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OSS Business models

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From a philosophical point of view, everybody loves open source software: you, your wife or girl friend, your father, your mother, grand-father or grand-mother, your children, your boss, your …

From a philosophical point of view, everybody loves open source software: you, your wife or girl friend, your father, your mother, grand-father or grand-mother, your children, your boss, your employees, your custormers, your students, your teachers, your cat even your fish, everybody.

Once the first enthusiasm gone (it takes arount 10 minutes for persons and 3 sec. for the fish), a simple question arises : ok, open source is not gratis, however, a consequence of the open redistribution is gratuity, so how are you making a living with open source software ? Is it viable in the long term ?

The conference will present the mechanisms (the "business models") around open source software and especially those for software editors.

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  • 1. Free software business models Arnaud Laprévote – research project director arnaud.laprevote@mandriva.com
  • 2. MANDRIVA 2010 inclura le TASK ORIENTED DESKTOP Vous VOULEZ le tester
  • 3. Summary ● Why? ● Who are you for talking to me like that ? ● Market ● Analysis grid ● Activities ● Revenues sources ● Domains ● Conclusion
  • 4. WHY ?
  • 5. WHO ARE OSS business YOU TO models: SPEAK TO ME not a choice, but ... LIKE THAT ?
  • 6. Market ● Economic and Social Impact of Software & Software-Based Services - Smart 2009/0041 (Pierre Audoin Consultants) ● Software and Software Based Services market in Europe : ● 2008 : 228.6 billion Euros in 2008 ● 3.7% CAGR by 2012 ● 2012 : 264.8 billion Euros.
  • 7. Yes, size matters
  • 8. Information systems market GDP : gross domestic product proportions hold
  • 9. Revenues for France ● Software revenue growth ● 2005 – 7% ● 2006 – 6% ● Software and hardware service revenues growth ● 2005 – 7% ● 2006 – 6,5%
  • 10. But small actors ● 1st european editor: SAP ● 2nd european editor: SAGE
  • 11. Pcs in the world ● Nber of PCs sold in 2007 : 271 millions ● 1 billion of PCs in the world ● 2 billions of PCs planned in 2012 ? 3% of energy expenses
  • 12. And linux ?
  • 13. 1,2 % 30%
  • 14. What is open source ?
  • 15. Free to ...
  • 16. Free of charge :=( €€€€€€€€€€
  • 17. Free of charge = Free of any business ?
  • 18. Mandriva  One of the five main Linux solutions editors in the world  The only european one  Quoted at Euronext stock exchange  80 people  500 contributors  Sold in 150 countries  Available in 80 languages  More than 3 million users  Offices in France and Brazil
  • 19. Value chain Cap Gemini OpenWide, Atos, Eds, IBM Service IdealX, Linagora Global Services companies Level 4: Services PostgreSQL, Jonas Oracle, SAP, Proprietary Open Source ObjectWeb, Nexedi, BEA, IBM Applications Applications Nuxeo Level 3: Applications Mandriva, Linux OS Redhat, Novell/Suse Level 2: Software platform HP, IBM, Dell Hardware Level 1: Hardware platform Intel, AMD, Via Founders Level 0: Chips and boards
  • 20. ● 2 millions ● 90 000 ● Angola ● Nigeria 11 000 ● Brazil 25 000
  • 21. End of the interlude
  • 22. What is a business model ?
  • 23. A business model is a term used for a broad range of informal and formal descriptions that are used by enterprises to represent various aspects of its business, including its purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies.
  • 24. Dimensions  Taille (de l'entreprise, des clients, du CA, du bénéf ce, des effectifs) i  Domaine d'activité et spécialisation (ou pas)  Métier principal  Sources de revenues  Proximité au code source  Proportion de R&D  Organisation
  • 25. QualiPSo Survey Technical domain 2 111 7 4 3 Security eGovernment 4 13 Web/internet eLearning Electrical Engineering Banking / finance Infrastructure Knowledge management 5 Middleware Home appliance Embedded electronics Energy generation and distribution 3 4 Medical Industry Automation Multimedia Environment Accouting (ERP...) Software for hardware (OEM) 4 9 3 5 4 8
  • 26. Customer size Expertise
  • 27. Main activities - identity ● Information technology consulting – service company ● Hosting of resources (hardware, software, informations, ...) ● Hardware seller ● Proprietary software editor ● Open source software editor ● Distribution editor (software integration) ● Communication agency ● Law and business consulting activities ● Media company
  • 28. Revenue sources ● Service ● Hardware ● Delay ● OSS for a price ● Hosting ● Branding ● Advertising ● Sponsoring
  • 29. Revenue sources ● Insurance / warranty ● Toll ● Subventions ● Dual-licensing ● Proprietary software
  • 30. Revenue sources Revenue sources Consulting OSS for a price Infinite support Hosting Dev. - customisation Support Training Linbox Subventions Europe-B Proprietary extensions / software Europe-A Proprietary ext. Europe-C Features Tax credit Mandriva JEI Red Hat Branding EBM Websourcing Hardware Europe-D Certification Provide OSS software with delay Dhooges Dual licensing Logilab Publications Advertising Sponsoring Other services 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% percentage
  • 31. Problem : the lever effect € service € Software costs t t revenues
  • 32. Lever effect for open source software edition ? margin margin S Support margin M margin T margin t en pm Maintenance lo ve De margin Training ?
  • 33. The key to development f nancing i margin margin S Support margin M margin T margin t en pm Maintenance lo ve margin De margin Training ?
  • 34. Insurancial dimension ?
  • 35. And the remaining margin margin S Support margin M margin T margin t en margin Maintenance pm lo Insurance ve De margin Training ? Investments Subventions
  • 36. PWB : Payed web based
  • 37. Activity, source code and communities
  • 38. Source and community Service company n tio ic a Embedded un m m cy r Co en ito Ag Ed Hosting Creator Use Bug report Documentation Contributor < 1% Contributor [1,10%] Community Animation
  • 39. Conclusion ● The future of Open Source funding is insurancial in the professional market ● The future of Open Source is advertisement, branding and “toll” for the consumer market ● To reach 2 billions of computers new markets must be opened => cost diminution ● Open source is a viable economical model that may become pre-eminent on other economical models for software
  • 40. MANDRIVA 2010 inclura le TASK ORIENTED DESKTOP Vous VOULEZ le tester
  • 41. Thanks www.qualipso.org and the deliverable D2.1.3 April, for its white paper about free software business models Syntec for its synthesis 2007 about IT market
  • 42. Mandriva Linux Open Simple Innovative
  • 43. Annexes
  • 44. What does sell a service company ?
  • 45. What does sell an open source service company ?
  • 46. Not concentrated ?
  • 47. Resource provider ?
  • 48. Hardware seller ?
  • 49. Proprietary software editor ?
  • 50. Open source software editor ?
  • 51. Distribution editor ?
  • 52. Traditional Operating System editor Software editor Customer Traditional OS editor
  • 53. Linux distribution editor Linux distribution Software editor Customer editor
  • 54. Communication agency ?
  • 55. IP specialist ?
  • 56. Free software business models Arnaud Laprévote – research project director arnaud.laprevote@mandriva.com
  • 57. MANDRIVA 2010 inclura le TASK ORIENTED DESKTOP Vous VOULEZ le tester
  • 58. Summary ● Why? ● Who are you for talking to me like that ? ● Market ● Analysis grid ● Activities ● Revenues sources ● Domains ● Conclusion
  • 59. WHY ? Normally, everybody should be supporting it But what are we earning money with? Key point to reassure potential users Key point for setting up new activities in new or existing companies Linbox FAS – funded December 1996 – bought out May 2007
  • 60. WHO ARE OSS business YOU TO models: SPEAK TO ME not a choice, but ... LIKE THAT ? Engineer (ENSMM 1988 and ENSERG 1989) specialized in digital micro-electronics Research assistant at Institut für Datentechnik, Darmstadt (1990) Manager of digital electronics laboratory in the signal processing department at TDF-C2R (1991-1994) « Advanced TV and multimedia » Team director at the R&D center, THOMSON multimedia (1995- 1996) Created Free&ALter Soft (12/1996) Linbox buy out in 2001 => Linbox FAS Product refocusing (LRS) Buy out of Linbox FAS in 2007 by Mandriva
  • 61. Market ● Economic and Social Impact of Software & Software-Based Services - Smart 2009/0041 (Pierre Audoin Consultants) ● Software and Software Based Services market in Europe : ● 2008 : 228.6 billion Euros in 2008 ● 3.7% CAGR by 2012 ● 2012 : 264.8 billion Euros.
  • 62. Yes, size matters
  • 63. Information systems market GDP : gross domestic product proportions hold
  • 64. Revenues for France ● Software revenue growth ● 2005 – 7% ● 2006 – 6% ● Software and hardware service revenues growth ● 2005 – 7% ● 2006 – 6,5%
  • 65. But small actors ● 1st european editor: SAP ● 2nd european editor: SAGE SAP : – 8 billion € turnover in 2007 (it's pretty few) – 1 billion € turnover (Truffle 100 study) But benefits of France Telecom in 2007 was 8 billion €
  • 66. Pcs in the world ● Nber of PCs sold in 2007 : 271 millions ● 1 billion of PCs in the world ● 2 billions of PCs planned in 2012 ? 3% of energy expenses 3% energy = air transport energy expenses !!!!!
  • 67. And linux ? Normally, everybody should be supporting it But what are we earning money with? Key point to reassure potential users Key point for setting up new activities in new or existing companies Linbox FAS – funded December 1996 – bought out May 2007
  • 68. 1,2 % 30% France Desktop between 20 et 30 millions of Pcs 1,1% (AT Institute) of PCs under linux : between 220 000 et 330 000 Server ? Majority of web servers are under linux World ~ 1 billion pcs ~ 11 millions of pcs under linux
  • 69. What is open source ? Open Source implies that everyone can share the software, and that leads the software to be free (in price), even if it's not imposed or needed by the licence But how to create an economical activity with something free of charge?
  • 70. Free to ... download/distribution use modification distribution of modification Open Source implies that everyone can share the software, and that leads the software to be free (in price), even if it's not imposed or needed by the licence But how to create an economical activity with something free of charge?
  • 71. Free of charge :=( €€€€€€€€€€
  • 72. Free of charge = Free of any business ? Metro newspaper Museums Web sites Education (not everywhere) Wifi in some towns Non paying televisions Skype calls Local phone communications ... Free and business are common
  • 73. Mandriva  One of the five main Linux solutions editors in the world  The only european one  Quoted at Euronext stock exchange  80 people  500 contributors  Sold in 150 countries  Available in 80 languages  More than 3 million users  Offices in France and Brazil
  • 74. Value chain Cap Gemini OpenWide, Atos, Eds, IBM Service IdealX, Linagora Global Services companies Level 4: Services PostgreSQL, Jonas Oracle, SAP, Proprietary Open Source ObjectWeb, Nexedi, BEA, IBM Applications Applications Nuxeo Level 3: Applications Mandriva, Linux OS Redhat, Novell/Suse Level 2: Software platform HP, IBM, Dell Hardware Level 1: Hardware platform Intel, AMD, Via Founders Level 0: Chips and boards
  • 75. ● 2 millions ● 90 000 ● Angola ● Nigeria 11 000 ● Brazil 25 000 2 million downloads of each Mandriva release 90 000 computers in a big French administration Angola Tutorials, development of Angolinux, deployment Nigeria 11 000 Classmate PC using Mandriva Brazil 25 000 machines with Mandriva sold each month by Positivo
  • 76. End of the interlude
  • 77. What is a business model ?
  • 78. A business model is a term used for a broad range of informal and formal descriptions that are used by enterprises to represent various aspects of its business, including its purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies. A lot of dimensions in the universal sample space: Customers Size Field of activity Activity Revenue source Closeness to source code Repartition between technical and commercial staff R&D proportion ... One company = one combination of factors Our goal is to identify and show some winning combinations
  • 79. Dimensions  Taille (de l'entreprise, des clients, du CA, du bénéf ce, des effectifs) i  Domaine d'activité et spécialisation (ou pas)  Métier principal  Sources de revenues  Proximité au code source  Proportion de R&D  Organisation
  • 80. QualiPSo Survey Technical domain 2 111 7 4 3 Security eGovernment 4 13 Web/internet eLearning Electrical Engineering Banking / finance Infrastructure Knowledge management 5 Middleware Home appliance Embedded electronics Energy generation and distribution 3 4 Medical Industry Automation Multimedia Environment Accouting (ERP...) Software for hardware (OEM) 4 9 3 5 4 8 The main ones for open source software are : security internet infrastructure network File, mail, communication or ... server, Office automation Game Multimedia Accounting, ERPs Many fields All fields
  • 81. Customer size Expertise Rules of thumb : * you do business with entity of with the same size order than you, * if not (you are a small company selling to a big) you must have a very specialised expertise to appeal to big companies, * if you sell to small companies, you will sell a very wide expertise (« I take care of your computers ») but obviously not as deep. The figure above represent that.
  • 82. Main activities - identity ● Information technology consulting – service company ● Hosting of resources (hardware, software, informations, ...) ● Hardware seller ● Proprietary software editor ● Open source software editor ● Distribution editor (software integration) ● Communication agency ● Law and business consulting activities ● Media company A software service company sells time and knowledge/expertise expertise on proprietary software Expertise on open source software NO DIFFERENCE !!!!!!????? Added value ++ In the detail : ●Consulting ●Training ●Set up ●Support ●Outsourcing ●Integration ●Customisation ●Development ●Certification, ●
  • 83. Revenue sources ● Service ● Hardware ● Delay ● OSS for a price ● Hosting ● Branding ● Advertising ● Sponsoring ● Service (selling of time and expertise) ● Hardware ● Publicly publish with a delay (immediate access for a price) ● Open source software distribution for a price ● Hosting ● Sources linked to gratuity and image ● Branding (teeshirt, teapot, club Mandriva, trade licence sell, ? Franchise ?, ...) ● Advertising ● Sponsoring (Google => Mozilla, Intel, HP, club Mandriva, ...)
  • 84. Revenue sources ● Insurance / warranty ● Toll ● Subventions ● Dual-licensing ● Proprietary software Insurance / warranty « Toll » if a financial exchange is done If a financial exchange is done from the OS (buying of music, of video, of a game, of a software, ...) => the distribution editor allows this financial exchange => he should get some money for this service (Amarok). Subventions (for creating an open source software) Creation of a good which is to the disposal of everybody => giving subvention is fairly logical as it may benefit to all. Dual-licensing : Imposes a copyright transfer for contributors => slows down the dynamic around the project Proprietary software (extension) Requires a structure or a licence adapted (Apache, BSD style, Mozilla)
  • 85. Revenue sources Revenue sources Consulting OSS for a price Infinite support Hosting Dev. - customisation Support Training Linbox Subventions Europe-B Proprietary extensions / software Europe-A Proprietary ext. Europe-C Features Tax credit Mandriva JEI Red Hat Branding EBM Websourcing Hardware Europe-D Certification Provide OSS software with delay Dhooges Dual licensing Logilab Publications Advertising Sponsoring Other services 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% percentage
  • 86. Problem : the lever effect € service € Software costs t t revenues
  • 87. Lever effect for open source software edition ? margin margin S Support margin M margin T margin t en m Maintenance lop ve De margin Training ? Revenues without lever effect !!!!
  • 88. The key to development f nancing i margin margin S Support margin M margin T margin t en m Maintenance lop ve margin De margin Training ? Unlimited Support = In case of problem, all means will be taken for this problem to never occur again => insurancial dimension of support = lever effect.
  • 89. Insurancial dimension ? Only advantages ... For the customer ●Cost control on a function ●It's better for the editor to minimize the support, and that means developing a great quality product → virtuous circle ●Adding functions for developing the installed basis For the editor ●Recurrent and continuous revenues, corresponding to the production economic reality ●Capacity to foresee revenues
  • 90. And the remaining margin margin S Support margin M margin T margin t en margin Insurance m Maintenance lop ve De margin Training ? Investments Subventions
  • 91. PWB : Payed web based
  • 92. Activity, source code and communities
  • 93. Source and community Service company n tio ni ca Embedded u m m cy r Co e n ito Ag Ed Hosting Creator Use Bug report Documentation Contributor < 1% Contributor [1,10%] Community Animation
  • 94. Conclusion ● The future of Open Source funding is insurancial in the professional market ● The future of Open Source is advertisement, branding and “toll” for the consumer market ● To reach 2 billions of computers new markets must be opened => cost diminution ● Open source is a viable economical model that may become pre-eminent on other economical models for software
  • 95. MANDRIVA 2010 inclura le TASK ORIENTED DESKTOP Vous VOULEZ le tester
  • 96. Thanks www.qualipso.org and the deliverable D2.1.3 April, for its white paper about free software business models Syntec for its synthesis 2007 about IT market
  • 97. Mandriva Linux Open Simple Innovative
  • 98. Annexes A software service company sells time and knowledge/expertise expertise on proprietary software
  • 99. What does sell a service company ? A software service company sells time and knowledge/expertise expertise on proprietary software
  • 100. What does sell an open source service company ? Expertise on open source software NO DIFFERENCE !!!!!!????? Added value ++ In the detail : ●Consulting ●Training ●Set up ●Support ●Outsourcing ●Integration ●Customisation ●Development ●Certification, ●Migration process ●certification / quality
  • 101. Not concentrated ? Steria, On-X Apitux, Librenberry, Free Electrons, Silecs, Cliss XXI, Pragmatic Source, Ars Aperta, Merethis, LDD, Nereides, Siloh, Bearstech, Netaktiv, Easter Eggs, Alcôve Libreboot, Alca Torda, Sfwan, Open Via, Pi-Lyon, Zefyris, Exemole, Eitics, Alter Way, Code Lutin, Ambika, Infoclip, Itaapy, Atreal .... Today : development of many small local actors and market structuration through big and/or specialized actors (AlterWay, Linagora, Mandriva, ...)
  • 102. Resource provider ? Pure hosting : ●Put machine and bandwidth to disposal ●Physical access (power on / off / BIOS / reparation) ●Simplified remote command line access ●Automatisation of set up (Dedibox, Gandi, ...) ●With a SLA (time to replace a machine, guarantee on power supply, bandwidth, ...) Added value hosting ●monitoring ●backup ●maintenance/system updates ●support Application hosting ●groupware, mail server, ERP, web site, ecommerce, ... High Performance Computing Information provider (web sites)
  • 103. Hardware seller ? DivX player Tivo TomTom Some wifi / ADSL router / modem Archos Tooling machines HPC vendors (sun, SGI, Bull, Nec, ...) Embedded linux ●++ ●Any people who need a standard software stack (network, hard disk, audio or video stack, http streaming, http, ssh, ...)
  • 104. Proprietary software editor ? All models around double licensing : Open version – proprietary version => Mysql, Trolltech, ... Editor using open source basis Very common in the java world. Proprietary product including java, struts, tomcat, apache, ... IBM, tomcat, websphere IBM, Eclipse, => Rational offer Zend (php) Linbox FAS (Linbox Rescue Server)
  • 105. Open source software editor ?
  • 106. Distribution editor ? RedHat, Suse Novell, Ubuntu, Mandriva, Centos, ... An economic activity That do not work without the remaining of the open source ecosystem
  • 107. Traditional Operating System editor Software editor Customer Traditional OS editor
  • 108. Linux distribution editor Linux distribution Software editor Customer editor
  • 109. Communication agency ? Communication around a project Animate the community Eclipse fondation Eclipse Apache fondation Mozilla fondation
  • 110. IP specialist ? Provide service and warranty for the legal aspect of OS no proprietary « contamination » => Open source or Open source => proprietary (black duck) Warranty against patent attack or any other legal attack

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