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SCaLE 17x There is [Still] NO Open Source Business Model

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Building a business is hard work, but it is even harder when the business starts with a faulty premise. This presentation will walk the audience through models for thinking about open source software economics, and business modelling to help understand what business ideas will likely work in a world enabled by open source software. The talk looks at:
- The underlying economics of open source software development from both the production and consumption perspectives.
- The basics of business modelling that will help folks understand the risks and strengths of open source licensed software.
- The pitfalls and dangers of getting the model wrong.
- Several case studies in successes and failures in the space.
- A way to think about the use and abuse of open source software foundations.

SCaLE Desc: https://www.socallinuxexpo.org/scale/17x/presentations/there-no-open-source-software-business-model
Further Reading:
They're backed up with the following writing:
https://medium.com/@stephenrwalli/there-is-no-open-source-business-model-cdc4cc20238
https://medium.com/open-source-communities/ask-not-what-your-community-can-do-for-you-b26546197a35
https://medium.com/@stephenrwalli/there-is-still-no-open-source-business-model-8748738faa43
https://medium.com/@stephenrwalli/sustaining-open-source-software-4a62a4b6d0f3

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SCaLE 17x There is [Still] NO Open Source Business Model

  1. 1. *Medium Post: https://bit.ly/2PT6Upm
  2. 2. Open Source Software is about Engineering Economics
  3. 3. There is NO Open Source Software Business Model
  4. 4. Freeloaders means you’re doing it right!
  5. 5. Open Source Software is about Engineering Economics
  6. 6. Collaboratively-Developed Liberally-Licensed Software is about Engineering Economics
  7. 7. 1950 1960 1970 200019901980 2010 Code sharing At Princeton IAS in late 1940s IBM “SHARE” Conf & Library Begins 1953 DECUS Conf & Library Begins 1962 MIT Project Athena Begins 1983 1BSD Released 1977 AT&T Shares First UNIX tapes early-70s Free Software Foundation Launches 1985 2nd DoJ vs IBM begins “Software Bundling is Anti-competitive” 1969 IBM response is to unbundle HW, SW, & services pricing 1st DoJ vs IBM Consent Decree “Hardware Bundling is Anti-competitive” 1956 Open Source Definition 1998 USENIX Begins 1975 Linus Releases Linux 1991 Apache httpd Released 1995 Apache Software Foundation 1999 OSDL Forms 2000 OSDL Re-forms as Linux Foundation 2007 U.S. Congress Adds Computer Software to Copyright Law 1980 GCC 1987 emacs 1975 We’ve collaborated on software since we’ve written software Writing good software is hard work
  8. 8. 1950 1960 1970 200019901980 2010 Code sharing At Princeton IAS in late 1940s IBM “SHARE” Conf & Library Begins 1953 DECUS Conf & Library Begins 1962 MIT Project Athena Begins 1983 1BSD Released 1977 AT&T Shares First UNIX tapes early-70s Free Software Foundation Launches 1985 2nd DoJ vs IBM begins “Software Bundling is Anti-competitive” 1969 IBM response is to unbundle HW, SW, & services pricing 1st DoJ vs IBM Consent Decree “Hardware Bundling is Anti-competitive” 1956 Open Source Definition 1998 USENIX Begins 1975 Linus Releases Linux 1991 Apache httpd Released 1995 Apache Software Foundation 1999 OSDL Forms 2000 OSDL Re-forms as Linux Foundation 2007 U.S. Congress Adds Computer Software to Copyright Law 1980 GCC 1987 emacs 1975 Copyright Law forced almost 20 years of license experiments to allow us to keep sharing DEC Ultrix 1984 SunOS 1983 OSF/1 1992 Red Hat 1993
  9. 9. Choosing a License is a Social Contract License reciprocity is not about software freedom; it’s a community decision.
  10. 10. Collaboratively-Developed Liberally-Licensed Software The Open Source Definition Engineering Economics
  11. 11. Collaboratively-Developed Liberally-Licensed Software is about Engineering Economics
  12. 12. Interix ~$100,000 for $10M value capture $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ Open Source is about Engineering Economics
  13. 13. Interix + ACT ~$140,000 $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
  14. 14. $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
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  16. 16. Build vs. Buy
  17. 17. Build vs. Buy vs. (Borrow & Share)
  18. 18. Open Source Software is about Engineering Economics
  19. 19. Software Business
  20. 20. If your core competency is delivering software, then the software is: • Core value proposition to customers • Complement value add to the core value proposition • Context (i.e. non-core competency)
  21. 21. New market Disruption • Is there a large group of people who historically have not had the money, equipment or skill to do this thing for themselves? – OR – • To use the product or service, do customers need to go to an inconvenient, centralized location? Low-end market Disruption • Are there customers who would be happy to purchase a product with less (but good enough) performance? – AND – • Can we create a business model that enables us to earn attractive profits at the discounted prices? • Is the innovation disruptive to ALL of the significant incumbent firms in the industry? • If it appears to be a sustaining innovation to one or more significant players in an industry, then the odds are stacked in that firm's favour, and the new entrant unlikely to win. Then The Innovator’s Solution, Clayton Christensen
  22. 22. If your core competency is delivering software, then the software is: • Core value proposition to customers • Complement value add to the core value proposition • Context (i.e. non-core competency)
  23. 23. Building a project community in context spaces: • Validates the approach to a problem • Demonstrates expertise that can be used in recruitment • Demonstrates committed values to collaboration amongst developers that further recruitment goals
  24. 24. Building a project community in complement value-add spaces: • Creates stickiness/inertia for the core value. • Creates experts, advocates, and evangelists around the technology • Hardens the complements with new configurations and contributions • Captures direct value to the complements (indirectly to the core) • Is possibly disruptive to competitors
  25. 25. But – publishing your core value proposition under an open source license: • Makes potential partners into competitors • Allows savvy IT consumers to avoid becoming customers • Creates confusion for the sales and marketing team
  26. 26. If you invest in building community around the project that sits on your core value proposition: • You create tension when competitors and partners and advanced IT users contribute value they want in your core value proposition. • The power of innovation capture in community around a complement becomes the problem of innovation dilution in your core value proposition. • You accelerate the creation of a community of early adopting users that aren’t interested in paying for your software, instead of creating early adopting customers that understood your product solution sufficiently to give you money.
  27. 27. Projects are not Products
  28. 28. Community is not a Customer
  29. 29. Projects are interesting buckets of technology developed collaboratively by like-minded engineers
  30. 30. Projects are interesting buckets of technology developed collaboratively by like-minded engineers Products solve customer problems and money is exchanged for perceived value
  31. 31. Projects have communities Communities have time and no money
  32. 32. Projects have communities Communities have time and no money Products have customers Customers have money and no time
  33. 33. • Will contribute time to solve their problems • Look to community and project for solutions • Community wants transparency, meritocracy, and agency • Need guidance and tool support • Become technology advocates • Become knowledgeable experts • Make your solution sticky • They want to buy something • Look to the product to solve their problems • Customers have expectations based on a cost • Community/project is a test for product • May participate in community Community Customer vs
  34. 34. Community vs Partner • Will contribute time to solve their problems • Look to community and project for solutions • Need guidance and tool support • Become technology evangelists • Become knowledgeable experts • Make your solution sticky • They want to co-market products • Look to the product to cross-sell • Partners have contracts defining business relationships around products/services • Community/project is a test for product • May participate in community
  35. 35. Freeloaders means you’re doing it right!
  36. 36. In the World of Atoms: You choose your neighborhood for very personal reasons
  37. 37. Three Sorts of Neighbours in Your Community The people that simply want to live there ….
  38. 38. Three Sorts of Neighbours in Your Community The people that simply want to live there …. The people that report potholes and trash, etc. ….
  39. 39. Three Sorts of Neighbours in Your Community The people that simply want to live there …. The people that report potholes and trash, etc. …. The people that organize the block party, pick up trash, etc. ….
  40. 40. Three Sorts of People in Your Project Community The people that simply want to use the software The people that report bugs, offer ideas for features, etc. The people that contribute code, documentation, use cases, etc.
  41. 41. Rules of Thumb and Orders of Magnitude For every 1000 users, … … a 100 will file a bug, … … out of which 10 give you a patch, …
  42. 42. Rules of Thumb and Orders of Magnitude For every 1000 users, … … a 100 will file a bug, … … out of which 10 give you a patch, … … out of which 1 actually read your contribution guidelines.
  43. 43. Three On Ramps for Community Building • How do you encourage people to use your project? (Because that’s where you’ll find your developers) • How do you encourage developers to experiment? (Because these are your future contributors) • How do you encourage developers to share their work? (This is the growth & success of your software)
  44. 44. “The customer didn’t want a quarter inch drill. What they wanted was a quarter inch hole.” Theodore Levitt
  45. 45. Parking your identity brand on any open source project you own, instead of the product/solution your customers buy, creates confusion for your messaging to customers.
  46. 46. Open Source Software is about Engineering Economics There is NO Open Source Software Business Model
  47. 47. Customers versus Community (Money vs. Time; Expectations are different; Conversations are different)
  48. 48. Customers versus Community (Money vs. Time; Expectations are different; Conversations are different) Partners versus Community (Don’t mix business with community)
  49. 49. Customers versus Community (Money vs. Time; Expectations are different; Conversations are different) Partners versus Community (Don’t mix business with community) Products versus Projects (Success metrics are different; OKRs and KPIs are different)
  50. 50. A Story of Red Hat in Three CEOs
  51. 51. 1994 1999 2008 A Story of Red Hat in Three CEOs
  52. 52. Last Quick Examples … Kubernetes is a project; AKS and GKE are products OpenStack is a collection of projects; Helion and RDO are products Linux is a project; Fedora is a distro project; RHEL is a product
  53. 53. *Medium Post: https://bit.ly/2PT6Upm
  54. 54. Conversion Rates
  55. 55. Conversion Rate Myths 1:1000 3% 10%
  56. 56. Conversion Rate Myths 1:1000 (MySQL Inc.) ~1:100 (JBoss) 1:10 (Red Hat)
  57. 57. What Business Ratio Changes 2 Orders of Magnitude between Companies in a Market?

Building a business is hard work, but it is even harder when the business starts with a faulty premise. This presentation will walk the audience through models for thinking about open source software economics, and business modelling to help understand what business ideas will likely work in a world enabled by open source software. The talk looks at: - The underlying economics of open source software development from both the production and consumption perspectives. - The basics of business modelling that will help folks understand the risks and strengths of open source licensed software. - The pitfalls and dangers of getting the model wrong. - Several case studies in successes and failures in the space. - A way to think about the use and abuse of open source software foundations. SCaLE Desc: https://www.socallinuxexpo.org/scale/17x/presentations/there-no-open-source-software-business-model Further Reading: They're backed up with the following writing: https://medium.com/@stephenrwalli/there-is-no-open-source-business-model-cdc4cc20238 https://medium.com/open-source-communities/ask-not-what-your-community-can-do-for-you-b26546197a35 https://medium.com/@stephenrwalli/there-is-still-no-open-source-business-model-8748738faa43 https://medium.com/@stephenrwalli/sustaining-open-source-software-4a62a4b6d0f3

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