Overview of traditional software business models Introduction to various Open Source business models like. ◦ Support Sellers ◦ Loss Leader ◦ Widget Frosting ◦ Sell It, Free It ◦ Service Enabler ◦ ... ...
"Competition is. In every business, no matter how small or how large, someone is just around the corner forever trying to steal your ideas." Alice Foote MacDougall - 19th century American Business Woman
Development of new products Brand enhancements and advertising Selling your customer the right to use your product Selling Technical Support
Support sellers Loss Leader Widget Frosting Accessorizing Service Enabler Brand Licensing Sell It, Free It Software Franchising Hybrids
Base software free Sources of revenue ◦ media distribution ◦ Branding ◦ Training ◦ Consulting ◦ custom development ◦ post-sales support
The term loss leadership defines a pricing strategy, where a product is sold below costs or distributed for free. The aim of this model is, to lead customers to buy the other products from a company. Thus the product is not priced for the profit but only to attract customers and to stimulate the sales of other goods. It is a common strategy when a company first enters a market or business and wishes to build brand loyalty and other goodwill.
In terms of software, a loss-leader, often an open source product, is distributed as a market positioner. Value is not generated by the product itself, sometimes donating is available, but is generated by selling additional services or tools to extend the functionality of the free software. Another method is also to have the open-source tool and the commercial tool, which is based on the open source version, to get customers used to the software concept; the commercial tool has much more functionality and the same look-and-feel as the open-source product. The free software is used to lead customers to the product range or the company, so that they start to buy the additional items or services provided by the company.
Companies selling widgets (hardware) This model is for hardware manufacturers, Market pressures have forced hardware companies to write and maintain software (from device drivers through configuration tools all the way up to the level of entire operating systems). Earning goodwill, generating physical goods sale
Selling accessories - books, compatible hardware, complete systems with open- source software pre-installed. Its easy to trivialize this (open-source T- shirts, coffee mugs, Linux penguin dolls) but at least the books and hardware underlay some clear successes, O’Reilly Associates, and SSC are among them. Creating awareness of open source Generating brand loyalty for themselves
Create a software - give it free Sell the services or subscription related to the software thereby generating revenue Similar to Loss leader but different in of execution.
a company makes the research tool itself open source but retains the rights to its product trademarks and related intellectual property and charges other companies for the right to use those trademarks in creating derivative products distributed under the same brand name this requires that the product exist in two different forms with two different names official (trademarked), e.g. Netscape and unofficial, e.g. Mozilla Customers pay for license to use your product
Loss Leader model repeated and extended through time "Sell It, Free It," where a companys software products start out their product life cycle as traditional commercial products and then are continually converted to open-source products when appropriate Timing: When you free it is very important Your customers pay a premium for the value of having the software earlier rather than later
Franchising is a business model in which many different owners share a single brand name. A parent company allows entrepreneurs to use the companys strategies and trademarks; in exchange, the franchisee pays an initial fee and royalties based on revenues. The parent company also provides the franchisee with support, including advertising and training, as part of the franchising agreement.
Lack marketing power? ◦ Give your product free to the appointed franchisees ◦ Train them ◦ Revenues would come from sources such as sales of franchises and royalties based on franchisees revenues
Supporting services are not the only way that an open source business can make money. They can also make money from licensing. Clearly, if software is released under an open source license it is not practicable to charge for the software as your neighbor can give it away for free. However, an open source software vendor may choose to dual-license its software. This means that its software is made available both under an open source license and under a different licensing scheme that may incur a license fee.
But why would anyone choose the chargeable license? There are some very good reasons why this might happen. The most common by far is that the open source software is released under a license that imposes certain restrictions that the prospective licensee is unhappy with. An example is when the open source code will need to be re-used within a proprietary software product; some open source licenses do not allow this.
Non Commercial usage are licensed under one of the open source license (Most often GPL) Commercial usage Charged