Open Source Business Models

EXECUTIVE SUMMARY Open Source Software is hot with a continuous increasing market share. Besides better working (!) alternatives for commercial software, today Open Source Software (OSS) is also ‘big’ business. Conclusions:  The number of successful OSS business models is limited;  Individuals and (big) companies can successfully embrace one of the OSS business models.  Avoid OSS software that is not built around an open OSS business model. Many companies advertise with OSS, but are in fact offering commercial software. A limited half working demo version is advertised as the OSS version. Be aware! These presentation is a summary of the report ‘OSS Business Models 2010’

INTRODUCTION The high profits of traditional software companies are threatened more and more. How do companies earn money from open source software? This question is not new, however the:  Ways  Amounts  Opportunities Have changes dramatically since the economic melt down. This report gives insight in what OSS business models are successful now and what models will stay that in the future.

DEFINITIONS Open Source business model:  The strategy used by a company to generate profit from open source software (OSS). This means that: A company does not have to create the OSS software. This can be left to a strong OSS community organized around the software. But the main business strategy for generating revenues is built around a FOSS product. Be aware: Literature offers no general accepted definition of the concept business model.

GOAL This research (and presentation) is solely aimed at the principles that exist today to gain profit with building a business model around:  Developing and/or  Selling and/or  Using open source source as tangible poduct. “How can I earn money out of open source ? “ The main problem is: OSS by itself does not generate profits for a company creating it!

CONTROL ON OSS? Commercial OSS companies are seen in two forms:  Companies that control the OSS software complete and  Companies that are depended on an OSS community for the OSS software So in general OSS software comes in two options:  Community open source is open source that is controlled by a community of stakeholders;  Commercial open source is controlled by exactly one commercial stakeholder with the main purpose of commercially exploiting it. The best and most successful companies produce OSS Software using a mix of these models, where is has been proven that a strong community is needed for enduring success.

THE DILEMMA The major dilemma that needs to be tackled for a successful OSS business model is: How organize the OSS community around your product, without controlling or losing the community. It is a dilemma because the OSS company wants to control or minimal have influence on:  The strategy for the OSS product  The quality of the OSS product (software, documentation, user experience)  The future roadmap of the OSS product (direction and functionality) The dilemma is solved by successful OSS companies by using a open innovation platform where care has been taken that everyone gets the value back of investments (time, money, dedication)

THE OPTIONS FOR A POSITIVE BUSINESS CASE In principle there are two methods for gaining profit out of OSS:  Direct or  Indirect Indirect profit Direct profit This is the result from an extensive literature review, reviewing many OSS projects, business research on companies creating OSS and business models and licenses use by OSS companies.

OSS BUSINESS MODELS:DIRECT A direct OSS business model implies that earnings are generated directly out of the creations of the OSS software by the company. A direct model implies that the company works actively with the OSS community to produce the OSS software. The options for generating revenues are:  Donations  Individuals  Sponsored by a NPO (Non-Profit Organisation)  Commercial companies  Advertisements (E.g. Website or merchandise like clothes)  Sponsoring (note the difference with donations!)  Base software is OSS, but payments for extra features  Dual Licensing  Buy out by big company / Or IPO (investors)

OSS BUSINESS MODELS:INDIRECT A indirect business model implies that earnings are generated from secondary activities. So no activities directly related to coding or software producing. The indirect options are:  Implementation  Training & Education  Support  Books / Manuals  Seminar & Conference fees  Advertising (e.g. Ad words)  Hosting (e.g. Wordpress) The company can still be involved in the process of creating the OSS software with the OSS community, but revenues are generated from above options.

ADVERTISEMENTS One of the direct models is to make use of advertisements. This can be done direct or indirect: Direct:  In the software (displaying logo’s, banners or links) Indirect  Manuals  Website Direct advertisements in software can be annoying! Companies with a successful OSS business model do not use direct advertising in the software.

SPONSORING If you want to earn money with working on OSS, sponsoring can be an option. A few possibilities:  Ask money from companies if they request new features.  Launch a project idea and search for sponsors that will benefit. E.g. Paul-Henning Kamp asked for 28.000 euro for building the first jail implementation (FreeBSD). After a week he could start.

EXAMPLES OF SUCCESSFUL OSS COMPANIES To many to mention! RedHat, Novell: Linux CKSource.com: Creators of the CKEditor (a text editor to be used inside web pages) Business model: dual licensing, paid support, advertising Who uses it CKSource.com software? And many more!

EXAMPLES OF SUCCESSFUL OSS COMPANIES Recent acquisitions of open source firms:  Xen Source for $500 million  Zimbra for $350 million  JBoss for $350 million

PROFIT4ALL?! Any company with a business model built around OSS is not only generating economic value, but delivers also other types of values like:  Social value  Enables open innovation  Better software The high profits (only in $$) of traditional software companies are threatened! The traditional huge software companies like Oracle, Microsoft, IBM, SAP and CA technologies are still not able to have an answer to OSS firms.

CONCLUSIONS Research on profitable business models used by OSS companies shows that:  The adoption of OSS by many companies is a testament to the fact that it provides benefits for everyone: developers, vendors, customers and of course end-users.  OSS software is here to stay. But companies around OSS projects will come and go. The ‘normal’ economic growth models and organizational evolutions laws are still valid!  Any company that is involved with OSS only from a revenue perspective will fail. Besides forking projects (e.g. mysql) communities simple do not accept closed development models without their influence possible.  Think ahead before you start with an OSS product. Answer questions like:  How to organize the OSS software production process  How to organize the community  How to facilitate the growth of the OSS community

ADVICE This report is about open source software (OSS) business models. The following factors are crucial for successful enabling an business model built around OSS:  Software License choice (e.g. BSD or GPL style)  Organization of the OSS community build around the software  Complete openness of how the project is organized  Combined with the opportunities of a profitable business model, every company can take advantage of the power of OSS  For enduring success with an OSS product, taking full control of the code development will fail. Facilitate the community and act as a stakeholder. And do not act as the only stakeholder! (You and your company will be doomed -)

IT’S ALL ABOUT COLLABORATION! Author info About Maikel Mardjan: - Msc Business Studies, University of Groningen - Master Business Management (MBM), TSM Business School - Msc Electrical Engineering, Delft University of Technology More than 15 years experience in the field of: consultancy, IT, Open Source, Internet, business research methods and innovation.

MORE INFORMATION? If you need more detailed information about other business research questions regarding Open Source business models, e.g.:  How to develop a successful OSS business model  How to create and organize a strong OSS community  Integration aspects with other parts of your business  Quality systems needed for an OSS based company Read the full report, contact us, or contact one of our partners.

WHAT DOES THE FOUNDATION? The Business Management Support Foundation (aka BM- Support.org) helps companies with solving their innovation questions. We arrange an innovation platform and give support wherever possible with knowledge from our partners from our innovation network. In our innovation network many progressive companies and institutions are available.

BM-SUPPORT.ORG AND YOUR INNOVATION PROJECT? Success of innovation is applying the right mix of knowledge of diverse scientific worlds. The BM-Support foundation provides different services to make innovation projects successful. Our strength lies in systematic analyzing and solving all problems which arise during an innovation route. But we also bring together all companies needed to make your innovation project successful.

CONTACT INFORMATION Business Management Support Foundation Chamber of Commerce number 08164333 (The Netherlands) info@bm-support.org www.bm-support.org BM-Support.org is a foundation for sharing and creating knowledge. Everyone can join the bm-support.org network Support our foundation by your donation or participation!

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Open Source Business Models

by Maikel Mardjan on May 28, 2010

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Open Source Business Models — Presentation Transcript