This document provides an overview of open source software including definitions, pros and cons, business models, and considerations for switching between open source and closed source models. It discusses key topics such as the open source community, customers' decision factors, popular licenses, market trends of open source projects and investments. Business models covered include services, SaaS, commercial plugins, dual licensing, and freemium. The document concludes with recommendations for open source companies regarding community engagement, transparency, and balancing commercial interests.

1. Liron Zighelnic
July 2013

2. Agenda
2
 Open Source (OS)
 Pros and cons for software developers
 Customers’ decision factors
 The market
 Business models
 Investments
 Dos and don’ts
 Switching from and to OS

3. Open Source (OS)
3
“open source is a philosophy which
promotes universal access via free
license to a product's design or
blueprint, and universal
redistribution of that design or
blueprint, including subsequent
improvements to it by anyone.”
Source: Wikipedia

4. Open Source software in numbers
4
>180,000
>1400
Unique
licenses
Available open
source projects
Source: Wikipedia

5. Open Source license families
5
Give me credit
MIT, BSD
Give me something (e.g., fixes)
APL, MPL, LGPL
Give me everything - Copyleft
GPL

6. Open Source license families – cont.
6
Source: 451 Research

7. OS software is widely used
According to Gartner's survey
85% of companies currently
use open source software
7
Source: Gartner - http://www.gartner.com/newsroom/id/801412

8. Pros and Cons for Software
Developers
8

9. Pros for software developers
 Open platforms usually scale much more quickly
 “Free” marketing and greater penetration
 More likely to establish an industry standard and gain competitive
advantage (especially in infrastructure domains)
 Creates community (free testing, bug fixing, users’ feedback, etc.)
 Increases innovation - Joy’s Law - “no matter who you are, most of
the smartest people works for someone else” [1]
 Promotes the company's image and reliability including its
commercial products if exist.[2]
 Helps build developer loyalty as developers feel empowered and
have a sense of ownership of the end product.[3]
9
[1] Bill Joy, Sun Microsystems co-founder
[2] ,[3] Source: Wikipedia Open Source Software

10. Cons for software developers
 Complex business models
 It’s a “less paved” road
 The community as a double-edged sword
 Can we go back?
 Is it good for revenues?
 Is it good for M&A/IPO?
10

11. The community power
11

12. “Having some components of your
solution stack provided by the OS
community is a fact of life and a benefit
for all. So are roads, but nobody
accuses Fedex or your pizza delivery
guy of being evil for using them without
contributing some asphalt. Commercial
entities provide needed products and
services, employ people and pay taxes.
We might want them to make more
OS contributions, and some do, but they
are not morally obligated to do so.”
12
Source: Gartner
Merv Adrian
VP Research, Gartner
March 2013
The community as a double edged sword

13. Customers’ Decision Factors
13

14. Customers' decision factors - OS or not?
 Freedom from vendor lock-in
 Flexibility
 Competitive features
 Security
 Internal technical capabilities
 Support
 Better software quality
 Lower costs
14

15. Over the years the importance of the customers’
decision factors has changed
15
Freedom from
Vendor lock in
1.
Better software
quality
5.
Flexibility
3.
Lower costs
2.
Freedom from
Vendor lock in
1.
Flexibility
2.
Better software
quality
3.
Freedom from
Vendor lock in
2.
Better software
quality
1.
Flexibility
3.
2011 2012 2013
Source: Black Duck

16. Which OS to use – decision factors
Project maturity – 43%
Availability of commercial
support – 23%
Size of community – 19%
16
#1
#2
#3
Source: The future of the Open Source

17. The Market
17

18. The number of OS projects sharply increases
Source: Black Duck
18
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
2006 2008 2010 2012 2014
Projected

19. Top IPOs and acquisitions
Company Date IPO/M&A Post IPO Valuation/Price
Red Hat Aug 1999 IPO $9.2B
Sourcefire Jul 2013 Acquired by Cisco $2.7B
MySQL Jan 2008 Acquired by Sun Microsystems $1B
Sourcefire 2007 IPO $700M
Xensource Oct 2007 Citrix Systems $500M
Springsource Aug 2009 Acquired by Vmware $362M
JBoss Jun 2006 Acquired by Red Hat $350M
Zimbra Sep 2007 Acquired by Yahoo! (and later by
VMware on 2010)
$350M
Day Software Jul 2010 Acquired by Adobe Systems $240M
Suse Nov 2003 Acquired by Novell (acquired by The
Attachmate Group on 2011)
$210M
19
* Some of the numbers are based on estimations

20. Top 10 OS startups based on the Momentum Index
1 93.8 $76M
Cloudera dominates mindshare around Hadoop. Whether they develop product
revenue or service revenue will be the difference between being the next Splunk or the
next Appirio. Either way, it’s a big win.
2 90.6 $50.2M
Appcelerator combines mobile and OS to support 1.3M developers and 30K
applications.
3 90.1 $38.5M
With over 2M downloads since inception, Drupal is used by web developers worldwide
to build sophisticated community websites.
4 87.7 $73.4M 10Gen looks to be the database of the future.
5 86.3 $79.6M 700 new customers and 118% revenue growth in Q12012.
6 79.0 $55.5M A star CEO and a big partnership with Amazon show great progress at Eucalyptus.
7 77.8 $21M Nexenta has some 4.5K customers currently and wants to catch NetApp by 2014.
8 76.7 $44.1M
Has over 150K web publishers, media companies, enterprises and educational
institutions
9 74.1 $50.5M Has ~80% market share managing OSS and 40% annualized sales growth for past 3Y
10 70.6 $37.5M
The leading PaaS provider for Ruby on Rails and PHP developers. They host
applications for many companies including Nike, AOL, Apple, Disney, and MTV.
20
Source: Momentum Index http://momentumindex.com

21. Business Models
21

22. Developers vs. adopters
22
Developers
companies that own the
copyrights and the
freedom to release the
code under any license
Adopters
companies that adopt
existing code
MySQL
Kaltura
Instructure
Red Hat
Zend
Lucid Imagination
E.g., E.g.,

23. Business models & strategy
1. Services Model
The company sells services e.g., maintenance, support, and
training. The support can be priced per "buckets" (e.g.,
ElasticSearch) or as a subscription (e.g., Red Hat)
2. SaaS
The OS project serves as a foundation for a SaaS offering.
Customers pay for hosting, streaming, and delivery of the software.
(e.g., Acquia)
3. Commercial plugins
The company sells premium commercial add-ons, applications, and
modules separately from the OS (e.g., Jaspersoft, Joomla)
23

24. Business model & strategy – cont.
4. Dual license
The company releases the code under a standard commercial
license and under an OS license. The OS can serve as an up-sell to
a commercial enterprise edition (e.g., MySQL, Kaltura)
5. Freemium Model
The company releases software under an OS license and sells
premium features on top of it. The additional features are served as
an up-sell to the OS
6. Non-Profit
Developed by non-profit organizations (e.g., MIT, Stanford)
7. Mix-and-match
The usage of any combination of the above (e.g., Kaltura, 10gen)
24

25. Investments
25

26. Investments trend
26
Source: 451 Group
Total funding by year
Funding by quarter

27. OS investment examples: Andreessen Horowitz
$100M - Jul 2012 – GitHub is a very successful
social network for programmers which allows
collaboration by forking projects, sending and
pulling requests, and monitoring development
$11.2M - Jul 2012 Meteor is an OS platform for
building web apps (round was led by A16Z)
Undisclosed Angel Round - Apr 2013.
OpenCoin develops an OS payment protocol
named Ripple
27

28. OS investment examples: GreyLock Partners
Cloudera, is the commercial Hadoop
company, which develops and distributes
Hadoop
Typesafe develops OS technologies to help
developers create rich, scalable, and
reactive web applications, including: the
Play web framework, Akka runtime, and
Scala programming language
28

29. OS investment examples: Accel Partners
Cloudera, is the commercial Hadoop
company, which develops and distributes
Hadoop
Couchbase document-oriented database
technology
ForgeRock offers open identity stack to
protect enterprise, cloud, social and mobile
applications at Internet scale
29

30. OS investment examples: Index Ventures
30
OS search and analytics engine which
makes real-time data exploration
OS ad server
Provides a spectrum of OS Business
Intelligence solutions
The PHP Company - the leading provider of
products and services for developing,
deploying, and managing PHP applications

31. OS investment examples: Intel Capital
 12 out of 311 of Intel Capital's portfolio companies are
OS companies, representing ~ 4% of its portfolio
 These companies are: Klarna, 10gen, Inc., Adaptive
Computing Enterprises Inc., Big Switch Networks, Inc.
Black Duck Software, Inc., CollabNet, Inc., Concursive
Corporation, Gengo, Inc., Zend Technologies, WSO2,
Inc, Sendmail, Inc., and Revolution Analytics
31
Source: Intel Capital

32. Dos and Don’ts
32

33. OS is a “closed cult” – you need to get in
33

34. Build an active community
34

35. Work with the community
35

36. There’s a fine line – find it
Often, attempts to
maximize profit
can conflict with
the interests of
the community
and vice versa
36

37. Find the loudest people and make them feel loved
37

38. Don’t shush people
38

39. Business model - don’t build a “naked” product; if the
product creates no value no one will use it
39

40. Business model - give people a good reason to pay
40

41. Support
Hosting
Training
Plug-ins
Business model framework –
invest time and change when needed
41
Commercial
Open
Source
Kernel

42. Be transparent - everyone can see everything anyway
Including
development
status, list of
features, road
map, version
control, and
bug tracker
42

43. Switching from and to OS
43

44. The easier direction: from closed to open
 Many examples exist
 E.g., Netscape
 In Feb 1998, Netscape re-licensed an existing closed source
project to OS and released the source code of Netscape
Communicator to the public
 The name given to the OS development project was Mozilla
44

45. From open to closed: the XandrOS case
 XandrOS was founded in 2001, with the goal of
making easy-to-use desktop Linux
 At the beginning, XandrOS had a dual license model
with a GP license, and a commercial license that did
not allow software redistribution without legal
permission
 In 2006 XandrOS stopped releasing the open source
version. This move was not a great success, and the
company was heavily criticized
45

46. Pulling Back from OS HW: the MakerBot case
 MakerBot and its CEO were considered shining lights
in the OS HW movement
 OS HW is HW whose design is made publicly available
so that anyone can modify, distribute, make, and sell
the design or HW based on that design
 MakerBot was a pioneer developer of OS 3D printers
 In September 2012 MakerBot decided to veer away
from OS
46
Source: CNET, MakerBot

47. Pulling Back from OS HW: the MakerBot case
 “We will not share the way the physical machine is
designed because we don't think carbon-copy cloning
is acceptable and carbon-copy clones undermine our
ability to pay people to do development.”
 In June 2013 MakerBot Maker was acquired by
Stratasys for $403M.
 It was founded in 2009, and had a total funding of
$10M
47
Source: CNET, MakerBot, CrunchBase

48. Q&A
48