Business Models for
Software Component Market
Jarley Nóbrega
jpn@cin.ufpe.br
Agenda







Introduction
Component Market
Licenses and Commercial Law
Related Works
Business Cases
Conclusions
References
2
Introduction

Context



“Components develop their full potential only in a
component market” [Szyperski, 1998]
Most leading industry analysts predict an increasingly
prominent role for software component technology.
Several predictions:


“The onset of server-side components is inevitable; nearly
every self-respecting application server vendor is planning to
incorporate a component model in its product.” [Gartner,
1998]
Gartner is not alone:


Giga, Ovum and PriceWaterhouseCoopers.
One point of agreement: CBSE has already started.
3
Introduction

Software Component Market estimates (2001)
[SEI, 2001]
4
Introduction

More evidences that component markets exists:





Growing costumer volume of components brokerage
companies (e.g. ComponentSource and Flashline.com)
US -> President's Information Technology Advisory
Committee (PITAC): funding recommendation in
fundamental research in component technology [PITAC,
1999]
Japan-> Consortium for Business Object Promotion (CBOP)
[Nagano, 1996]
Korea -> Component Industry Promotion (CIP) and Korea
Consortium for Software Component Promotion (KCSC)
[Kim, 2002]
China -> Chinese Software Component Consortium (CSCC)
5
Introduction

Korean experience [Kim, 2002]:


Two technology sets
o
Currently available (DA, OO, UML,
Java, first generation CBD
methods)
o
Technology to be developed by CIP
(CBD process, variability,
component reference models,
identification, metrics, testing, etc.)
Common reference model
o
GREEN [OTL, 2001]

1999-2002: 40 CBD projects

KCSC: 150 companies
6
Introduction

Component Economy


Component Market: from small-grained graphical user
interface (GUI) controls to large-grained server-side
components.
Product Lines: vertical markets (insurance, financial
services, communication, etc.)
7
Introduction

Component Economy

Component Market Niches [SEI, 2001]:



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Components themselves
Standards
Component Platforms and Application Servers
Component Tools Market
Consulting/Integrator Market
Brokerage Market
Third-Party Component Certification Market
8
Introduction

Overview of Component Market

Apart from rough estimations of the future size of the
market, little research has been done to investigate the
current component market and its growth.





“Internet component market is still in its infancy.”
[Hillegersberg, 2000]
“Since current markets of software components are still in
their infancy, producers of such components lack a framework
for predicting consumer behavior” [Hong, 2002]
“The overall CBD technology was still largely immature to
apply in industry.” [Kim, 2002]
“…the market is relatively immature and highly supplyconstrained.” [Ravichandran, 2003]
“...it concluded that the prophesied principal market
(r)evolution did not happen yet.” [Overhage, 2004b]
9
Introduction

Component Market Inhibitors

Survey of Components adopters [SEI, 2001]:
10
Introduction

Component Market Inhibitors

Market perception of key
inhibitors:




Lack of available components
Lack of stable standards for
component technology
Lack of certified components
Lack of an enginnering method
to consistently produce quality
systems from components
11
Introduction

Component Market Inhibitors

SEI research approach:

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

Literature survey (80 articles)
Third-party research (Gartner, Ovum
and PriceWaterhouseCoopers)
Internet search (+100 component
technology providers)
Market surveys (130 responses)
Face-to-face interviews (key executives
and researchers)
12
Component Market

Market Structure [Hillegersberg, 2001]
software component producer
Component
Catalogue
Specialized
Intermediary
System Integrator, IT Dept.
component end-user
13
Licenses and Commercial Law

Intellectual Property law and Commercial law


“Software components must function with other computer
programs with less tolerance for error than most physical
components” [Chow, 2001]
Applicability of Intellectual Property Law to software:



Trade secrets
Copyright laws
Patent laws
14
Licenses and Commercial Law

Software component producer and consumer should
be careful to:




Obtain nondisclosure and technology transfer agreements
Register copyrights in every release of code
Keep inventor notebooks witnessed periodically
Consider filing patent applications for important advances in
the product.
15
Licenses and Commercial Law

Software Components as
Goods versus Services



US: Uniform Computer
Information Transaction Act
(UCITA)
Business Software Alliance
(headed by Microsoft): new
article to “licensing”
(www.law.upenn.edu/bll/ulc/u
cc2/ucc2b296.htm)
Provide answers to the
software contract questions
16
Licenses and Commercial Law

Contract issues in CBSE transactions [Chow, 2001]




Establish multiple remote contractual relationships to
control use of the component
Rely only on the component consumer to protect the
component contractually from copying
Protect the component through intellectual property.
Liability in CBSE transactions
17
Related Works
18
[Aoyama, 1998]

Proposes an architecture of a Software Commerce
Broker

Trade of software packages and components over the
Internet


SCB prototype: collects information on components and
provides catalogues of them.
Describe a semi-formal specification language


Software specification and Commerce Language (SCL)
Related work: [Ning, 1996] proposed a producer-brokerintegrator model
19
[Aoyama, 1998]

Software Commerce Broker
20
[Aoyama, 1998]
Software Commerce Broker prototype


Component player
o

“Plays” components and watch
its dynamic behaviour
SCB prototype collected 16000
components over the Internet
21
[Aoyama, 1998]

Software specification and Commerce Language
(SCL)
22
[Lerch, 1998]

Investigates the consumer preferences in a
software component market.


Measuring popularity of software components
Experimental market laboratory: SoftTrade


Few mature markets exists
Collecting large amount of data from real market is
expensive
23
[Lerch, 1998]

SoftTrade experiment
24
[Lerch, 1998]

SoftTrade's Component Distribution Channel

Two mechanisms for selling components:


Grocery auction and English auction
All components acquisition using the Web.
25
[Lerch, 1998]

SoftTrade summary






26 components created in three rounds of trading.
Metric creation to measure the popularity of software
components
The popularity has a complex relationship over time and
user preferences.
Perceived generality was found to be a key predictor of
user preferences.
The study failed to establish a correlation between object
complexity and user preferences (in [Frakes, 1995] the
same result is observed)
Component price, support and a broker model weren’t
covered by this research.
26
[Wiederhold, 1998]

Software Component Licensing


Developers should inform themselves of the legal
peculiarities that characterize software component
licensing.
Software components challenges well-established
software licensing paradigms

Assumptions regarding:


Size, quality and flexibility
Effects on license grant, payment, ownership, liability,
warranty, maintenance and confiability.
27
[Wiederhold, 1998]

Software Component Licensor owns
Copyright, trade secret and patents rights

As the same way the entire software package
A license between the licensor and the licensee should
specify:




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

License grant
Payments to the licensor
Who owns the component and the modifications on it
Risks and liability each part assumes
Support, maintenance and warranties
Confidenciality
28
[Wallnau, 1999]

Describes a SCM reference model






CSC - COTS Software
Component
IC - Infrastructure
Component
IE - Infrastructure
Engineering
BC - Business
Component
BCPL - Business
Components Product
Line
VECF - VerticallyIntegrated Component
Framework

LC - Legacy Component.

RE - Repair Engineering


BCE - Business
Component Engineering
EA - Enterprise
Architectecting
29
[Sparling, 2000]

Is there’s a market for components?

There’s a relative well established market for client-side
components


Graphical and behavioural components (push buttons, grids,
dynamic resizing controls, etc).
On the server-side the adoption of enterprise-class
components is rare.
30
[Sparling, 2000]

Reference Model for the Component Market
31
[Rosenblum, 2000]

Software Patents to Support the Business Model of
SCM



Patents are one of the three branches legislation to protect
intellectual properties
Patents protects inventions, but not particular expressions
[Elias, 1999]
Why patent components?

Two major issues:


Technical: Software component interaction struggles from
multiple standards
Economic: It is difficult to identify and quantify the exact
economic benefit derived from the development of reusable
software components
32
[Rosenblum, 2000]

Conclusions



The legal patenting process will affect several phases of
the software development life-cycle
Design tools should be able to support the patenting by
processing patent relevant information.
Software developers will face the problem of working
around existing patents when designing a new system
33
[Hillegerberg, 2000]

Presents an overview of the component market.


Survey was held with 38 components suppliers.
Relevant suppliers categories:





Producer
Catalogue
Intermediary
Components described on their total number, standard,
type and documentation.
Use of the taxonomy described in [Pfister, 1997] for type
and documentation.
34
[Hillegerberg, 2000]


Taxonomy [Pfister, 1997]
Type of components:






Controls
Containers
Command Package
Library
Framework
Business Components

Documentation of
components:





Simple description
Technical details
Demos
Tests reports
Component Source
Code
35
[Hillegerberg et al., 2000]
36
[Hillegerberg, 2000]

Presents the conditions for growth of component
market
37
[Hillegerberg, 2000]

Conclusions


Experts worldwide agree that the shape in which components
are offered on the internet is an important condition for
market growth.
Extensive documentation following standard methods, demos,
and a clear focus on black-box reuse are all regarded very
important.
38
[Hillegersberg, 2001]


A Longitudinal Study of the SCM
Develops a model of the SCM


Describes a classification of components
Validates the model with a longitudinal dataset of
components (almost 5K collected)
39
[Hillegersberg, 2001]

Research summary
40
[Hillegersberg et al., 2001]

Research summary
41
[Hillegersberg, 2001]

Research summary
42
[Hillegersberg, 2001]

Research summary
43
[Hillegersberg, 2001]

Conclusions




SCM is still in its early stages.
The market is still dominated by small “graphical” controls
Different technical standards rather than functional and
domain knowledge are important segmentation factors.
Questions


Should intermediaries specialize or aim to be present in all
areas?
Is there a continuing role for catalogues?
44
[Ravichandran, 2003]

Positions CBD within reuse strategies.
• Contextual distance
is the extent to which
the target
implementation
environment for a
software artifact
differs from the
existing artifact.
• Domain distance
can be measured
by the effort
required to modify
the functionality of
an existing
component
Software Reuse Strategies
45
[Ravichandran, 2003]

Component-level reuse decision tree
46
[Ravichandran, 2003]

Conclusions



The decision model reflects that markets can reduce the
need for customization by allowing a better match of
developer needs with available components.
Component markets currently perform only the role of
distributing components, and fail to be effective market
mediators.
When purchasing components, organizations must be able
to assess the quality of the software artifacts in order to
develop the confidence to use them.
47
[Overhage, 2004a]

UnSCom (Unified Specification of Components).
48
[Overhage, 2004a]

UnSCom (Unified Specification of Components).
49
[Overhage, 2004a]

UnSCom (Unified Specification of Components).
50
[Overhage, 2004a]

UnSCom (Unified Specification of Components).
51
[Overhage, 2004a]

UnSCom (Unified Specification of Components).
52
[Overhage, 2004b]

Analyses the maturity of SCM


Devises critical success factors


Since last decade only very few component marketplaces
managed to work profitable.
Business Plan of SCM
Describes an architecture of today’s SCM


Component Nexus (CompoNex)
Available at http://www.componex.biz
53
[Overhage, 2004b]

Maturity of SCM’s

Perfect market [Jevons, 1970]:






Price takers
No barriers to enter or leave
No temporal or regional constraints
Goods have substitutes
Perfect information
No transaction costs
54
[Overhage, 2004b]

(Im)Maturity of SCM’s
55
[Overhage, 2004b]

Critical Success Factors in Component Trading
56
[Overhage, 2004b]

Dealing with sparsely populated market segments
1.
2.
3.
4.
5.
6.
Covering many
component market
segments
Provide a wellstructured
component catalogue
Invert the supplierinquirer relationship
Providing notification
services
Offering user
interfaces specific for
particular target
audiences
Providing community
tools
7.
8.
9.
10.
11.
12.
Integrating
marketplace services
Ease the settlement
of commercial
transactions
Providing a
certification service
Offer escrow services
enable buyers to
provide a feedback
appropriate and
automatically
verifiable component
specifications
57
[Overhage, 2004b]

CompoNex: A Model Marketplace
58
[Overhage, 2004b]

CompoNex: A Model Marketplace
59
[Overhage, 2004b]

CompoNex Specification Framework
60
Business Cases
61
Business Cases

ComponentSource
62
Business Cases

ComponentSource
63
Business Cases

Flashline.com
64
Business Cases

Flashline.com
65
Business Cases

Active-X.com
66
Business Cases

Active-X.com
67
Conclusions

Current Status



Available Business Models



Intermediaries and Catalogues
Services
Licensing issues


SCM lies on immaturity , with a few well-established
players
Small-grained components
Relationships between licensor and licensee
Trends


Services on components brokerage
Assets Management as a service
68
References
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[AOYAMA, 1998] AOYAMA, M., YAMASHITA, T. Software Commerce
Broker over the Internet . Proc. IEEE COMPSAC, August 1998
[BARNES, 1991] BARNES, B. H., BOLLINGER, T. B. Making Reuse
Cost-Effective. IEEE Software 1, 13–24, 1991
[CHOW, 2001] CHOW, S. Commercial Law Applicable to
Component-Based Software. In Component-Based Software
Engineering: Putting the Pieces Together, Addison-Wesley, 2001
[ELIAS, 1999] ELIAS, S. Patent, Copyright & Trademark. 3rd
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[FRAKES, 1995] FRAKES, W B., FOX, C.J. Sixteen Questions About
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[GARTNER, 1998] Percy, A. The New Impedance Mismatch.
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Component Market on the Internet Current Status and
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25, No 1, January 2000
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References






[HILLEGERSBERG, 2001] HILLEGERSBERG, J. V. A Longitudinal
Study of the E-Market for Sofware Components. 14th Bled
Eletronic Commerce Conference, June 2001
[HONG, 2002] HONG, S., LERCH, F. J. A Laboratory Study of
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[JEVONS, 1970] JEVONS, W. S. The Theory of Political Economy.
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References
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




[NING, 1996] NING, J. Q. A Component-Based Software
Development Model. Proc. IEEE COMPSAC ‘96,August 1996
[OTL, 2001] Object Technology Laboratory. GREEN Methodology
Specification. Technical Report, 2001.
[OVERHAGE, 2004a] OVERHAGE, O. UnSCom: A Standardized
Framework for the Specification of Software Components.
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[OVERHAGE, 2004b] OVERHAGE, O., THOMAS, P. A Business
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Critical Success Factors. IEEE Computer Society Press, September
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[PFISTER, 1997] PFISTER, C. Component software: a case study
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[PITAC, 1999] President's Information Technology Advisory
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References
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



[RAVICHANDRAN, 2003] RAVICHANDRAN, T., ROTHENBERG, M. A.
Software Reuse Strategies and Component Markets.
Communications of the ACM, Vol 46, Issue 8. August, 2003
[ROSENBLUM, 2000] ROSENBLUM, D. S., KAY, D. G.,
GUNTERSDORFER, M S. Using Software Patents to Support the
Business Model of Software Components. Proceedings of the
ICSE, June 2000
[SEI, 2001] SOFTWARE ENGINEERING INSTITUTE. Volume I:
Market Assessment of Component-Based Software
Engineering. Technical Note, CMU/SEI-2001-TN-007, May 2001.
[SPARLING, 2000] SPARLING, M. Is There’s a Market for Components?
Castek Software Factory report, 2000
[SPROTT, 2000] SPROTT, D. Enterprise resource planning:
componentizing the enterprise application packages.
Communications of the ACM, vol 43, no 4, April 2000
[SZYPERSKI, 1998] SZYPERSKI, C. Component software: beyond
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
[WALLNAU, 1999] WALLNAU, K. C. On Software Components and
Commercial (“COTS”) Software. International Workshop on
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[WIEDERHOLD, 1998] WIEDERHOLD, G., CHAVEZ, A., TORNABENE, C.
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73
“High-tech entrepreneurship and
innovation are intrinsically more difficult
and more risky than innovations based on
economics and market structure…It does
need, however, to be systematic.”
Peter F. Drucker (1909 – 2005) in “Innovation and Entrepreneurship”
74
?
75