Open Source SW Business

Shin, Sanghee([email protected])

Open Source SW Business?

I.  Introduction of Open Source SW I-1. What is Open Source Software? I-2. Open Source Software Licenses I-3. Benefits of Open Source Software I-4. Growth of Open Source Software

II. Current Status of Open Source Business

II-1. Comparison between Proprietary and Opens Source Software II-2. Chasm and Barriers II-3. How to Cross the Chasm and Barriers II-4. Chapter Summary

III. Proposed Open Source Business Framework

III-1. Basic Principles III-2. Proposed Open Source Business Framework III-3. Benefits

IV. Conclusions V. References

Contents

I. Introduction of

Open Source SW

Open Source SW Business? Shin, Sanghee([email protected])

I-1. What is Open Source SW?

q  Open source SW(OSS) is the computer SW that is available in source code form under certain licenses.

q  Users of OSS are permitted to use, copy, study, change, improve and even redistribute those OSS freely.

q  ‘Free’ does not mean ‘Free of Charge’ nor ‘Free Stuff’ but ‘Freedom’

I. Introduction of Open Source SW

4

FREEDOM Of

Software

Freedom of

Redistribute

Freedom of

Modify

Freedom of

Copy

Freedom of

Use



q  Open Source SW Criteria by OSI(Open Source Initiative)


5

1.  Free Redistribution

2.  Source Code

3.  Derived Works

4.  Integrity of The Author's Source Code

5.  No Discrimination Against Persons or Groups

6.  No Discrimination Against Fields of Endeavor

7.  Distribution of License

8.  License Must Not Be Specific to a Product

9.  License Must Not Restrict Other Software

10.  License Must Be Technology-Neutral



q  Open Source SW vs. Freeware


6

•  Users have the right to access & modify the source codes.

•  In case original programmer disappeared, users & developer group of the S/W usually keep its support to the S/W.

•  OSS usually has the strong users & developers group that manage and maintain the project

OSS Freeware

§  OSS is different from Freeware

§  Antonym of OSS would be ‘Closed Source S/W’ or ‘Proprietary S/W’

§  Recently OSS is also regarded as ‘Commercial S/W’

•  Freeware is usually distributed in a form of binary at ‘Free of Charge’, but does not open source codes itself.

•  Developer of freeware could abandon development at any time and then final version will be the last version of the freeware. No enhancements will be made by others.

•  Possibility of changing its licensing policy


I-2. Open Source SW Licenses

q  Copyright vs. Licenses

7


ü Set of exclusive rights granted to the author or creator of an original work, including the right to copy, distribute and adapt the work.

ü Rights obtained just after create the work without any registration.

ü  Without any permissions, others could not use, copy, distribute, adapt the work.

ü Permission to use the work under certain agreement.

ü A kind of contract agreement like EULA(End User License Agreements)

ü If you buy Window7, it means you just buy a permission to install & use Windows7 S/W in your PC.

ü License is different from products buying.

Copyright License

Copyright Patent Trademark Trade Secret

IPR



q  Typical OSS Licenses

8


Free Re-Distributable

Access to Source Code Modification

Obligation to

Open Derived Works

Combining with

Proprietary SW

GPL O O O O O X

LGPL O O O O O O

MPL O O O O O O

BSD Alike O O O O X O

Apache Alike O O O O X O

§  GPL : Application need to be licensed under the same GPL if redistributed with the GPL asset. §  LGPL : Modified library need to be licensed under the same licenses as the originating asset. §  BSD/Apache Alike : Much more permissive for combination with proprietary SW.



q  Open Source SW License Rate

9


Sourceforge.net, May, 2006.

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Black Duck Software Knowledgebase, April, 2008.

§  More than 60% of OSS licenses are GPL based license. §  Due to hard condition of OSS licenses, OSS is perceived to be difficult to be commercialized.

è How to commercialize the open source SW?


I-3. Benefits of Open Source SW

10


q  Benefits of Open Source Software purported by OSS Community

§  Save money, save resources, increase stability, access to source code, access to skilled community of dev

elopers

Develop the society by sharing technology & outcomes!!

1. Technological Aspects

2. Economical Aspects

3. Business Aspects

4. Other Aspects

Rapid development of high-class SW Increased stability by skilled community review Reduce technological gap to leading proprietary SW company Internalize outside SW developer resources

Very low adoption cost Reduce SW development cost Easy to customize Reuse successful story

Extend company’s products portfolio Open up new market by providing diversified services & products Improve brand image of company

Reduce energy Self-Satisfaction Help society



11


q  Open Source Advantages over Commercial SW

§  Open source’s price tag is clearly important driver. OSS is practically cheaper than commercial one.

§  57% said that accessibility to source code really matters and 41% cited community code review as an imp

ortant benefit over proprietary.

80%

57%

41%

20%

18%

15%

15%

15%

10%

6%

5%

0% 20% 40% 60% 80% 100%

Price

Source Code Access

Community Code Review

Don’t Know

Bug Fix Turnaround

Security

Code Quality

Best Product Functionality

Easier to Adopt in Organization

Other

IP Protection

è  Price & opened source code are key factors!

* Source : Barracuda Networks



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* Source : Barracuda Networks

65%

47%

44%

35%

28%

23%

17%

9%

7%

4%

3%

0% 10% 20% 30% 40% 50% 60% 70%

Vendor Professional Services

Easier to Adopt in Organization

Automated Updates

Reduced IT Support

Best Product Functionality

Security

Code Quality

Don't Know

IP Protection

Other

Price

q  Commercial Software Advantages over Open Source

§  65% cited lack of professional services as a major defect point of open source software.

§  47% and 44% said that commercial software is easier to adopt and more automated. Users believe that op

en source software is good but lacks professional services and convenience.

è Professional services & convenience are key factors!


I-4. Growth of Open Source SW

13


q  Forecast of Open Source SW Growth

§  “By 2012, open-source software's impact on application software will grow to $19 billion, with a five-year compound annual growth rate of 44%.”, 2008

§  “By 2012, 80 per cent of all commercial software will include elements of open-source technology”, 2008

§  “Worldwide revenue from open source software will grow at a 22.4 percent compound annual growth rate to reach $8.1 billion by 2013.”, 2009

§  “Large software vendors like IBM, Sun, Dell, HP, and Oracle are making significant amounts of indirect revenue from their activities with and support of OSS.”, 2009

§  “The notional value of Europe’s investment in FLOSS software today is Euro 22 billion (36 billion in the US) representing 20.5% of total software investment (20% in the US)”, 2007

§  “FLOSS-related services could reach a 32% share of all IT services by 2010, and the FLOSS-related share of the economy could reach 4% of European GDP by 2010.”, 2007


I-4. Growth of Open Source SW

14


<FOSS Projects Growth>

* Source : Amit Deshpande et al , 2008, “The Total Growth of Open Source”, In Proceedings of the Fourth Conference on Open Source Systems (OSS 2008).

<FOSS Source Codes Growth>

q  Trends of Open Source Software Growth

§  With cumulative growth of open source software, open source software has now reached a turning point or

tipping point in terms of adoption of open source software and business.

II. Current Status of

Open Source Business

Open Source SW Business? Shin, Sanghee([email protected]) 16

q  SW Development Model Comparison

Closed Open

Developers to Customers Developers to Developers

<Proprietary Model> <OSS Model>

§  In-house development of SW and ‘Product’ § Before beta-version, couldn’t review SW and product § Designed and developed by core programmers

§ Community based SW development and no ‘Product’ § SW reviewed by community members at any time § Designed and developed by community developers

In-House Development

Community Development

è OSS does not care about customers real needs!

II-1. Comparison between Proprietary and OSS II. Current Status of Open Source Business


II-1. Comparison between Proprietary and OSS

17

q  Business Model Comparison : Proprietary Business Model

è In-house based development of SW and ‘Whole Product’

Proprietary Company

Customers Partners

OEMs

SW Development

Engineering Product Mgmt.

‘Go To Market’

Sales, Marketing, Support, Services, Engineering, Pr

oduct Mgmt.

Money

Whole Product

§ Engineering has 2 roles : Development of SW and participate in ‘Go To Market’ program.

§ Product Management ‘owns’ the product roadmap and has the responsibility of creating product.

§ Sales, Marketing, Support, and Services departments are focused on the customers.

§  ‘Go To Market’ program creates the ‘Whole Product’ that mainstream customers require.

§ By collecting customers needs and feeding back those needs to company, this model creates and deliver value to customers

Resources

Software

* Source : James Dixon, The Beekeeper



II-1. Comparison between Proprietary and OSS

18

q  Business Model Comparison : Open Source Business Model

è No ’Whole Product’ is the key barriers to adoption of OSS!

Core Developers

Administrators

Engineers


Community

Contributions

Contributions

Peer Review Use Cases

Testing Documentation

Translations Features

Forum Help Bug Fixes

Roadmap Design

Software ‘The Project’

§ Administrators typically design and develop ‘SW’ itself.

§ Roadmap is owned by the project administrators.

§ Community participate in designing, implementing and testing the software.

§ Core developers and community usually focus their resources on ‘Software’ development itself for their use, fun and satisfaction.

§ No ‘Go To Market’ process. Community usually does not care about ‘Whole Product’.

§ No elaborate marketing strategies.



II-2. Chasm and Barriers

q  Open Source Software in the Chasm

19

§  Innovators and early adopters are very enthusiastic at open source software in spite of its risk and lacking of supp

ort, since many of innovators and early adopters are technical person.

§  However many pragmatists are still reluctant to use open source software. That’s why OSS is in chasm.

ü

Open Source Software in the Chasm



II-2. Chasm and Barriers

q  6 Barriers to Open Source Software Adoption

20

6 Barriers Open Source SW Success Story

1. Lack of formal support and services

2. Velocity of change

3. Lack of roadmap

4. Functional Gaps

5. License Types

6. Lack of endorsements by independent ISVs


* Source : Ray Lane, 6 barriers to open source adoption


II-3. How to Cross the Chasm and Barriers?

21

Crossing The

Chasm

Target the

Point of Attack

Assemble an

Invasion Force

Define the

Battle

Launch the

Invasion

• Action Items : - Clear target market for ‘Whole Product’ - Focus resource on achieving leadership - Identifying market identifiers - Target customer - Compelling reason to buy ‘Product’ - Customer value proposition

• Action Items : - Create the ‘Whole Product’ - Focus on customer’s problem - Job-to-be-done approach - Considering complementary assets - Partnership or In-house approach

• Action Items : - Marketing strategy - Distribution channel - Pricing policy - Sales force

• Action Items : - Define positioning - Focus the competition within target market - Approach pragmatist with CVP - Share CVP with company employee - Demonstrate the validity of CVP

q  How to Cross the Chasm? §  Change paradigm from open source ‘

Software’ to ‘Whole Product’



II-3. How to Cross the Chasm and Barriers?

22

q  How to Cross the Barriers?

6 Barriers

1. Lack of formal support and services

2. Velocity of change

3. Lack of roadmap

4. Functional gaps

5. License types

6. Lack of endorsements by independent ISVs

Solutions

1. Provide professional support and services

2. Provide scheduled upgrade and patch via subscriptions

3. Increase communication between customers & developer community

4. Critical functional gaps are narrowing down gradually

5. Offer hybrid licensing models or provide solution instead of SW

6. Endorsement by standards

Risk related issues

Risk related issues

Feature issues

Change Open

Source Software

to ‘Whole

Product’



II-4. Chapter Summary

23

q  Need to Change Paradigm from Open Source ‘Software’ to ‘Whole Product’


Software

Integration

Software

Services

Installation

Training

VARs Other

SW/HW

Certification

Support

<Whole Product>

<Open Source SW>

§ Open source ‘software’ itself is mainly for developers not for real customers.

§ Customers unmet needs could not be met with ‘software’ alone. § To monetize open source ‘software’, ‘Whole Product’ should be

offered to customers.

è OSS model is great at producing SW, but it doesn’t produce ‘Whole Product’ for customers!


II-4. Chapter Summary

24

q  Need to Target the Clear Market


è To offer ‘Whole Product’ to customers, OSS company need to focus on clear target market

III. Proposed

Open Source

Business Framework


III-1. Basic Principles III. Proposed Open Source Business Framework

26

q  Combining Advantages of Proprietary and Open Source Model into ‘Commercial’ Model

Advantages of

Proprietary

1. Professional service 2. Continuous support 3. Easy to use 4. Reliability 5. Functionalities

Advantages of

Open Source

1.  Cheaper price 2.  Source code access 3.  Community review 4.  Quicker bug fix 5.  More standard based

Commercial Open Source Software

‘Whole Product’

è Commercial open source company can exist to create ‘Whole Product’ around an open source project (software + community) and can deliver it to a mainstream market.



27

q  ‘Commercial’ Open Source Business Model as Platform Business

Customers Partners

OEMs

Open Source

Software Community

Commercial Open Source Company

‘Go To Market’


oduct Mgmt.

+

+

+

Community can hear more functionalities & requests

Customers can gain higher quality software at a better price

The bigger community the more resources


High quality open source

SW

High quality open source

‘Whole Product’

Attract more

customers

Business growth

& Contribution to

community

Growth Of

Community


28

q  Ecosystem of ‘Commercial’ Open Source Business Model

Commercial Open Source

Business Model



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q  Respect Open Source Principles

"   Freedom of participation "   Accepting feedback from members "   Review/criticize design & code "   Various contribution

"   Let community members know what’s going on

"   Communication about schedules and hurdles

"   Public defect tracking system

"   Earliest draft version and updating it often

"   Release of source code "   Release of software design "   Release of software roadmap

"   Do not treat community members as potential customers

"   Respect autonomy & activities of community

"   Community is not the part of company

Openness Transparency

Early & Often Respect Community


III-2. Proposed Open Source Business Framework III. Proposed Open Source Business Framework

30

q  Commercial Open Source Business Model

Commercial OSS Company

Customers Partners

OEMs

SW Development

Eng. Product Mgmt. Ecosystem Develop

‘Go To Market’


oduct Mgmt.

Money

Whole Product

Resources

Software


Community Contributions

Contributions

Peer Review Use Cases

Testing Documentation

Translations Features

Forum Help Bug Fixes

Configuration Matrix Quotes & News

Roadmap Design

Software ‘The Project’

§ Community : Development of SW § Company : Making ‘Whole Product’ and deliver it to customers § Customers : Buy product from the company



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q  Value Chain Change

‘Whole Product’

Software 1

Software 2

Software 3

Software

Current Proprietary Model

Cha

nnel

Customer 1

Customer 2

Customer 3

Whole Product Channel Customers

In-house In-house & partners Outside

Cost Side Money Side Cost Side



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q  Value Chain Change

‘Whole Product’

VA Software

Software

Commercial Open Source Model

Cha

nnel

Customer 1

Customer 2

Customer 3

Whole Product Channel Customers

Community In-house & partners Outside

Money Side Money Side Cost Side

Community

In-house

Cost Side


III-3. Benefits III. Proposed Open Source Business Framework

33

q  Benefits of Commercial Open Source Business Framework

Open Source Proprietary Commercial Open Source

Rate of innovation Higher Lower Higher

Visibility into product design/implementation Higher Lower Higher

Quality of software Higher Lower Higher

Reliability of support Lower Higher Higher

Reliability of roadmap Lower Higher Higher

Ownership of solution Higher Lower Higher

Availability of professional services Lower Higher Higher

Availability of references and case studies Lower Higher Higher

Ability to prototype and ‘try before you buy’ Higher Lower Higher

Cost of license or subscription Lower Higher Lower

Ability to customize software Higher Lower Higher

IV. Conclusions


IV. Conclusions IV. Conclusions

35

q  Approach Customers with ‘Whole Product’ to Cross the Chasm & Barriers

Weakness of Open Source Model • Lack of professional services

• Reliabilities

• Not to meet customers real job

• Focused on software itself

• Inconvenience

Strategy for Success • Approach customers with ‘Whole Product’

• ‘Whole Product’ includes support, service, integ

ration, additional SW/HW

• Combining advantages of proprietary and open

source model into ‘Commercial’

• Focus on CVP rather than ‘Software’


IV. Conclusions IV. Conclusions

36

q  ‘Commercial’ Open Source Model as Robust One

Community

:Benefit from company & customers

Customers

:High quality SW & professional ser

vices

Company

:Reduce product development cost & incre

ase its valuation

‘Commercial’ Open Source Model

§ The open source community benefits directly from the full-time engineering staff that exist because of the fee-paying customers.

§ The customers benefit from the increased quality of the software, quality of design, and increased traction enabled by the open source community. And they could expect professional services & support from the ‘commercial’ open source company.

§ The ‘Commercial’ open source company benefits by increasing its valuation when it meets the needs of both customers and open source community.

Meet the unmet needs of customers by offering core value proposition with open source ‘Whole Product’, that is the key success point of open source business

V. References


V. References V. References

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�  강형구, “오픈 소스 비즈니스 모델 혁신 실증 연구 : 레드햇 사례를 중심으로”, 포항공대 기술경영대학원 석사학위 논문, 2010.

�  김진우, “오픈 소스 사회 현상에 대한 마케팅적 고찰”, 고려대학교 경영대학 석사학위 논문, 2008.

�  권순선, “오픈 소스의 비지니스 모델”, http://kldp.org/node/80381

�  Dixon, J., “The Honey-Gatherer Model for Service/Support Commercial Open Source”, http://jamesdixon.wordpress.com/the-bees-and-the-trees/servicesupport-model/

�  Dixon, J., “The Maple Syrup Farm Model for Proprietary Software Companies”, http://jamesdixon.wordpress.com/the-bees-and-the-trees/proprietary-model/

�  Dixon, J., The Beekeeper I, II, http://wiki.pentaho.com/display/BEEKEEPER/The+Beekeeper

�  Sanghee Shin, “Open source does matter”, KAIST Business School IT Strategy Class Presentation, 2010.

�  Dan Farber, Summary of a Ray Lane’s Keynote, “Six barriers to open source adoption”, ZDNet, http://techupdate.zdnet.com/techupdate/stories/main/Six_barriers_to_open_source_adoption.html

�  Goeffrey Moore, Crossing the Chasm, http://en.wikipedia.org/wiki/Crossing_the_Chasm

�  신상희, “오픈 소스 라이선스의 이해”, 2009년 GIS 추계 공동학술대회, 2009.

�  Interview with Barracuda Networks : http://news.cnet.com/8301-13505_3-9789246-16.html?tag=mncol;txt

�  Amit Deshpande et al, “The Total Growth of Open Source”, In Proceedings of the Fourth Conference on Open Source Systems (OSS 2008), 2008.

�  OSI(Open Source Initiative), http://www.opensource.org

�  Paul Ramsey, ”Beyond Nerds Bearing Gifts”, FOSS4G 2009 Keynote address, http://2009.foss4g.org/speakers/#Paul_Ramsey

Open Source SW Business

Business

Transcript of Open Source SW Business