners
OEMs
SW Development
Eng. Product Mgmt.
Ecosystem Develop
‘Go To Market’
oduct Mgmt.
Money
Whole Product
Resources
Software
* Source : James Dixon, The Beekeeper
Community
Contributions
Contributions
Peer Review
Use Cases
Testing
Documentation
Translations
Features
Forum Help
Bug Fixes
Configuration Matrix
Quotes & News
Roadmap
Design
Software
‘The Project’
§  Community : Development of SW
§  Company : Making ‘Whole Product’ and deliver it to customers
§  Customers : Buy product from the company

31
q  Value Chain Change
‘Whole Product’
Software 1
Software 2
Software 3
Software
Current Proprietary Model
Channel
Customer 1
Customer 2
Customer 3
Whole Product Channel Customers
In-house In-house & partners Outside
Cost Side Money SideCost Side

32
q  Value Chain Change
‘Whole Product’
VA Software
Software
Commercial Open Source Model
Channel
Customer 1
Customer 2
Customer 3
Whole Product Channel Customers
Community In-house & partners Outside
Money Side Money SideCost Side
Community
In-house
Cost Side

III-3. Benefits
33
q  Benefits of Commercial Open Source Business Framework
Open Source Proprietary
Commercial
Open Source
Rate of innovation Higher Lower Higher
Visibility into product design/implementation Higher Lower Higher
Quality of software Higher Lower Higher
Reliability of support Lower Higher Higher
Reliability of roadmap Lower Higher Higher
Ownership of solution Higher Lower Higher
Availability of professional services Lower Higher Higher
Availability of references and case studies Lower Higher Higher
Ability to prototype and ‘try before you buy’ Higher Lower Higher
Cost of license or subscription Lower Higher Lower
Ability to customize software Higher Lower Higher

IV. Conclusions
IV. Conclusions
35
q  Approach Customers with ‘Whole Product’ to Cross the Chasm & Barriers
Weakness of Open Source Model
• Lack of professional services
• Reliabilities
• Not to meet customers real job
• Focused on software itself
• Inconvenience
Strategy for Success
• Approach customers with ‘Whole Product’
• ‘Whole Product’ includes support, service, integ
ration, additional SW/HW
• Combining advantages of proprietary and open
source model into ‘Commercial’
• Focus on CVP rather than ‘Software’

IV. Conclusions
IV. Conclusions
36
q  ‘Commercial’ Open Source Model as Robust One
Community
:Benefit from com
pany & customers
Customers
:High quality SW
& professional ser
vices
Company
:Reduce product dev
elopment cost & incre
ase its valuation
‘Commercial’ Open Source Model
§  The open source community benefits directly from the
full-time engineering staff that exist because of the fee-
paying customers.
§  The customers benefit from the increased quality of the
software, quality of design, and increased traction
enabled by the open source community. And they could
expect professional services & support from the
‘commercial’ open source company.
§  The ‘Commercial’ open source company benefits by
increasing its valuation when it meets the needs of both
customers and open source community.
Meet the unmet needs of customers by offering core value proposition with open so
urce ‘Whole Product’, that is the key success point of open source business

V. References
V. References
38
—  강형구, “오픈 소스 비즈니스 모델 혁신 실증 연구 : 레드햇 사례를 중심으로”, 포항공대 기술경영대학원 석사학위 논문, 2010.
—  김진우, “오픈 소스 사회 현상에 대한 마케팅적 고찰”, 고려대학교 경영대학 석사학위 논문, 2008.
—  권순선, “오픈 소스의 비지니스 모델”, http://kldp.org/node/80381
—  Dixon, J., “The Honey-Gatherer Model for Service/Support Commercial Open Source”,
http://jamesdixon.wordpress.com/the-bees-and-the-trees/servicesupport-model/
—  Dixon, J., “The Maple Syrup Farm Model for Proprietary Software Companies”,
http://jamesdixon.wordpress.com/the-bees-and-the-trees/proprietary-model/
—  Dixon, J., The Beekeeper I, II, http://wiki.pentaho.com/display/BEEKEEPER/The+Beekeeper
—  Sanghee Shin, “Open source does matter”, KAIST Business School IT Strategy Class Presentation, 2010.
—  Dan Farber, Summary of a Ray Lane’s Keynote, “Six barriers to open source adoption”, ZDNet,
http://techupdate.zdnet.com/techupdate/stories/main/Six_barriers_to_open_source_adoption.html
—  Goeffrey Moore, Crossing the Chasm, http://en.wikipedia.org/wiki/Crossing_the_Chasm
—  신상희, “오픈 소스 라이선스의 이해”, 2009년 GIS 추계 공동학술대회, 2009.
—  Interview with Barracuda Networks : http://news.cnet.com/8301-13505_3-9789246-16.html?tag=mncol;txt
—  Amit Deshpande et al, “The Total Growth of Open Source”, In Proceedings of the Fourth Conference on Open Source Systems
(OSS 2008), 2008.
—  OSI(Open Source Initiative), http://www.opensource.org
—  Paul Ramsey, ”Beyond Nerds Bearing Gifts”, FOSS4G 2009 Keynote address, http://2009.foss4g.org/speakers/#Paul_Ramsey

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