Open Source Business Models
Kaptaan Hickey
Steve Ramil
Frank Hecker
Executive director for Mozilla Foundation, which is
responsible for the Firefox web browser.
Worked for Opsware, Netscape, and AOL
Gained interest in open source software and published an
extensive executive summary titled: “Setting Up Shop: The
Business of Open-Source Software”.
He suggested four innovative business models:
1.
2.
3.
4.
Support Seller
Accessory Seller
Widget Froster
Loss Leader
Support Seller Background
First implemented by Michael Tiemann who
created Cygnus Solution.
Tiemann is currently vice president of open
source affairs at Red Hat Software.
Created products that offered commercial
support for open source software which
included: GNU Debugger & GNU Binutils.
Support Seller: RedHat
Business model is assembled around the support of certified Linux software and other open
source applications.
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
longer utilize RedHat support.
Your paying for certified open source software, newest security patches, debugging, and the
newest tools and applications.
RedHat Network: software upgrades are sent out to a system administrator, when can then
implement the changes.
Also Offer: IT Consulting Services & Training Programs
Creates value by allowing organizations focus
on core competencies.
RedHat Stock Trends
Support Seller: Caldera/SCO
Software
Organization that generates revenue by
distributing modified versions of Unix
software.
Caldera acquisition of SCO was completed in
2001, which formed the worlds largest
distribution channel for UNIX redistributions.
Acquired ownership of UNIX code and was
responsible for releasing it as open source.
SCO Stock Trends
Support Seller Business Models
RedHat & SCO Open-Source Software/ Support Package
Customer Value: Extremely stable and efficient software, and
that doesn’t end with the sale (like most proprietary software).
Revenue Generation: Fee for open-source software, annual
support memberships, training courses, and consulting
services.
Value Chain: Software writers, consultants, administrators, and
customer service specialists.
Accessory Seller:
O’Reilly
O’Reilly originally went into business as a technical writing consulting firm.
Started retaining rights to manuals they created for UNIX vendors in 1984.
Developed first commercial website which pioneered banner advertising (Global Network
Navigator) which was sold to AOL in 1995.
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.
(Much different then traditional practices)
Generate profit by selling books, magazines, and providing online services that follow open
and emerging technologies.
Actively participates in industry: Builds its technical capabilities by organizing conferences
and collaborating with innovative intellectuals.
Charge fees for access to online conferences.
Organized “the summit meeting that gave the open source software movement its name.”
Supporting employees to get involved with industry increases job satisfaction, reduces
turnover, and spurs innovation.
Accessory Seller Business Models
O’ Reilly Online Conferences
Customer Value: Contact with Elite Industry Professionals
Revenue Generation: Charging fees to participate in online
conferences and banner advertisements
Value Chain: Industry Professionals, Event Organization, Support
Hardware & Software
O’Reilly Technical Manuals
Customer Value: High quality manuals that are not bias and often
include more detail then conventional products
Revenue Generation: Fees charged for online distributions and
hardcopies
Inputs: Research & Development, Creation of Literature
Widget Frosters
Business model is for those looking to sell hardware
(“widgets”) that use the OS model for enabling software such
as driver and interface code (“frosting”).
Ranges from an individual chipset to a complete computer.
Enabling software can be, driver code, compilers & linkers, or
complete applications.
Primarily a cost saving instead of revenue enhancing
paradigm, ultimately the revenue comes from sales of the
hardware itself.
Pricing is typically much more cost-driven than value-driven.
Samba and Apple Computer’s “Darwinn” were examples of
this model.
Samba & Apple’s “Darwin”
Samba is an open source suite that provides file and print services
to all manner of SMB/CIFS clients, including the numerous versions
of Microsoft Windows operating systems.
Samba uses TCP/IP protocol that is installed on the host server.
When correctly configured, it allows that host to interact with a
Microsoft Windows client or server as if it is a Windows file.
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.
Some technologies Darwin integrates are the Mach 3.0 microkernel,
high performance TCP/IP networking, and support for multiple
integrated file systems.
Due to having a highly modular design, Darwin allows you to add
device drivers, networking extensions and new file systems.
Loss Leader
A model where there is a no-charge open-source product
used as a loss leader for traditional commercial software.
The open-source product is not aimed to make revenue,
rather attract the attention of the consumer so that they will
hopefully buy other products sold using the traditional
software business model.
Ways the open-source product can increase sales of
traditional products:
–
–
–
Building the overall vendor brand and reputation.
Making the traditional products more functional and useful.
Increasing the overall base of developers and users.
It gets tricky when it comes to licensing, as sometimes the
open-source product shares a source code with the
company’s proprietary products.
Netscape
Netscape started to use the loss leader model with their
communicator product.
Netscape Communicator was a proprietary internet suite that
was available in different editions and included components
such as (Netscape Navigator, Messenger, Address Book,
Composer, Conference, Calendar).
After Netscape Communicator 4.5 came out (3/1998),
Netscape stopped charging for its communicator and made it
open source under the name Mozilla.
Netscape has used this wonderful internet suite Mozilla to
gain credibility and achieve market share in other areas.
Sendmail, Inc
Sendmail invented the first MTA (mail transfer agent) in ’81.
They currently have thousands of developers and contributors as
part of the open source community that help provide enhancements
and features required by today’s corporations.
It is currently the most widely used email technology on the Internet,
and delivers 70% of the email messages sent.
With the great success of their Open Source MTA Sendmail, Inc has
been able to build into a larger organization offering new things such
as:
–
Enterprise-class security and management products.
Mailstream, Sentrioin, ECOSys, Mailcenter.
–
–
Technical support.
Professional services.
Their main goal is to solve the Internet’s most pressing challenge of
creating trusted email communications.
Future of OSS
“Service providers are challenged to cut costs and
increase revenues dramatically to achieve profitability
with reduced workforce and budget. Service providers
who survive and thrive will be leaders in operational
excellence. This means increased automation and
streamlined business processes that transcend complex
network technologies. The bottom line: changing from a
labor-intensive company to a lean and efficient
automated machine and changing from a technologyfocused company to a service-focused company.
Streamlined, automated, integrated OSSs are critical
tools to achieving operational excellence.” (Donna Bastien,
Worldwide OSS Marketing Manager)
QUESTIONS?
Sources
“Setting Up Shop: The Business of Open Source Software”.
www.hecker.org
“RedHat”.
en.wikipedia.org
Redhat.com
“Open source leaders duke it out”
http://news.zdnet.com/2100-9595_22-530155.html?legacy=zdnn
www.oreilly.com
http://samba.anu.edu.au/cifs/docs/what-is-smb.html
http://www.tmforum.org/browse.aspx?catID=1236
http://www.wikipedia.com
http://www.sendmail.org/
http://www.netscape.com
http://www.samba.org