Open Source Business Models

Motaz K. Saad msaad@iugaza.edu.ps IT Forum3 12 -13 May 2009 Islamic University of Gaza - Palestine

Outline Open Source Software License Goals Open Source Licenses Open Source Software Freedoms Open Source Business Models Can I make Business from Open Source (Can I Relicense)? Conclusions & Recommendations 2

Open Source It’s “impossible to avoid” - Gartner 2007 Study 3

Open Source By 2011, 80% of all commercial software will contain open source code. 4

Open Source SourceForge 300,000+ 5

Commercial Support IBM Novell Sun Oracle Intel Motorola Apple Google HP Yahoo Dell Microsoft 6

…and make its own open source ecosystem 7

Free software must respect 4 freedoms: The freedom to launch software for any use. The freedom to study the way software works and thus to freely access its source code. The freedom to redistribute and sell copies. The freedom to enhance software and publish the results. 8

Free of use vs. free of charge: Open sources licenses fulfill 10 criteria Free redistribution Access to the source code Right to change the source code and develop derived works Respect of the integrity of the author’s source code. Forbidding discrimination against persons and groups Forbidding discrimination against fields of endeavor Universality of the rights attached to the program. Protection of the program, and not of the product Lack of contamination of other products containing a protected source code Technological neutrality. The license cannot discriminate against any technology or style of interface. 9

License Goals Ensure certain code remains open source Reserve control Build a commercial coalition Encourage third-party marketplace Challenge competitors 10

OSI Approved Licenses Academic Free License Lucent Public License (Plan9) Adaptive Public License Lucent Public License Version 1.02 Apache Software License Microsoft Public License (Ms-PL) Apache License, 2.0 Microsoft Reciprocal License (Ms-RL) Apple Public Source License MIT license Artistic license MITRE Collaborative Virtual Workspace License (CVW License) Artistic license 2.0 Motosoto License Mozilla Public License 1.0 (MPL) Attribution Assurance Licenses Mozilla Public License 1.1 (MPL) New BSD license NASA Open Source Agreement 1.3 Computer Associates Trusted Open Source License 1.1 Naumen Public License Common Development and Distribution License Nethack General Public License Common Public Attribution License 1.0 (CPAL) Nokia Open Source License Common Public License 1.0 OCLC Research Public License 2.0 CUA Office Public License Version 1.0 Open Group Test Suite License EU DataGrid Software License Open Software License Eclipse Public License PHP License Educational Community License, Version 2.0 Python license (CNRI Python License) Python Software Foundation License Eiffel Forum License Qt Public License (QPL) Eiffel Forum License V2.0 RealNetworks Public Source License V1.0 Entessa Public License Reciprocal Public License Fair License Ricoh Source Code Public License Frameworx License Sleepycat License GNU General Public License (GPL) Sun Industry Standards Source License (SISSL) GNU General Public License version 3.0 (GPLv3) Sun Public License GNU Library or "Lesser" General Public License (LGPL) Sybase Open Watcom Public License 1.0 GNU Library or "Lesser" General Public License version 3.0 (LGPLv3) University of Illinois/NCSA Open Source License Vovida Software License v. 1.0 Historical Permission Notice and Disclaimer W3C License IBM Public License wxWindows Library License Intel Open Source License X.Net License Jabber Open Source License Zope Public License zlib/libpng license 11

The copyleft The "reversed "c" in a full circle" is the copyleft symbol. It is the copyright symbol mirrored. Unlike the copyright symbol, it has no legal meaning. Copyleft is a play on the word copyright to describe the practice of using copyright law to remove restrictions on distributing copies and modified versions of a work for others and requiring that the same freedoms be preserved in modified versions. 12

kinds of licenses can be identified according to their permissiveness 13

Licenses compatibility 14

Can I make business from Open Source? Can I Relicense ? 15

License Scope AL MPL/LGPL GPL 16

Can I Relicense? Example 1 Open Open Open Source Source Source Code Code Code Copy & Paste Copy & Paste My code My code My code require the originally licensed code to remain requires all sub-licensing under a open but that the code can be (under certain combined works to proprietary license conditions) used in a larger, proprietary remain open licensed work. ! AL MPL/LGPL GPL 17

Can I Relicense? Example 2 Open Open Open Module 1 Source Source Source Code Code Code Module 2 Proprietary Proprietary Proprietary Code Code Code require the originally licensed code to requires all sub-licensing under a remain open but that the code can be used combined works to proprietary license in a larger, proprietary licensed work. remain open 18 AL MPL/LGPL GPL

Can I Relicense? Example 3 Open Open Open Module 1 Source Source Source Code Code Code Proprietary Code Proprietary Proprietary Module 2 Code Open Code Source Code require the originally licensed code to remain requires all sub-licensing under a open but that the code can be (under certain combined works to proprietary license conditions) used in a larger, proprietary remain open licensed work. (same as example 1) ! 19 AL MPL/LGPL GPL

Why Community: Commercial Software 20

Why Community: Open Source Software 21

My Experience 25

My Experience 26

Microsoft and Open Source: Public Perceptions 27

Microsoft and Open Source: Public Perceptions 28

Microsoft’s Perspective on Open Source “We at Microsoft respect and appreciate the important role that open source software plays in our industry. We respect and we appreciate the passion and the great contribution that open source developers make in our industry… That is not what you have always heard from us, and I recognize that….” Brad Smith, SVP, General Counsel & Corporate Secretary, Microsoft Corporation OSBC (Open Source Business Conference), San Francisco, 3/25/08 29

Business Models The revenue model: Value creation: definition of the offer generating the highest willingness to pay. Capture of the value created through: The sale of rights (sale of patents, licenses or even client files). The sale of products. The sale of services. The cost structure: Definition according to the cost categories (raw materials, marketing, R&D, administrative) and their types (fixed or variable). Identification of the company’s specific skills which give a competitive advantage. Determination of the capital sources. 30

Typology of different business models The services or The value added indirect valorisation distribution model model Business Model The double licenseor The mutualization commercial open model source license model 31

The service model Simple service model Indirect monetization model 32

The service model The simple service model is commercialization of services that have no link to a specific product. The simple service model relies on two opposite levers; extending the number of services offered, and Specializing the services offered to develop a competitive advantage. The indirect service model is commercialization of services associated to software developed or packaged internally. The success of this model relies on two levers; increasing the size of the market by preferring a wide diffusion of the solutions increasing the monetization rate by offering services to a maximum number of users. The services offered are of different types like surveillance, technical assistance, tests and grantees, training …. An example of a company offering a service model: Spikesource. The Spikesource Company is specialized in the testing, the certification and the integration of LAMP open source software and the different applications that may use it. 33

The value added distribution model The value added distribution model consists in selling a standard version of an existing product. The “sale” is generally made as a yearly subscription to the product and a set of attached services. This model offers a triple client value: Save time Transfer of the risks related to the use of open source solutions, from the client to the firm Tested, certified and guaranteed versions. Indemnification in case of serious problems. Technical assistance services integrated in the packaging. Regularly obtain new patches and updates 34

The value added distribution model Red Hat. Red Hat specializes in the distribution of Linux. It reported for the 2006 financial year revenue of $401 million and a net income of $59, 9 million. RH offer is made of 2 versions The Enterprise version, which is tested and whose interoperability is warranted. The «community» version (Fedora). 35

The double (Dual) license model The double license model relies on a discrimination of the users. Double license system: An open source license for the standard product A license that is more protected which comes with a guarantee and is generally linked to a product that offers more functionality. The open source license has to be proliferate copylefted because every enterprise wishing to integrate the source code to a larger set of products and keep it under proprietary license will then have to buy the commercial version of the solution offered. This solution allows the combination of the free licenses’ advantages creating a community of programmers fast diffusion to benefit from network effects 36

The double (Dual) license model 37

The double (Dual) license model: Examples • PENTAHO, The leader in Open Source Business Intelligence (BI). – In September 2006, Pentaho acquires the Weka project (exclusive license and SF.net page). – Weka will be used/integrated as data mining component in their BI suite. – Weka will be still available as GPL open source software. – PENTAHO offers 2 editions: Community edition, and BI oriented edition. • Rapid Miner, the world-wide leading open-source data mining solution due to the combination of its leading-edge technologies and its functional range. – It is available in two versions: community version which licensed under GPL, and Enterprise version which licensed under proprietary licenses. – Community version is supported by community while the Enterprise version has official support. – Rapid – I also offers a set of services such as professional training, consultation, data analysis. So, it can fall in service / value added business model too. 38

The mutualization model • The mutualization model rests on the successive development of several modules. • Consists in the development of a relatively simple version of the basic product and the subsequent development of modules on demand. OpenTrust is an open source company specialized in information security software. It internally develops a basic PublicKey Infrastructure module. 39

The mutualization model: Variation of revenue configuration of companies 40

Synthesis of different business models 41

Business / monetization model for the well known companies 42

Conclusions & Recommendations We presented the importance of open software in software industry growth and acceleration. Presented open source business models. Discussed the importance of choosing software licenses for different business models. Guide IT graduates and professionals to the way to make their own business. (make business from open source). 43

References Dahlander L. ,“Appropriation and approbility in Open Source Software”, International Journal of Innovation Management Vol.9 No. 3 pp. 259-285, Sept. 2005 Gosh Rishab Ayier, MERIT (2006), “Economic Impact of FLOSS on innovation and competitiveness of the EUICT, sector”, http://ec.europa.eu/enterprise/ict/policy/doc/2006-11-20-flossimpact.pdf Goulde, M. et Mulligan, J.A. (2007), “How to Turn an Open Source Product into a Commercial Business”, Forrester Research, January 23th 2007 Goulde, M. (2005), “Open Source Usage is up, but Concerns Linger”, Forrester Research Paper, June 23th 2005 Iansiti Marcoand Richards Gregory L. (2006), “The Business of Free Software: Enterprise Incentives, Investment, and Motivation in the Open Source Community”, Working paper, Harvard Business School, http://www.hbs.edu/research/pdf/07-028.pdf J Aaron Farr, Making Open Source Work, ApacheCon Europe 2008. Sep 2008 Krishnamurhty Sandeep (2003), «An Analysis of Open Source Business Models», Working paper, University of Washington ,Bothell Lerner, J. and Tirole, J. (2000), “The Simple Economics of Open Source”, NBER Working Paper, No.7600 Lerner, J. and Tirole, J. (2001), “The Open Source Movement: Key Research Questions”, European Economic Review, 45:819-826 MuselliL. (2007), “Business models and the payment of open-source software publishers. Mutualisation: an original business model ”Conférence“ The diffusion of FLOSS and the Organisation of the Software Industry: From Social Networks to Economic and Legal Models”, Nice-Sophia Antipolis, May 31th and June 1st 2007 Pal, N. et Madanmohan, T. (2002), “Competing on Open Source: Strategies and Practise”, MIT Working Paper Schiff Aaron (2002), «The Economics of Open Source Software: A Survey of the Early Literature», Review of Network Economics, Vol.1, Isssue1- March 2002 Stürmer, M. (2005), «Open Source Community Building», Working Paper, Open Source Community, MIT, http://opensource.mit.edu/papers/sturmer.pdf Välimäki, M. (2003), «Dual Licensing in Open Source Software Industry», Système sd’ Information et Management, 8(1), 63-75 Walli, S., GynnD. Etvon RotzB. ,(2005): ”The Growth of Open Source Software in Organizations”, Optaros White paper, http://www.optaros.com/en/publications/white_papers_reports XU, J., GaoY., Christley ,S. et MadeyG. (2005), “A Topological Analysis of the Open Source Software Development Community”, Proceedings of the 38th Hawaii International Conference on System Sciences, 2005 faberNovel Consulting 2007, “Business models of open source software and free software: a few landmarks”, September 2007 J Aaron farr, “Making Open Source Work”, September 2008. J Aaron farr, “Making Sense of Open Source Licenses”, ApacheCon Europe 2008 44

Open Source Business Models

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