Sustainable Open Source   Business Models          Prof. Dr. Dirk Riehle, M.B.A.Friedrich Alexander-University Erlangen-Nü...
Open Source DefinitionLegal                                        Process ●   Open source license [1]                 “Op...
Economic Significance and Growth ●   Open source is in wide use in     enterprises     ●   In a large 2009 survey, Forrest...
Who Wrote Linux 2.6.20?       “At least 65% of the code       which went into 2.6.20 was       created by people working  ...
Sustainable Open Source Business Models    For Profit (“Commercial”)     1. Single-Vendor Open Source Firms     2. Open So...
1. Single-Vendor Open Source Firms       “Single-vendor commercial open source       software projects are open source sof...
Why Pay for Open Source Products?        “Some people spend time to        save money, some spend        money to save tim...
Commercial Open Source Products [10]                                                                                   DOC...
Community vs. Commercial EditionCommunity Edition                           Commercial Edition●   Core product            ...
Sales Best Practice: Create Champions     Market           Engage in     Product         Comp. Sales               Win Sal...
2. Open Source Distributors [12]                                                                                          ...
3. Open Source Developer FoundationsDefinition                     Purpose1. A developer foundation is   ●   Lower develop...
Examples of Developer Foundations                                         ETAS GmbH - 2012-05-31                          ...
Increase Share of Wallet [15]    money spent on bundled solution                                      $$$$                ...
Reach More Price-Sensitive Customers money spent on bundled solution                                                     c...
Grow Addressable Market                                                                                    market 2 total ...
4. User FoundationsDefinition                    Purpose1. A user foundation is       ●   Lower TCO  a non-profit organiza...
Ecosystem of User Foundations 1/2                                   UF                                         UF         ...
Ecosystem of User Foundations 2/2                                      SU                                            SU   ...
Conclusions 1. Open source is here to stay 2. Four sustainable business models 3. Open source simplifies consortia        ...
Thank you! Questions?         dirk.riehle@cs.fau.de – http://osr.cs.fau.de dirk@riehle.org – http://dirkriehle.com – @dirk...
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Sustainable Open Source Business Models

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Sustainable Open Source Business Models

  1. 1. Sustainable Open Source Business Models Prof. Dr. Dirk Riehle, M.B.A.Friedrich Alexander-University Erlangen-Nürnberg OGD 2012 – 2012-06-26
  2. 2. Open Source DefinitionLegal Process ● Open source license [1] “Open source is a development ● Free use allowed method for software that har- nesses the power of distributed ● Source code available peer review and transparency of ● Modification of code allowed process. The promise of open ● Distribution of modifications OK source is better quality, higher reliability, more flexibility, lower ● Open source initiative cost, and an end to predatory vendor lock-in.” [2] ● Approves open source licenses ● Permissive vs reciprocal licenses ● Permissive code growing [3][1] See http://www.opensource.org/osd.html[2] See http://www.opensource.org/[3] See http://bit.ly/xbYEYP ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 2
  3. 3. Economic Significance and Growth ● Open source is in wide use in enterprises ● In a large 2009 survey, Forrester Research found that 46% of all responding enterprises were using or implementing open source software [4] ● Most software firms use open source in products ● In 2009 Gartner Group estimated that by 2012, at least 80% of all software product firms will use open source software in their products [5][4] Jeffrey S. Hammond. “Open Source Software Goes Mainstream.” Forrester Research: 2009.[5] Mark Driver. “Key Issues for Open Source Software, 2010.” Gartner Research: 2010. ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 3
  4. 4. Who Wrote Linux 2.6.20? “At least 65% of the code which went into 2.6.20 was created by people working for companies.” [6][6] See http://lwn.net/Articles/222773/ ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 4
  5. 5. Sustainable Open Source Business Models For Profit (“Commercial”) 1. Single-Vendor Open Source Firms 2. Open Source Distributors Not-for-Profit (Subsidized) 3. Developer Foundations 4. User Foundations ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 5
  6. 6. 1. Single-Vendor Open Source Firms “Single-vendor commercial open source software projects are open source software projects that are owned by a single firm that derives a direct and significant revenue stream from the software.” [8] “By 2012, at least 50% of direct commercial revenue attributed to open-source products or services will come from projects under a single vendors patronage.” [5][8] Dirk Riehle. “The Single-Vendor Commercial Open Source Business Model.” - 2012-05-31 ETAS GmbH Information Systems and e-Business Management. Springer Verlag, Dirk Riehle - All Rights Reserved © 2012 2010. 6
  7. 7. Why Pay for Open Source Products? “Some people spend time to save money, some spend money to save time.” [9][9] Marten Mickos. “Open for Business.” Talk at PARC Forum, 2010. Abstracted: http://bit.ly/bmSUga ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 7
  8. 8. Commercial Open Source Products [10] DOC documentation Web Store Direct Sales incident-based Open Source INC Community support DOC INC UTIL UTIL utilities commercial LIC Customers Enterprise license LIC UPD UTIL update DOC TRN 24x7 UPD service TRN training ISV/OEM LIC UTIL ... DOC TRN 24x7 24x7 24x7 hotline[10] Florian Weikert. Product Features in Commercial Open Source Software. Bachelor ETAS GmbH - 2012-05-31 Thesis, Friedrich Alexander-University of Erlangen-Nürnberg: 2012. Dirk Riehle - All Rights Reserved © 2012 8
  9. 9. Community vs. Commercial EditionCommunity Edition Commercial Edition● Core product ● Core product ● Open source license ● Commercial license ● No warranties, no indemnification ● “Dual-license” strategy● Whole product ● Whole product ● Enterprise features missing ● Enterprise features ● “Open core” model● Operational comfort ● Operational comfort ● None or limited ● Subscription, updates ● Various support contracts● Consulting services ● Consulting services ● None or limited ● Various consulting services ● Second-level support ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 9
  10. 10. Sales Best Practice: Create Champions Market Engage in Product Comp. Sales Win Sale! Provide Open Source Generate Leads Track Users From Behavior Connect Users Identify Make Sales of Organization Champion Call / Visit ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 10
  11. 11. 2. Open Source Distributors [12] g bu w fix ne t. backport g fea bu w fix ne t. fea g 10.10 10.10 bu EOL backport w fix commercial ne t. backport g fea features bu fix es tur backport w fea ne10.04 10.04 EOL commercial features[12] Dirk Riehle. “The Economic Motivation of Open Source.” IEEE Computer vol. 40, no 4 (April 2007). Page 25-32. ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 11
  12. 12. 3. Open Source Developer FoundationsDefinition Purpose1. A developer foundation is ● Lower development costs a non-profit organization ● Increase share of wallet (foundation, consortium) ● Reach more customers2. with the purpose of ● Grow addressable market managing and performing ● Reduce strategic lock-in3. the development of (non-differentiating) Downsides open source software ● Higher engagement made available to foundation members (and the general public). ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 12
  13. 13. Examples of Developer Foundations ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 13
  14. 14. Increase Share of Wallet [15] money spent on bundled solution $$$$ customer cost savings business $$$$$ application business $$$$ application closed-source operating system $$ open-source operating system without open source with open source[15] Dirk Riehle. “The Economic Case for Open Source Foundations.” IEEE Computer vol. 43, no. 1 (January 2010). Page 86-90. ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 14
  15. 15. Reach More Price-Sensitive Customers money spent on bundled solution cus $$$$$ tom er emd potential profits for an business application vendor dc urv e $$ cost of providing business application $$ cost of providing open source operating system number of customers sold to ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 15
  16. 16. Grow Addressable Market market 2 total market size customer cost savings market 1 market 2 $$$$$$$ $$$$ $$$$$$ market 1 applications $$ applications applications applications $$$$ $$$$ closed-source closed-source platform open-source platform open-source $$ platform $$ platform two competing platforms dominant open source platform with equal total market size with larger total market size ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 16
  17. 17. 4. User FoundationsDefinition Purpose1. A user foundation is ● Lower TCO a non-profit organization ● More flexibility (foundation, consortium) ● More predictability2. with the purpose of ● Reduced vendor lock-in sponsoring (financing and managing) Downsides3. the development of ● Higher engagement (non-differentiating) open source software made available to foundation members (and the general public). ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 17
  18. 18. Ecosystem of User Foundations 1/2 UF UF M owns s ele sA c y ts plo +p em OSS ay UF de s ls ve tro lop SD n co s AM manages SV AM SDUF: User FoundationAM: Alliance ManagementSD: Software Developer ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 18
  19. 19. Ecosystem of User Foundations 2/2 SU SU e ns pa ice uses ys l CP for (OSS) or CP f CP ys c cu us pa s sto lop mi tom ve ze SU de s . collaborate SV CFSU: Software UserSV: Software VendorCF: Consulting Firm ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 19
  20. 20. Conclusions 1. Open source is here to stay 2. Four sustainable business models 3. Open source simplifies consortia ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 20
  21. 21. Thank you! Questions? dirk.riehle@cs.fau.de – http://osr.cs.fau.de dirk@riehle.org – http://dirkriehle.com – @dirkriehle ETAS GmbH - 2012-05-31 © 2012 Dirk Riehle - All Rights Reserved 21DR

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