1. OW2 Webinar May 14, 2009 Open Source Based Business Models Francois Letellier - fl@flet.fr (Freelance consultant OW2 board/ELC member)

2. Agenda Market dynamics in software Free/Libre/Open-Source Software based business models The FLOSS marketing mix Q&A

3. Terminology FLOSS: Free / Libre / Open Source Software Free as in free speech, not free beer Open Source: term coined to avoid the ambiguities of free (in English) Libre: latin origin, EU prefered term for free Free Libre Open Source Software

4. Software is Immaterial main() { double g, x; printf("%lf", x); g = lg(x); printf("lnG(%g)=%14.12gn", x, g); } Software is a form of Digital Good Not tangible Reproductible perfectly, indefinitely Non rival use by one does not preclude use by another no natural scarcity but (legally) excludable

5. Software Protection: Legal Framework Copyright / Author's rights: the Berne Convention Protection of Literary and Artistic Works Principle of national treatment Protection over a work is automatic, not subject to registration The work must be original and creative To use copyrighted work (e.g. Software): Must enter a contract ( license ) with the author or copyright owner No right granted unless explicitely specified No obligation of the licensee to accept This is the basis of legal excludability

6. Market Dynamics of Proprietary Software Huge economies of scale $ Equilibrium at price 0 Demand Unlimited supply, price = 0 Nash eq. winner takes all 1/x Mouthwatering perspectives Quantity oversupply 1 Mkt size Oversupply (100,000s Free* projects) Uncertain Poor Profitability Competition Open Source Brings New Business Models 6

7. FLOSS: a Collective Strategy for Software Development Because sooner or later, publishers of proprietary software have to compete against vendors of (almost) free substitutes Because software production costs can be reduced through collaborative engineering Because opening the source code is the best way to maximize the potential of collaboration And because collaborating when competing is pointless is the best way to keep innovating 7

8. Vendors to Leverage the Industry Demand for FLOSS

9. What is a Business Model Planning level: the Strategy Architectural level: the Business Model Operations: the Business Processes

10. Categories of FLOSS Players FLOSS Pure Players Software companies FLOSS is central in their business model Opportunistic FLOSS strategies Software or service companies May use FLOSS when appropriate FLOSS-based open innovation Any industry: software, hardware or other Software intensive Leveraging FLOSS in their innovation strategy

11. FLOSS Pure-Player Business Models Service Added value distribution ( distro ) Dual licensing Mutualized R&D

12. Service: Engineering Emilia Romagna, Italy: pop. 4 M Monitoring of regional labour market Data collected from local information systems 9 decentralized DWh 1 for each district, 1- 3GB 1 regional DWh 10GB Open Source: SpagoBI, eXo Portal Proprietary: Oracle 9i SE, PL/SQL ETL 10-20 users / district 12

13. Major Linux Distros Community Maintained Slackware Linux 1992 (Patrick Volkerding) oldest distro still maintained highly stable, clean and bug-free, strong adherence to UNIX principles limited number of supported applications; complex upgrade procedure

14. Major Linux Distros Commercially Maintained Red Hat 1994 (Bob Young & Marc Ewing) enterprise edition: Red Hat Enterprise Linux; maintained by FLOSS forerunner and pure player targeted to corporate IT departments (servers) more concerned about support than cost community edition: Fedora

15. Dual Licensing: eXo Platform US Joint Forces Command Chooses ObjectWeb eXo Platform Maximize Benefits of Open Source & Open Standards Stimulate industry Enable Coalition partners the ability to roll their own interoperable solution Reduce the cost of collaboration in DoD Why eXo Platform? One of the first certified JSR-168 portals Multinational Very flexible layout engine with good group layout/page controls Information Sharing Leapfrogs the commercial portals in its Solution to support war technology Supports server load balancing fighters operating in a coalition environment 15

16. Mutualized Development: Eclipse Nonprofit, EU, incepted in 2003 on IBM's initiative Focus on the Eclipse development platform (Java) Corporate membership, high level of membership fee, different value proposition for developers and for consumers Formalized governance all the way down to project management

17. Opportunistic FLOSS Strategies Agnostic service companies and VARs Externally funded ventures (Hype) FLOSS-based open innovation will be dealt with separately

18. Agnostic Service Company IBM Global Services $ 91B revenue #1 in number of US patents granted/y

19. Loss Leader Strategy $ 1B/y FOSS investment (2002) invests in FLOSS to disseminate technology not seeking direct return to undercut competition and grow the market for a complement

20. FLOSS Based Business Models Key messages: Business models form a continuum from proprietary to free software There are about as many business models as companies You may create your own: innovation also happens in business models

21. Windows of Opportunities Emerging Commoditized Opportunities Adoption

22. FLOSS Based Business Models Key messages: There is no single business model for FLOSS There are many possible business models based on FLOSS or leveraging FLOSS The key is not to chose between proprietary and FLOSS, but to always evaluate FLOSS as an option in a corporate environment

23. Marketing Mix Product Price Promotion Place 23

24. Supplier / Customer & FLOSS The Customer P.o.V Product Supplier Customer price, place Solution, promotion? Selling value, access, information? Customer The F/L/OSS Solution, value, Ecosystem access, information? Sourcing

25. What are the FLOSS 4 P's (NOT)? Product: FLOSS project Price: zero Promotion: none, only word-of-mouth Placement: online, full-stop These mis-conceptions lead to the classical question: but how can you make money with software you give away for free ?

26. FLOSS Product / Solution The product is A superset Eg: Embedded; SaaS... A complement Eg: Professional services; Distros with subscriptions... A substitute Eg: Dual-licensing; Bait-and-hook... of the FLOSS project

27. Project vs product

28. FLOSS Pricing / Value Monetary In few models, comes from FLOSS Usually, comes from complements/superset (hardware, doc, services) or non-FLOSS substitutes Non-monetary Adoption leads to sustainability Contributions, peer-to-peer support Direct user feedback enhances the product marketing process

29. FLOSS Promotion / Information Urban legend: the natural selection of FLOSS projects (the widely adopted are the technically superior ones) Reality: promotion is a huge effort A healty FLOSS project may be the promotion channel for product(s)

30. FLOSS Placement / Access Since the product is not the FLOSS project ... the access point is not just the Internet Scalability issues apply to some models... Eg: FLOSS enabled consumer electronics Less to others, eg: Online support subscription Ecosystem leverage: go to market jointly with partners

31. FLOSS - Competitors Reminder: the product is not the FLOSS project... Product competitors depend on the product Competitors to the FLOSS project Proprietary or FLOSS substitute May jeopardize project image, sustainability FLOSS free riders may not be competitors even though they benefit and do not pay Because the product is not the project

32. Recap / Take-aways Collaboration on software development makes economical sense hence FLOSS Industry demands gave opportunities for new business models There's a wide variety of FLOSS-based business models... ...in most of them, the product is NOT the FLOSS project, but a superset, complement or substitute To be cont'd (open innovation in software June 11, 2009) and we'll see where OW2 fits!

33. More : Open Source Software: the Role of Nonprofits in Federating Business and Innovation Ecosystems, F. Letellier, AFME Conference 2008 http://flet.netcipia.net/xwiki/bin/download/Main/publications%2Dfr/GEM2008%2DF Letellier%2DSubmittedPaper.pdf Thank you for your attention Questions ? And Answers Le middleware from est partout ? Francois Letellier - fl@flet.fr Sunny Grenoble 33