This document discusses business models for open source software. It suggests that most open source software generates use value rather than sale value as an intermediate good. It proposes service models where vendors support open source software and exchange continuous value with customers. The document also provides examples of how companies have used open source software to drive hardware sales, sell services, and sell additional content and applications.

1. Reconciling “Free” with “Profit”

2. What Business models will take advantage of Open Source?

3. Use Value (value as an intermediate good) Sale Value (value as a final good) The Overwhelming source software value is use value. Not sale value

4. Device Drivers Software bundled with hardware Business specific applications Look at the newspaper hiring pages. Classify jobs that create use value versus sale value

5. Vendor has gone burst …is there a market for the company’s product ? Vendor has discontinued support …is there a market for the company’s product? Price a customer pays is the expected future value of vendor service

6. Software need not be a factory business But a services model based on exchange of continuous value

7. If you are working in a ISV struggling with support calls and low customer satisfaction scores ask yourself: Is the “20% of license” sufficient investment to supporting increasing usage of the product? Will not my customers be willing to pay more if I could prove that it works for them?

8. Reduce Testing efforts Reduce Bug Fixing efforts Augment Feature Development efforts All Bugs are shallow for a thousand eyeballs

9. Use Open source software to maintain/gain advantage in proprietary software Use Open source software to drive gains in your hardware business (for drivers etc.) Use Open Source to sell services (eg Red Hat, Zope) Use Open Source to sell the content (share trading, education)

10. Id software’s Doom game: In 1993 really unique in its graphics on low end processors Competitors appeared Markets matured in features, platforms and user base In 1997 Doom released full source Third party developers added value to the game This non “software” example crystallizes the issues….

11. Will I really benefit from network effects? Are the key methods common engineering knowledge? Can correctness be verified without independent reviews? How critical it really is? For the business of my customers? Is reliability/stability/scalability critical? As customers mature the open source does become an option

12. “ The Cathedral & The Bazaar” by Eric S Raymond