Sustainable Open Source Business Models

Sustainable Open Source
Business Models

Prof. Dr. Dirk Riehle, M.B.A.
Friedrich Alexander-University Erlangen-Nürnberg

OGD 2012 – 2012-06-26

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
ETAS GmbH - 2012-05-31
© 2012 Dirk Riehle - All Rights Reserved 2

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

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

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

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

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

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

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
ETAS GmbH - 2012-05-31

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

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.
ETAS GmbH - 2012-05-31

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).

ETAS GmbH - 2012-05-31

Examples of Developer Foundations

ETAS GmbH - 2012-05-31

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

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

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

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).

ETAS GmbH - 2012-05-31

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
ETAS GmbH - 2012-05-31

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

Conclusions

1. Open source is here to stay

2. Four sustainable business models
3. Open source simplifies consortia

ETAS GmbH - 2012-05-31

Sustainable Open Source Business Models

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