OW2 Webinar

            May 14, 2009


 Open Source Based
  Business Models
       Francois Letellier - fl@flet.fr
(Freel...
Agenda

● Market dynamics in software
● Free/Libre/Open-Source

  Software based business
  models
● The FLOSS “marketing ...
Terminology
●   FLOSS: Free / Libre / Open Source Software

●   Free « as in free speech, not free beer »
●   Open Source:...
Software is Immaterial
                           main()
                           {
                               doubl...
Software Protection:
                  Legal Framework
●   Copyright / Author's rights: the Berne Convention
    –  Protec...
Market Dynamics of
                        Proprietary Software

                                                        ...
FLOSS: a Collective Strategy
 for Software Development
Because sooner or later, publishers of proprietary software
have to...
Vendors to Leverage the
Industry Demand for FLOSS
What is a « Business Model »

         Planning level: the Strategy



          Architectural level:
          the Busine...
Categories of FLOSS Players
●   FLOSS « Pure Players »
    –   Software companies
    –   FLOSS is central in their busine...
FLOSS Pure-Player
            Business Models
●   Service
●   Added value distribution (« distro »)
●   Dual licensing
●  ...
Service: Engineering
   Emilia Romagna, Italy: pop. 4 M
   Monitoring of regional labour market
   Data collected from ...
Major Linux Distros
    Community Maintained
●   Slackware Linux 1992 (Patrick
    Volkerding)
    –   oldest distro still...
Major Linux Distros
        Commercially Maintained
●   Red Hat 1994 (Bob Young & Marc Ewing)
    –   enterprise edition: ...
Dual Licensing: eXo
                          Platform
                          US Joint Forces Command Chooses
         ...
Mutualized Development:
Eclipse
●   Nonprofit, EU, incepted in 2003 on IBM's
    initiative
●   Focus on the Eclipse devel...
Opportunistic FLOSS Strategies
●   Agnostic service companies and VARs
●   Externally funded ventures
●   (Hype)


    FLO...
“Agnostic” Service
Company



 ● IBM Global Services
 ● $ 91B revenue

 ● #1 in number of US patents


   granted/y
Loss Leader Strategy


●   $ 1B/y FOSS investment (2002)
●   invests in FLOSS to disseminate
    technology
●   not seekin...
FLOSS Based Business Models

             Key messages:

  Business models form a continuum from
         proprietary to f...
Windows of Opportunities


                 Emerging   Commoditized
 Opportunities




                                Ado...
FLOSS Based Business Models

              Key messages:

There is no single business model for FLOSS

 There are many pos...
Marketing Mix



 Product     Price


Promotion    Place


                     23
Supplier / Customer & FLOSS
        The Customer P.o.V
  Product      Supplier             Customer
price, place          ...
What are the FLOSS «4 P's»
              (NOT)?
●   Product: FLOSS project
●   Price: zero
●   Promotion: none, only word-...
FLOSS – Product / Solution
●   The product is
    –   A superset
         ●   Eg: Embedded; SaaS...
    –   A complement
 ...
Project vs product
FLOSS – Pricing / Value
●   Monetary
    –   In few models, comes from FLOSS
    –   Usually, comes from complements/super...
FLOSS – Promotion /
         Information
● Urban legend: the natural selection
  of FLOSS projects (the widely
  adopted a...
FLOSS – Placement / Access
●   Since the product is not the FLOSS project
    ... the access point is not just the Interne...
FLOSS - Competitors
●   Reminder: the product is not the FLOSS
    project...
●   Product competitors depend on the produc...
Recap / Take-aways
●   Collaboration on software development makes
    economical sense – hence FLOSS
●   Industry demands...
More : “Open Source Software: the Role of Nonprofits in Federating
Business and Innovation Ecosystems”,
F. Letellier, AFME...
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Webinar Bm V4[1]

  1. 1. OW2 Webinar May 14, 2009 Open Source Based Business Models Francois Letellier - fl@flet.fr (Freelance consultant – OW2 board/ELC member)
  2. 2. Agenda ● Market dynamics in software ● Free/Libre/Open-Source Software based business models ● The FLOSS “marketing mix” ● Q&A
  3. 3. Terminology ● FLOSS: Free / Libre / Open Source Software ● Free « as in free speech, not free beer » ● Open Source: term coined to avoid the ambiguities of « free » (in English) ● Libre: latin origin, EU prefered term for « free » ● Free ≈ Libre ≈ Open Source Software
  4. 4. Software is Immaterial main() { double g, x; printf("%lf", x); g = lg(x); printf("lnG(%g)=%14.12gn", x, g); } ● Software is a form of Digital Good ● Not tangible ● Reproductible perfectly, indefinitely ● Non rival – use by one does not preclude use by another – no natural scarcity – but (legally) excludable
  5. 5. Software Protection: Legal Framework ● Copyright / Author's rights: the Berne Convention – Protection of Literary and Artistic Works – Principle of national treatment – Protection over a work is automatic, not subject to registration – The work must be original and creative ● To use copyrighted work (e.g. Software): – Must enter a contract (« license ») with the author or copyright owner ● No right granted unless explicitely specified ● No obligation of the licensee to accept ● This is the basis of legal excludability
  6. 6. Market Dynamics of Proprietary Software  Huge economies of scale $  Equilibrium at price  0 Demand  Unlimited supply, price = 0 Nash eq.  winner takes all 1/x  Mouthwatering perspectives Quantity  oversupply 1 Mkt size Oversupply (100,000s Free* projects) Uncertain Poor Profitability Competition ► Open Source Brings New Business Models 6
  7. 7. FLOSS: a Collective Strategy for Software Development Because sooner or later, publishers of proprietary software have to compete against vendors of (almost) free substitutes Because software production costs can be reduced through collaborative engineering Because opening the source code is the best way to maximize the potential of collaboration And because collaborating when competing is pointless is the best way to keep innovating 7
  8. 8. Vendors to Leverage the Industry Demand for FLOSS
  9. 9. What is a « Business Model » Planning level: the Strategy Architectural level: the Business Model Operations: the Business Processes
  10. 10. Categories of FLOSS Players ● FLOSS « Pure Players » – Software companies – FLOSS is central in their business model ● Opportunistic FLOSS strategies – Software or service companies – May use FLOSS when appropriate ● FLOSS-based open innovation – Any industry: software, hardware or other – Software intensive – Leveraging FLOSS in their innovation strategy
  11. 11. FLOSS Pure-Player Business Models ● Service ● Added value distribution (« distro ») ● Dual licensing ● Mutualized R&D
  12. 12. Service: Engineering  Emilia Romagna, Italy: pop. 4 M  Monitoring of regional labour market  Data collected from local information systems  9 decentralized DWh – 1 for each district, 1- 3GB  1 regional DWh – 10GB  Open Source: SpagoBI, eXo Portal  Proprietary: Oracle 9i SE, PL/SQL ETL  10-20 users / district 12
  13. 13. Major Linux Distros Community Maintained ● Slackware Linux 1992 (Patrick Volkerding) – oldest distro still maintained – highly stable, clean and bug-free, strong adherence to UNIX principles – limited number of supported applications; complex upgrade procedure
  14. 14. Major Linux Distros Commercially Maintained ● Red Hat 1994 (Bob Young & Marc Ewing) – enterprise edition: Red Hat Enterprise Linux; maintained by FLOSS forerunner and pure player – targeted to corporate IT departments (servers) more concerned about support than cost – community edition: Fedora
  15. 15. Dual Licensing: eXo Platform US Joint Forces Command Chooses ObjectWeb eXo Platform Maximize Benefits of Open Source & Open Standards Stimulate industry Enable Coalition partners the ability to roll their own interoperable solution Reduce the cost of collaboration in DoD Why eXo Platform?  One of the first certified JSR-168 portals Multinational  Very flexible layout engine with good group layout/page controls Information Sharing  Leapfrogs the commercial portals in its Solution to support war technology  Supports server load balancing fighters operating in a coalition environment 15
  16. 16. Mutualized Development: Eclipse ● Nonprofit, EU, incepted in 2003 on IBM's initiative ● Focus on the Eclipse development platform (Java) ● Corporate membership, high level of membership fee, different value proposition for developers and for consumers ● Formalized governance all the way down to project management
  17. 17. Opportunistic FLOSS Strategies ● Agnostic service companies and VARs ● Externally funded ventures ● (Hype) FLOSS-based open innovation will be dealt with separately
  18. 18. “Agnostic” Service Company ● IBM Global Services ● $ 91B revenue ● #1 in number of US patents granted/y
  19. 19. Loss Leader Strategy ● $ 1B/y FOSS investment (2002) ● invests in FLOSS to disseminate technology ● not seeking direct return ● to undercut competition and grow the market for a complement
  20. 20. FLOSS Based Business Models Key messages: Business models form a continuum from proprietary to free software There are about as many business models as companies You may create your own: innovation also happens in business models
  21. 21. Windows of Opportunities Emerging Commoditized Opportunities Adoption
  22. 22. FLOSS Based Business Models Key messages: There is no single business model for FLOSS There are many possible business models based on FLOSS or leveraging FLOSS The key is not to chose between proprietary and FLOSS, but to always evaluate FLOSS as an option in a corporate environment
  23. 23. Marketing Mix Product Price Promotion Place 23
  24. 24. Supplier / Customer & FLOSS The Customer P.o.V Product Supplier Customer price, place Solution, promotion? Selling value, access, information? Customer The F/L/OSS Solution, value, Ecosystem access, information? Sourcing
  25. 25. What are the FLOSS «4 P's» (NOT)? ● Product: FLOSS project ● Price: zero ● Promotion: none, only word-of-mouth ● Placement: online, full-stop ● These mis-conceptions lead to the classical question: « but how can you make money with software you give away for free ? »
  26. 26. FLOSS – Product / Solution ● The product is – A superset ● Eg: Embedded; SaaS... – A complement ● Eg: Professional services; Distros with subscriptions... – A substitute ● Eg: Dual-licensing; Bait-and-hook... of the FLOSS project
  27. 27. Project vs product
  28. 28. FLOSS – Pricing / Value ● Monetary – In few models, comes from FLOSS – Usually, comes from complements/superset (hardware, doc, services) or non-FLOSS substitutes ● Non-monetary – Adoption leads to sustainability – Contributions, peer-to-peer support – Direct user feedback enhances the product marketing process
  29. 29. FLOSS – Promotion / Information ● Urban legend: the natural selection of FLOSS projects (the widely adopted are the technically superior ones) ● Reality: promotion is a huge effort ● A healty FLOSS project may be the promotion channel for product(s)
  30. 30. FLOSS – Placement / Access ● Since the product is not the FLOSS project ... the access point is not just the Internet ● Scalability issues apply to some models... – Eg: FLOSS enabled consumer electronics – Less to others, eg: Online support subscription ● Ecosystem leverage: go to market jointly with partners
  31. 31. FLOSS - Competitors ● Reminder: the product is not the FLOSS project... ● Product competitors depend on the product ● Competitors to the FLOSS project – Proprietary or FLOSS substitute – May jeopardize project image, sustainability ● FLOSS free riders may not be competitors even though they benefit and do not pay – Because the product is not the project
  32. 32. Recap / Take-aways ● Collaboration on software development makes economical sense – hence FLOSS ● Industry demands gave opportunities for new business models ● There's a wide variety of FLOSS-based business models... ● ...in most of them, the product is NOT the FLOSS project, but a superset, complement or substitute ● To be cont'd (open innovation in software – June 11, 2009) – and we'll see where OW2 fits!
  33. 33. More : “Open Source Software: the Role of Nonprofits in Federating Business and Innovation Ecosystems”, F. Letellier, AFME Conference 2008 http://flet.netcipia.net/xwiki/bin/download/Main/publications%2Dfr/GEM2008%2DF Letellier%2DSubmittedPaper.pdf Thank you for your attention Questions ? And Answers Le middleware from est partout ? Francois Letellier - fl@flet.fr “Sunny” Grenoble 33

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