Navin Kabra
             http://punetech.com

@ngkabra and @punetech on twitter
Navin Kabra: @ngkabra &

                 @punetech on twitter

    Currently: On a break for an year

    Previously: S...
Not about technology

    Not about open source ideology



    About Economics

Free IT
       
               CPU: Google App Engine
           ◦
               Storage: Yahoo! Mail
           ◦
     ...
Ghoda Ghaas se dosti karega to
               khaayega kyaa




 If a horse befriends the grass, what will he eat?
i.e. ev...
quot;When you have a working knowledge of
 economics, it’s like having a mild super
 power.“

    - Scott Adams, creator o...
Free(gratis)
       
           ◦ Don’t have to pay
           ◦ (as in “free beer”)
           ◦ e.g. Internet Explorer
...
Free(gratis) vs. Free(libre)
       
                                           You are here
           The economics of ...
Free & Open Source = FOSS = Free(libre)
       


           Who is writing FOSS? Why?
       
           Who is paying ...
Two types of developers
       
               In free time
           ◦
               Hobby
           ◦
              ...
Gifts n Grants
       
           ◦ Academic projects
           ◦ Government



           (For profit) Businesses
     ...
Proprietary          Open
    Costs                         In-house
                      Software             Source
   ...
Software isn’t your business
       
           ◦ It enables your business
           ◦ Is it a differentiating or non-di...
Use FOSS for non-differentiating software
       
           You don’t care if competitor gets a copy
       
          ...
Companies distributing FOSS packages
       
           ◦ Free version & Paid proprietary version with better
           ...
Type of Business            Suggestion

      Main income from selling    FOSS might not be right
      shrinkwrapped soft...
Contribute to FOSS for free
       
           Get hired by someone who values this
       




http://punetech.com
?
           FOSS isn’t the right
       
           solution for all
           situations

           FOSS works when
 ...
Free(gratis) vs. Free(libre)
       
           The economics of Free(libre)
       
           ◦ Who’s paying? Why?
   ...
Lots of free stuff being given away in the
       
           world today:
           ◦ Hardware, software, entertainment...
Moore’s Law alternative formulation:
       
           Cost halves every 18 months
       


           Exponential rac...
FOSS reduces software cost
     
         ◦ For non-differentiating software

         “Cloud” and “SaaS” to amortize sof...
Huge difference between Re.1 & Re. 0
       
           ◦ Psychological difference
           ◦ Charge Re. 1 and very few...
Someone else pays
                  
                      ◦ e.g. Advertisements
                      ◦ (Not very viable...
(Didn’t they teach you this?)
       


           Economics is management of scarcity
       


           The attentio...
Reputation -> Attention
           
               ◦ e.g. Google pagerank (reputation) converts to traffic
              ...
Effect of recession
       
           ◦ Fewer paying customers
           ◦ Less funding


           Cheaper than ever ...
The emerging economics of open source

    business – Bruce Perens

    Why $0.00 is the future of Business – Chris

   ...
 navin@punetech.com


        @punetech     on twitter

        navin.kabra   on gTalk




http://punetech.com
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FREEconomics: The economics of Free Stuff

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Following the money trail behind free stuff. Who is developing open source software? Who's paying for it? Who's making money from free (open source and proprietary) stuff? How?

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  • Very interesting !
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  • Thanks for the kind words everybody.

    Good point Amit about how public perception is rather distorted. I've only mentioned those points in passing - but they probably deserve a whole presentation on their own. Cross subsidy (aka the Loss Leader strategy - http://en.wikipedia.org/wiki/Loss_leader); and also the whole attention economy / reputation economy thing. Most people don't realize the 'hidden' costs of free stuff.
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  • excellent presentation.... this deserves to be a top presentation on slideshare.

    on a related note, in Jan I participated in a discussion on Free V/s Paif models at Proto in Banglore... wish I had access to your preso at that time...

    one thing that completely distorts public perception of what is free and what is paid is the effect of cross subsidies... e.g. flickr, youtube etc are free largely because they are being cross subsidised by other web properties from google/yahoo etc... its not as if these sites cannot make money on a standalone basis... they very well can... however they are unlikley to make real attempts at making money because their owners do not need them to generate revenues ... they need them because of their traffic, goodwill, oomph, snob-appeal...
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  • Good analogies for the free stuff and its economics
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  • Excellent!
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FREEconomics: The economics of Free Stuff

  1. Navin Kabra http://punetech.com @ngkabra and @punetech on twitter
  2. Navin Kabra: @ngkabra &  @punetech on twitter Currently: On a break for an year  Previously: Symantec, Veritas, dotcom startup  Education: PhD (CS, Wisconsin), B.Tech (IIT-B)  Recent activities: PuneTech, Pune OpenCoffee  Club
  3. Not about technology  Not about open source ideology  About Economics 
  4. Free IT  CPU: Google App Engine ◦ Storage: Yahoo! Mail ◦ Bandwidth: YouTube ◦ Software Services ◦  Most dotcom/web-2.0 sites Other free  ◦ Music, movies ◦ Phone, video-conferencing ◦ Information, lessons, tutorials, tutors List goes on…  How does this work?  Who pays? Who benefits?  How should you survive?  http://punetech.com
  5. Ghoda Ghaas se dosti karega to khaayega kyaa If a horse befriends the grass, what will he eat? i.e. everybody still has to make money. How to do it? Picture courtesy: Francisco M. Marzoa Alonso, http://commons.wikimedia.org/wiki/File:ErcinaLakeHorse2.JPG
  6. quot;When you have a working knowledge of economics, it’s like having a mild super power.“ - Scott Adams, creator of Dilbert
  7. Free(gratis)  ◦ Don’t have to pay ◦ (as in “free beer”) ◦ e.g. Internet Explorer Free(libre)  ◦ Liberty to do what you want ◦ (as in “free speech”) ◦ e.g. Mozilla Firefox http://punetech.com
  8. Free(gratis) vs. Free(libre)  You are here The economics of Free(libre)  ◦ Who’s paying? Why? ◦ Who’s making money? How? ◦ What should you do? The economics of Free(gratis)  ◦ Why does this work? ◦ Types of free ◦ Money isn’t everything Recession and Free  http://punetech.com
  9. Free & Open Source = FOSS = Free(libre)  Who is writing FOSS? Why?  Who is paying for FOSS? Why?  Who is earning from FOSS? How?  What you should know?  http://punetech.com
  10. Two types of developers  In free time ◦ Hobby ◦ Passion ◦ Ideology ◦ OR ◦ As part of job ◦ Paid by company that benefits from FOSS http://punetech.com
  11. Gifts n Grants  ◦ Academic projects ◦ Government (For profit) Businesses  ◦ Pay for development / customization ◦ Closer look in later slides http://punetech.com
  12. Proprietary Open Costs In-house Software Source Cost of Vendor Customer Customer Development pays pays shares Cost per Customer N.A. Free installation pays Cost of Non-trivial None Negligible Sales/Mktg http://punetech.com
  13. Software isn’t your business  ◦ It enables your business ◦ Is it a differentiating or non-differentiating enabler? ◦ Is it a Cost Center or a Profit Center Differentiating software  ◦ Amazon’s recommendation service ◦ Profit center Non-differentiating software  ◦ Barnes & Noble’s website ◦ Cost center http://punetech.com
  14. Use FOSS for non-differentiating software  You don’t care if competitor gets a copy  Reduces your “cost”  Build in-house for differentiation  Keep secret  Don’t mind spending  http://punetech.com
  15. Companies distributing FOSS packages  ◦ Free version & Paid proprietary version with better features (e.g. MySQL) ◦ Free core + paid proprietary “accessories” (e.g. XenSource) ◦ Free software + paid services (e.g. RedHat) ◦ Hardware vendors (make money from hardware) End-user businesses (or contractors)  Service businesses (integrators)  http://punetech.com
  16. Type of Business Suggestion Main income from selling FOSS might not be right shrinkwrapped software for you Selling software Use FOSS for your core “solutions” components FOSS makes it easy + Selling software services cheap to do business Use FOSS for non- Anything else differentiating software http://punetech.com
  17. Contribute to FOSS for free  Get hired by someone who values this  http://punetech.com
  18. ? FOSS isn’t the right  solution for all situations FOSS works when  ◦ Cost of design is high ◦ Cost of manufacturing & distribution low http://punetech.com
  19. Free(gratis) vs. Free(libre)  The economics of Free(libre)  ◦ Who’s paying? Why? ◦ Who’s making money? How? ◦ What should you do? You are here The economics of Free(gratis)  ◦ Why does this work? ◦ Types of free ◦ Money isn’t everything Recession and Free  http://punetech.com
  20. Lots of free stuff being given away in the  world today: ◦ Hardware, software, entertainment, info, services Why does this make sense?  (in other words: show me the money)  http://punetech.com
  21. Moore’s Law alternative formulation:  Cost halves every 18 months  Exponential race towards zero  ◦ CPU, Network, Disk Cost Many more users per server  Cost per user = negligible  Time http://punetech.com
  22. FOSS reduces software cost  ◦ For non-differentiating software “Cloud” and “SaaS” to amortize software cost  ◦ For differentiating software Cost per user ◦ Develop once for millions of users Cost per user = negligible  Users http://punetech.com
  23. Huge difference between Re.1 & Re. 0  ◦ Psychological difference ◦ Charge Re. 1 and very few customers ◦ Make it free and lots of customers ◦ In today’s world you can’t charge even if you want to Someone’s getting rich  ◦ How? ? http://punetech.com
  24. Someone else pays  ◦ e.g. Advertisements ◦ (Not very viable as a pure online business in India) Cross-subsidy:  ◦ X is free, but customer pays for Y ◦ e.g. Cheap razor and expensive blades Freemium  ◦ Basic free, charge for premium services ◦ Premium customers subsidize free ◦ e.g. Flickr charges $30 p.a. if more than 200 photos Labor Exchange  ◦ Do X and get Y free (and vendor makes money from X) ◦ e.g. Porn for CAPTCHA Gift Economy  ◦ Altruism still exists ◦ e.g. Wikipedia ◦ (Still not clear if this is really sustainable in the long term) http://punetech.com
  25. (Didn’t they teach you this?)  Economics is management of scarcity  The attention economy  The reputation economy  http://punetech.com
  26. Reputation -> Attention  ◦ e.g. Google pagerank (reputation) converts to traffic (attention) Attention -> Money  ◦ e.g. Traffic (attention) converts to money (google adsense) Reputation -> Money  ◦ e.g. Get a job based on contributions to a FOSS project http://punetech.com
  27. Effect of recession  ◦ Fewer paying customers ◦ Less funding Cheaper than ever to run a business  ◦ Infrastructure is cheap: Cloud zindabad ◦ Software is easy(ier): Develop on top of FOSS ◦ Co-founders easier and cheaper  (Who wants a big company job now?!) ◦ VC funding no longer that important http://punetech.com
  28. The emerging economics of open source  business – Bruce Perens Why $0.00 is the future of Business – Chris  Anderson Paul Graham – Essays  (Search in Google to find the above references) 
  29.  navin@punetech.com  @punetech on twitter  navin.kabra on gTalk http://punetech.com

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