The document discusses sustainable open source business models. It outlines four models: 1) single-vendor open source firms that derive revenue directly from open source software, 2) open source distributors that provide commercial support for open source, 3) developer foundations that manage open source development to lower costs for members, and 4) user foundations that finance open source development to reduce costs. The document argues that open source simplifies consortia by allowing collaboration between vendors, users, developers and other groups.

1. Sustainable Open Source
Business Models
Prof. Dr. Dirk Riehle, M.B.A.
Friedrich Alexander-University Erlangen-Nürnberg
OGD 2012 – 2012-06-26

2. Open Source Definition
Legal 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
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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.
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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/
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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
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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 vendor's 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. 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
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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
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Thesis, Friedrich Alexander-University of Erlangen-Nürnberg: 2012. Dirk Riehle - All Rights Reserved
© 2012 8

9. Community vs. Commercial Edition
Community 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
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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
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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
ne
10.04 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.
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12. 3. Open Source Developer Foundations
Definition Purpose
1. A developer foundation is ● Lower development costs
a non-profit organization ● Increase share of wallet
(foundation, consortium) ● Reach more customers
2. with the purpose of ● Grow addressable market
managing and performing ● Reduce strategic lock-in
3. the development of
(non-differentiating) Downsides
open source software ● Higher engagement
made available to
foundation members
(and the general public).
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13. Examples of Developer Foundations
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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.
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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
$$
cost of providing
open source operating system
number of customers sold to
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16. Grow Addressable Market
market 2
total market size
customer
cost savings
market 1 market 2 $$$$$$$
$$$$ $$$$$$
market 1
applications
$$ 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
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17. 4. User Foundations
Definition Purpose
1. A user foundation is ● Lower TCO
a non-profit organization ● More flexibility
(foundation, consortium) ● More predictability
2. with the purpose of ● Reduced vendor lock-in
sponsoring
(financing and managing) Downsides
3. the development of ● Higher engagement
(non-differentiating)
open source software
made available to
foundation members
(and the general public).
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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 SD
UF: User Foundation
AM: Alliance Management
SD: Software Developer
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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 CF
SU: Software User
SV: Software Vendor
CF: Consulting Firm ETAS GmbH - 2012-05-31
© 2012 Dirk Riehle - All Rights Reserved 19

20. Conclusions
1. Open source is here to stay
2. Four sustainable business models
3. Open source simplifies consortia
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21. Thank you! Questions?
dirk.riehle@cs.fau.de – http://osr.cs.fau.de
dirk@riehle.org – http://dirkriehle.com – @dirkriehle
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DR