1. OW2 Webinar
May 14, 2009
Open Source Based
Business Models
Francois Letellier - fl@flet.fr
(Freelance consultant – OW2 board/ELC
member)

2. Agenda
● Market dynamics in software
● Free/Libre/Open-Source
Software based business
models
● The FLOSS “marketing mix”
● Q&A

3. Terminology
● FLOSS: Free / Libre / Open Source Software
● Free « as in free speech, not free beer »
● Open Source: term coined to avoid the
ambiguities of « free » (in English)
● Libre: latin origin, EU prefered term for « free »
● Free ≈ Libre ≈ Open Source Software

4. Software is Immaterial
main()
{
double g, x;
printf("%lf", x);
g = lg(x);
printf("lnG(%g)=%14.12gn", x,
g);
}
● Software is a form of Digital Good
● Not tangible
● Reproductible perfectly, indefinitely
● Non rival
– use by one does not preclude use by another
– no natural scarcity
– but (legally) excludable

5. Software Protection:
Legal Framework
● Copyright / Author's rights: the Berne Convention
– Protection of Literary and Artistic Works
– Principle of national treatment
– Protection over a work is automatic, not subject to
registration
– The work must be original and creative
● To use copyrighted work (e.g. Software):
– Must enter a contract (« license ») with the author
or copyright owner
● No right granted unless explicitely specified
● No obligation of the licensee to accept
● This is the basis of legal excludability

6. Market Dynamics of
Proprietary Software
 Huge economies of scale
$  Equilibrium at price  0
Demand  Unlimited supply, price = 0
Nash eq.  winner takes all
1/x  Mouthwatering perspectives
Quantity
 oversupply
1 Mkt size
Oversupply
(100,000s Free* projects)
Uncertain Poor
Profitability Competition
► Open Source Brings New Business Models 6

7. FLOSS: a Collective Strategy
for Software Development
Because sooner or later, publishers of proprietary software
have to compete against vendors of (almost) free substitutes
Because software production costs can be reduced through
collaborative engineering
Because opening the source code is the best way to
maximize the potential of collaboration
And because collaborating when competing is pointless is
the best way to keep innovating
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8. Vendors to Leverage the
Industry Demand for FLOSS

9. What is a « Business Model »
Planning level: the Strategy
Architectural level:
the Business Model
Operations: the Business Processes

10. Categories of FLOSS Players
● FLOSS « Pure Players »
– Software companies
– FLOSS is central in their business model
● Opportunistic FLOSS strategies
– Software or service companies
– May use FLOSS when appropriate
● FLOSS-based open innovation
– Any industry: software, hardware or other
– Software intensive
– Leveraging FLOSS in their innovation strategy

11. FLOSS Pure-Player
Business Models
● Service
● Added value distribution (« distro »)
● Dual licensing
● Mutualized R&D

12. Service: Engineering
 Emilia Romagna, Italy: pop. 4 M
 Monitoring of regional labour market
 Data collected from local information
systems
 9 decentralized DWh – 1 for each district, 1-
3GB
 1 regional DWh – 10GB
 Open Source: SpagoBI, eXo Portal
 Proprietary: Oracle 9i SE, PL/SQL ETL
 10-20 users / district
12

13. Major Linux Distros
Community Maintained
● Slackware Linux 1992 (Patrick
Volkerding)
– oldest distro still maintained
– highly stable, clean and bug-free, strong
adherence to UNIX principles
– limited number of supported applications;
complex upgrade procedure

14. Major Linux Distros
Commercially Maintained
● Red Hat 1994 (Bob Young & Marc Ewing)
– enterprise edition: Red Hat Enterprise Linux;
maintained by FLOSS forerunner and pure
player
– targeted to corporate IT departments (servers)
more concerned about support than cost
– community edition: Fedora

15. Dual Licensing: eXo
Platform
US Joint Forces Command Chooses
ObjectWeb eXo Platform
Maximize Benefits of Open Source & Open
Standards
Stimulate industry
Enable Coalition partners the ability to roll
their own interoperable solution
Reduce the cost of collaboration in DoD
Why eXo Platform?
 One of the first certified JSR-168 portals
Multinational  Very flexible layout engine with good group
layout/page controls
Information Sharing  Leapfrogs the commercial portals in its
Solution to support war technology
 Supports server load balancing
fighters operating in a
coalition environment
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16. Mutualized Development:
Eclipse
● Nonprofit, EU, incepted in 2003 on IBM's
initiative
● Focus on the Eclipse development platform
(Java)
● Corporate membership, high level of
membership fee, different value proposition
for developers and for consumers
● Formalized governance all the way down to
project management

17. Opportunistic FLOSS Strategies
● Agnostic service companies and VARs
● Externally funded ventures
● (Hype)
FLOSS-based open innovation will be dealt
with separately

18. “Agnostic” Service
Company
● IBM Global Services
● $ 91B revenue
● #1 in number of US patents
granted/y

19. Loss Leader Strategy
● $ 1B/y FOSS investment (2002)
● invests in FLOSS to disseminate
technology
● not seeking direct return
● to undercut competition and grow the
market for a complement

20. FLOSS Based Business Models
Key messages:
Business models form a continuum from
proprietary to free software
There are about as many business models as
companies
You may create your own: innovation also
happens in business models

21. Windows of Opportunities
Emerging Commoditized
Opportunities
Adoption

22. FLOSS Based Business Models
Key messages:
There is no single business model for FLOSS
There are many possible business models
based on FLOSS or leveraging FLOSS
The key is not to chose between proprietary
and FLOSS, but to always evaluate FLOSS
as an option in a corporate environment

23. Marketing Mix
Product Price
Promotion Place
23

24. Supplier / Customer & FLOSS
The Customer P.o.V
Product Supplier Customer
price, place Solution,
promotion?
Selling value,
access,
information?
Customer
The F/L/OSS Solution,
value,
Ecosystem access,
information?
Sourcing

25. What are the FLOSS «4 P's»
(NOT)?
● Product: FLOSS project
● Price: zero
● Promotion: none, only word-of-mouth
● Placement: online, full-stop
● These mis-conceptions lead to the classical
question:
« but how can you make money with
software you give away for free ? »

26. FLOSS – Product / Solution
● The product is
– A superset
● Eg: Embedded; SaaS...
– A complement
● Eg: Professional services; Distros with subscriptions...
– A substitute
● Eg: Dual-licensing; Bait-and-hook...
of the FLOSS project

27. Project vs product

28. FLOSS – Pricing / Value
● Monetary
– In few models, comes from FLOSS
– Usually, comes from complements/superset
(hardware, doc, services) or non-FLOSS
substitutes
● Non-monetary
– Adoption leads to sustainability
– Contributions, peer-to-peer support
– Direct user feedback enhances the product
marketing process

29. FLOSS – Promotion /
Information
● Urban legend: the natural selection
of FLOSS projects (the widely
adopted are the technically superior
ones)
● Reality: promotion is a huge effort
● A healty FLOSS project may be the
promotion channel for product(s)

30. FLOSS – Placement / Access
● Since the product is not the FLOSS project
... the access point is not just the Internet
● Scalability issues apply to some models...
– Eg: FLOSS enabled consumer
electronics
– Less to others, eg: Online support
subscription
● Ecosystem leverage: go to market jointly
with partners

31. FLOSS - Competitors
● Reminder: the product is not the FLOSS
project...
● Product competitors depend on the product
● Competitors to the FLOSS project
– Proprietary or FLOSS substitute
– May jeopardize project image,
sustainability
● FLOSS free riders may not be competitors
even though they benefit and do not pay
– Because the product is not the project

32. Recap / Take-aways
● Collaboration on software development makes
economical sense – hence FLOSS
● Industry demands gave opportunities for new
business models
● There's a wide variety of FLOSS-based business
models...
● ...in most of them, the product is NOT the FLOSS
project, but a superset, complement or substitute
● To be cont'd (open innovation in software – June
11, 2009) – and we'll see where OW2 fits!

33. More : “Open Source Software: the Role of Nonprofits in Federating
Business and Innovation Ecosystems”,
F. Letellier, AFME Conference 2008
http://flet.netcipia.net/xwiki/bin/download/Main/publications%2Dfr/GEM2008%2DF
Letellier%2DSubmittedPaper.pdf
Thank you for your attention
Questions
? And Answers
Le middleware
from
est partout ?
Francois Letellier - fl@flet.fr “Sunny” Grenoble
33