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OSS Business Model

OSS Business Model. Presented By: Tyler Murdoch Hien Nguyen Wolfgang Mader. Introduction. Identify Key Models Explanation of how each model works within a business Examples of businesses that are both successful and unsuccessful using these models Financial standpoint

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OSS Business Model

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  1. OSS Business Model Presented By: Tyler Murdoch Hien Nguyen Wolfgang Mader

  2. Introduction • Identify Key Models • Explanation of how each model works within a business • Examples of businesses that are both successful and unsuccessful using these models • Financial standpoint • The sustainability of the models

  3. Open Source Business Models • There are 8 widely used open source business models • Support Seller • Loss Leader • Widget Frosting • Accessorizing • Service Enabler • Sell it, Free it • Brand Licensing • Software franchising

  4. Business Models • Support Sellers:aka ("Give Away the Recipe, Open A Restaurant“) • In this model, you (effectively) give away the software product, but sell distribution, branding, and after-sale service • Induce demand based on effectiveness of the distribution of your software • Good example is Red Hat

  5. Red Hat • Provide enterprise operating systems, and related software and services based on Linux open source technology for various enterprises. • Enables its Red Hat enterprise technologies to be updated, configured, provisioned, and monitored. • In addition, the company offers various training courses, consulting services for IT deployment, production support, technical account management, and custom engineering and support services.

  6. Red Hat Stock 5 Year Chart of Red Hat’s Stock Years

  7. Red Hat’s Financial Development

  8. Business Model • Loss Leader: • In this model, you give away open-source as a loss-leader and market positioner for closed software • Use OSS to draw customers in while advertising closed software • Example of this is Mozilla by Netscape and IBM’s software suites

  9. Netscape • This model has been used by Netscape through Netscape Communicator and it provided the source code for the browser to the Mozilla community • The open-source product generates little or no revenue, but providing the product makes it likely that customers will buy other products that are sold in the Communicator suite • Unfortunately Netscape’s managers had a ‘Just show up’ attitude while Microsoft's internet explorer was becoming more reliable and equip with better features • In 1999, Netscape announced that they had been bought out by AOL

  10. IBM • In mid-June 1998, IBM chose the open-source Apache webserver to support and bundle with its WebSphere suite • Since that time, IBM's commitment to open source has grown substantially, from contributing a new journalled file system to Linux kernel development, to making  Linux the primary operating system on all their high end mainframe servers

  11. IBM Stock 5 year chart of IBM’s stock

  12. IBM Finances

  13. IBM Outlook • IBM is continuing to incorporate open source internally throughout the company as well as externally through open source software • In 2005, IBM announced that they were going to open source 500 software patents to people and groups working on open source software • This bold move is a strategy to bring in customers, using the loss leader model.

  14. Business Model • Widget Frosting: • A hardware company (for which software is a necessary adjunct but strictly a cost rather than profit center) goes open-source in order to get better drivers and interface tools cheaper. • Software and drivers are maintained through community support • A company that uses this model is Silicon Graphics and the suite of programs called Samba.

  15. Silicon Graphics • Engage in the manufacture and sale of scalable servers, visualization systems, desktop workstations, storage solutions, and associated software products worldwide. • Provide open source software and drivers, such as Samba, for their servers and workstations. • Samba is a suite of programs that work together to allow Windows clients to access a server's file space and printers

  16. Silicon Graphics

  17. Silicon Graphics Outlook • Continued operating losses and cash consumption in those periods • Implementing restructuring plan to reduce costs • Additional financing required • Threat of bankruptcy

  18. Business Model • Accessorizing: • A company sells accessories – books, compatible hardware, complete systems with open-source software pre-installed. • Lower end being coffee mugs and T-shirts and the upper end being professionally-edited and produced documentation • Some companies that have made a name a profit with this model include O’Reilly Associates, SSC, and VA Research

  19. O’Reilly & Associates • This company makes money by creating book, setting up conferences, and producing online open source solutions. • Not all, but many of these product deal with open source in one way or another. • They have even gone and hired well know open source hackers (such as Larry Wall and Brian Behlendorf) as a way of building its reputation in its chosen market

  20. O’Reilly & Associates • Private Company founded in 1978 by Tim O'Reilly • Sales for the year of 2004 were 25.2 million • Employs 225 people to help with the production of their products

  21. Other OSS Business Models • Service Enabler: This model is for companies who create and distribute open-source software primarily to support access to revenue-generating on-line services. The open-source software can be used as the entryway to revenue generating services. • Sell it, Free it: In this model, companies structure the development of their products through time so as to strategically release a proprietary product and gradually change it to open-source when that becomes more profitable. The open-source products will still add value to the remaining proprietary products. This model is basically the Loss-Leader model expanded and continued through time.

  22. Other OSS Business Models • Brand Licensing: A company makes the software product itself open-source, but retains the exclusive right to the trademark and brand name. The company can charge others for the right to use their name when making derivative products using the free product source code. People and companies can use the source code to build onto the product or create new products, but the original company retains the advantage by having the reputation of continuous testing and security. • Software Franchising: A company may realize that others have a competitive advantage in their product market. In this situation, they may wish to "pass the baton" in the form of authorizing the other developers to use its established brand names and trademarks. The company would also supply the company with training in aspects of developing an open-source product and any other relevant information. The revenues would come from sales of franchises and royalties.

  23. Venture Capital • Increase in venture capital and number of start-ups • 18 companies with 144mil in venture capital funded in 2005 • Top recipients: • XenSource • SugarCRM

  24. Benefits • Development Speed: Because the pool of talent available • Lower Cost: significant overhead reduction in per-project software production costs • Community helps boost sales and therefore reduces marketing and sales costs • Closeness to customer: co-opting your customers' engineers to help your development • Maintenance: Companies that provide their source code to the public do not have to spend as much maintaining their software. The general public helps in the maintenance.

  25. Disadvantages and Risks • Unpredictable conditions: Risk that a vibrant community does not form and so there is no guarantee that development will happen. • Intellectual Property: With so many individuals changing and modifying a piece of software, it becomes difficult to determine who originally created it. Therefore the community can be considered guilty of intellectual property infringement. • Revenue: It is very difficult to remain competitive in a market when you are trying to make a profit on something that is open and in many cases free. • Companies need a higher volume of customers • Many new companies will be launched but only some will make it in the long run

  26. Conclusion • Using OS Business models is a risky way to operate. • The problem is that most people just take the free stuff and run • JBoss, a cutting edge OSS company, reports that only 3-5% of their customers buy support contracts • Sustainability is questionable, there is not a yes or no answer

  27. Sources • http://www.forbes.com/home/intelligentinfrastructure/2005/06/15/jboss-ibm-linux_cz_dl_0615jboss.html • http://www.ibiblio.org/pioneers/andreesen.html • http://www.ibm.com/news/us/en/2005/01/patents.html • http://www.jarche.com/node/356 • http://www.oreilly.com/ • http://www.hoovers.com/o'reilly-&-associates/--ID__55734--/free-co-factsheet.xhtml • http://finance.yahoo.com/ • http://news.com.com/2100-7344_3-5934144.html?tag=st.prev

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