Open Source Business ModelsOpen Source Business Models

Kaptaan HickeyKaptaan Hickey

Steve RamilSteve Ramil

Frank HeckerFrank Hecker

Executive director for Mozilla Foundation, which is Executive director for Mozilla Foundation, which is responsible for the Firefox web browser. responsible for the Firefox web browser. Worked for Opsware, Netscape, and AOLWorked for Opsware, Netscape, and AOLGained interest in open source software and published an Gained interest in open source software and published an extensive executive summary titled: extensive executive summary titled: “Setting Up Shop: The “Setting Up Shop: The Business of Open-Source Software”Business of Open-Source Software”..He suggested four innovative business models:He suggested four innovative business models:

1.1. Support SellerSupport Seller2.2. Accessory SellerAccessory Seller3.3. Widget FrosterWidget Froster4.4. Loss LeaderLoss Leader

Support Seller BackgroundSupport Seller Background

First implemented by Michael Tiemann who First implemented by Michael Tiemann who created created Cygnus Solution.Cygnus Solution.

Tiemann is currently vice president of open Tiemann is currently vice president of open source affairs at source affairs at Red Hat Software. Red Hat Software.

Created products that offered commercial Created products that offered commercial support for open source software which support for open source software which included: GNU Debugger & GNU Binutils.included: GNU Debugger & GNU Binutils.

Support Seller: RedHatSupport Seller: RedHatBusiness model is assembled around the support of certified Linux software and other open Business model is assembled around the support of certified Linux software and other open source applications. source applications.

Revenue is generated through 1 or 3 year subscriptions.Revenue is generated through 1 or 3 year subscriptions.

Post Subscription Use: you can continue to use and modify the software, although you can no Post Subscription Use: you can continue to use and modify the software, although you can no longer utilize RedHat support. longer utilize RedHat support.

Your paying for certified open source software, newest security patches, debugging, and the Your paying for certified open source software, newest security patches, debugging, and the newest tools and applications.newest tools and applications.

RedHat Network: software upgrades are sent out to a system administrator, when can then RedHat Network: software upgrades are sent out to a system administrator, when can then implement the changes. implement the changes.

Also Offer: IT Consulting Services & Training ProgramsAlso Offer: IT Consulting Services & Training Programs

Creates value by allowing organizations focusCreates value by allowing organizations focus on core competencies. on core competencies.

RedHat Stock TrendsRedHat Stock Trends

Support Seller: Caldera/SCO Support Seller: Caldera/SCO SoftwareSoftware

Organization that generates revenue by Organization that generates revenue by distributing modified versions of Unix distributing modified versions of Unix software.software.

Caldera acquisition of SCO was completed in Caldera acquisition of SCO was completed in 2001, which formed the worlds largest 2001, which formed the worlds largest distribution channel for UNIX redistributions. distribution channel for UNIX redistributions.

Acquired ownership of UNIX code and was Acquired ownership of UNIX code and was responsible for releasing it as open source.responsible for releasing it as open source.

SCO Stock TrendsSCO Stock Trends

Support Seller Business ModelsSupport Seller Business Models

RedHat & SCO Open-Source Software/ Support PackageRedHat & SCO Open-Source Software/ Support Package

Customer Value: Extremely stable and efficient software, and Customer Value: Extremely stable and efficient software, and that doesn’t end with the sale (like most proprietary software).that doesn’t end with the sale (like most proprietary software).Revenue Generation: Fee for open-source software, annual Revenue Generation: Fee for open-source software, annual support memberships, training courses, and consulting support memberships, training courses, and consulting services. services. Value Chain: Software writers, consultants, administrators, Value Chain: Software writers, consultants, administrators, and customer service specialists.and customer service specialists.

Accessory Seller: Accessory Seller: O’ReillyO’Reilly

O’Reilly originally went into business as a technical writing consulting firm. O’Reilly originally went into business as a technical writing consulting firm.

Started retaining rights to manuals they created for UNIX vendors in 1984. Started retaining rights to manuals they created for UNIX vendors in 1984.

Developed first commercial website which pioneered banner advertising (Global Network Developed first commercial website which pioneered banner advertising (Global Network Navigator) which was sold to AOL in 1995. Navigator) which was sold to AOL in 1995.

O’Reilly manual writers were not pressured to promote product because they where not O’Reilly manual writers were not pressured to promote product because they where not creating the software. If a program did not work properly, they were not afraid to say it. creating the software. If a program did not work properly, they were not afraid to say it. (Much different then traditional practices)(Much different then traditional practices)

Generate profit by selling books, magazines, and providing online services that follow open Generate profit by selling books, magazines, and providing online services that follow open and emerging technologies. and emerging technologies.

Actively participates in industry: Builds its technical capabilities by organizing conferences Actively participates in industry: Builds its technical capabilities by organizing conferences and collaborating with innovative intellectuals.and collaborating with innovative intellectuals.

Charge fees for access to online conferences. Charge fees for access to online conferences.

Organized “the summit meeting that gave the open source software movement its name.”Organized “the summit meeting that gave the open source software movement its name.”

Supporting employees to get involved with industry increases job satisfaction, reduces Supporting employees to get involved with industry increases job satisfaction, reduces turnover, and spurs innovation.turnover, and spurs innovation.

Accessory Seller Business ModelsAccessory Seller Business Models

O’ Reilly Online Conferences O’ Reilly Online Conferences

Customer Value: Contact with Elite Industry ProfessionalsCustomer Value: Contact with Elite Industry ProfessionalsRevenue Generation: Charging fees to participate in online Revenue Generation: Charging fees to participate in online conferences and banner advertisementsconferences and banner advertisementsValue Chain: Industry Professionals, Event Organization, Support Value Chain: Industry Professionals, Event Organization, Support Hardware & Software Hardware & Software

O’Reilly Technical Manuals O’Reilly Technical Manuals

Customer Value: High quality manuals that are not bias and often Customer Value: High quality manuals that are not bias and often include more detail then conventional productsinclude more detail then conventional productsRevenue Generation: Fees charged for online distributions and Revenue Generation: Fees charged for online distributions and hardcopieshardcopiesInputs: Research & Development, Creation of LiteratureInputs: Research & Development, Creation of Literature

Widget FrostersWidget Frosters

Business model is for those looking to sell hardware Business model is for those looking to sell hardware (“widgets”) that use the OS model for enabling software such (“widgets”) that use the OS model for enabling software such as driver and interface code (“frosting”).as driver and interface code (“frosting”).Ranges from an individual chipset to a complete computer.Ranges from an individual chipset to a complete computer.Enabling software can be, driver code, compilers & linkers, or Enabling software can be, driver code, compilers & linkers, or complete applications.complete applications.Primarily a cost saving instead of revenue enhancing Primarily a cost saving instead of revenue enhancing paradigm, ultimately the revenue comes from sales of the paradigm, ultimately the revenue comes from sales of the hardware itself. hardware itself. Pricing is typically much more cost-driven than value-driven.Pricing is typically much more cost-driven than value-driven.Samba and Apple Computer’s “Darwinn” were examples of Samba and Apple Computer’s “Darwinn” were examples of this model.this model.

Samba & Apple’s “Darwin”Samba & Apple’s “Darwin”

Samba is an open source suite that provides file and print services Samba is an open source suite that provides file and print services to all manner of SMB/CIFS clients, including the numerous versions to all manner of SMB/CIFS clients, including the numerous versions of Microsoft Windows operating systems. of Microsoft Windows operating systems. Samba uses TCP/IP protocol that is installed on the host server. Samba uses TCP/IP protocol that is installed on the host server. When correctly configured, it allows that host to interact with a When correctly configured, it allows that host to interact with a Microsoft Windows client or server as if it is a Windows file.Microsoft Windows client or server as if it is a Windows file.Apple’s “Darwin” was one of the biggest events for widget frosting. Apple’s “Darwin” was one of the biggest events for widget frosting. Darwin is the open source UNIX-based core of Apple’s Mac OS X. Darwin is the open source UNIX-based core of Apple’s Mac OS X. Some technologies Darwin integrates are the Mach 3.0 microkernel, Some technologies Darwin integrates are the Mach 3.0 microkernel, high performance TCP/IP networking, and support for multiple high performance TCP/IP networking, and support for multiple integrated file systems.integrated file systems.Due to having a highly modular design, Darwin allows you to add Due to having a highly modular design, Darwin allows you to add device drivers, networking extensions and new file systems.device drivers, networking extensions and new file systems.

Loss LeaderLoss Leader

A model where there is a no-charge open-source product A model where there is a no-charge open-source product used as a loss leader for traditional commercial software. used as a loss leader for traditional commercial software. The open-source product is not aimed to make revenue, The open-source product is not aimed to make revenue, rather attract the attention of the consumer so that they will rather attract the attention of the consumer so that they will hopefully buy other products sold using the traditional hopefully buy other products sold using the traditional software business model. software business model. Ways the open-source product can increase sales of Ways the open-source product can increase sales of traditional products:traditional products:

– Building the overall vendor brand and reputation.Building the overall vendor brand and reputation.– Making the traditional products more functional and useful.Making the traditional products more functional and useful.– Increasing the overall base of developers and users.Increasing the overall base of developers and users.

It gets tricky when it comes to licensing, as sometimes the It gets tricky when it comes to licensing, as sometimes the open-source product shares a source code with the open-source product shares a source code with the company’s proprietary products.company’s proprietary products.

NetscapeNetscape

Netscape started to use the loss leader model with their Netscape started to use the loss leader model with their communicator product. communicator product.

Netscape Communicator was a proprietary internet suite that Netscape Communicator was a proprietary internet suite that was available in different editions and included components was available in different editions and included components such as (Netscape Navigator, Messenger, Address Book, such as (Netscape Navigator, Messenger, Address Book, Composer, Conference, Calendar).Composer, Conference, Calendar).

After Netscape Communicator 4.5 came out (3/1998), After Netscape Communicator 4.5 came out (3/1998), Netscape stopped charging for its communicator and made it Netscape stopped charging for its communicator and made it open source under the name Mozilla. open source under the name Mozilla.

Netscape has used this wonderful internet suite Mozilla to Netscape has used this wonderful internet suite Mozilla to gain credibility and achieve market share in other areas. gain credibility and achieve market share in other areas.

Sendmail, IncSendmail, Inc

Sendmail invented the first MTA (mail transfer agent) in ’81. Sendmail invented the first MTA (mail transfer agent) in ’81. They currently have thousands of developers and contributors as They currently have thousands of developers and contributors as part of the open source community that help provide enhancements part of the open source community that help provide enhancements and features required by today’s corporations.and features required by today’s corporations.It is currently the most widely used email technology on the Internet, It is currently the most widely used email technology on the Internet, and delivers 70% of the email messages sent.and delivers 70% of the email messages sent.With the great success of their With the great success of their Open Source MTAOpen Source MTA Sendmail, Inc has Sendmail, Inc has been able to build into a larger organization offering new things such been able to build into a larger organization offering new things such as:as:

– Enterprise-class security and management products.Enterprise-class security and management products.Mailstream, Sentrioin, ECOSys, Mailcenter.Mailstream, Sentrioin, ECOSys, Mailcenter.

– Technical support.Technical support.– Professional services.Professional services.

Their main goal is to solve the Internet’s most pressing challenge of Their main goal is to solve the Internet’s most pressing challenge of creating trusted email communications.creating trusted email communications.

Future of OSSFuture of OSS

““Service providers are challenged to cut costs and Service providers are challenged to cut costs and increase revenues dramatically to achieve profitability increase revenues dramatically to achieve profitability with reduced workforce and budget. Service providers with reduced workforce and budget. Service providers who survive and thrive will be leaders in operational who survive and thrive will be leaders in operational excellence. This means increased automation and excellence. This means increased automation and streamlined business processes that transcend complex streamlined business processes that transcend complex network technologies. The bottom line: changing from a network technologies. The bottom line: changing from a labor-intensive company to a lean and efficient labor-intensive company to a lean and efficient automated machine and changing from a technology-automated machine and changing from a technology-focused company to a service-focused company. focused company to a service-focused company. Streamlined, automated, Streamlined, automated, integrated OSSs are critical integrated OSSs are critical tools to achieving operational excellencetools to achieving operational excellence.”.” ((Donna Bastien, Donna Bastien, Worldwide OSS Marketing ManagerWorldwide OSS Marketing Manager))

QUESTIONS?QUESTIONS?

SourcesSources““Setting Up Shop: The Business of Open Source Software”.Setting Up Shop: The Business of Open Source Software”.

www.hecker.orgwww.hecker.org

““RedHat”.RedHat”.

en.wikipedia.orgen.wikipedia.org

Redhat.comRedhat.com

““Open source leaders duke it out”Open source leaders duke it out”

http://news.zdnet.com/2100-9595_22-530155.html?legacy=zdnnhttp://news.zdnet.com/2100-9595_22-530155.html?legacy=zdnn

www.oreilly.comwww.oreilly.com

http://samba.anu.edu.au/cifs/docs/what-is-smb.htmlhttp://samba.anu.edu.au/cifs/docs/what-is-smb.html

http://www.tmforum.org/browse.aspx?catID=1236http://www.tmforum.org/browse.aspx?catID=1236

http://www.wikipedia.comhttp://www.wikipedia.com

http://www.sendmail.org/http://www.sendmail.org/

http://www.netscape.comhttp://www.netscape.com

http://www.samba.orghttp://www.samba.org