Thoughts about Open Source

Mikko Puhakka, SoberIT/TKK

Short Bio

-Management Consultant 1993-

now via Cone Advisor

-Venture Capitalist (investment into MySQL

in 2001) 1999-

-Researcher 2004-

-COSS 2005-

-Open Tuesday 2006-

-Board member (xx companies: Europe, USA, China)

What

is Open

Source?

1.

Open Source2.

Open Content

3.

Open Standards4.

Open Innovation

5.

Open Access6.

Open Collaboration

7.

Open Technologies8.

Open Hardware

9.

Open Services10.Open XXX

4

Open Source: A Simple Definition

Source:

Fortune

Any software whose code is available for users to look at, modify, reuse and redistribute freely

‘’I would like to change the world, but they won’t give me the source code’’

Chinese software entrepreneur

‘’There is one thing that is stronger than all the armies in the world, and that is an idea whose time has come’’

Victor Hugo

Why

OS matters: Joe Kraus, Excite

& JotspotExcite.com

took $3,000,000 to get from idea to launch. JotSpot

took $100,000.Why on earth is there a 30X difference?

Hardware is 100X cheaper�In

the 10 years between Excite and JotSpot, hardware has literally become 100X cheaper. It’s

two factors ‘Moore’s

law and the rise of Linux as an operating system designed to run on generic hardware. Back in the Excite days, we had to buy proprietary Sun hardware and Sun hard drive arrays. Believe me, none of it was cheap.Today, we buy generic Intel boxes provided by one of a million different suppliers.

Infrastructure software is free�Back

in 1993 we had to buy and continue to pay for maintenance on everything we needed just to build our service --

operating systems, compilers, web servers, application servers, databases. You name

it. If it was infrastructure, we paid for it. And, not only was it costly, the need to negotiate licenses took time and energy. I remember having a deadline at Excite that required me to buy a Sun compiler through their Japanese office because it was the only office open at the time (probably midnight) and we needed that compiler NOW.Compare

that to today. Free, open source infrastructure is the norm. Get it anytime and

anywhere. At JotSpot, and startups everywhere you see Linux, Tomcat, Apache, MySQL, etc. No license cost, no maintenance.

Why

OS matters: Belynda

& Wikipedia

Couple months ago I was exchanging e-mails with an long-time friend, explaining to her why she should take a careful at what is happening in the publishing and content industries. After I sent

her

a link to Wikipedia

(www.wikipedia.org), I got this very worried response:

“The reason I am asking these questions is that I just realized this threatens millions of dollars of our business in my existing company. We sell an online encyclopedia -

in

my territory alone this is over $400,000. One of our stated benefits is that our source is authoritative -

Wikipedia

seems to be gaining so much ground and legitimacy that customers may say why should I spend over $170,000 on a product that I can get basically free?”

Financing

Reflections

1/2

So far the OS experience has not been a happy one for venture capitalists. According to research firm VentureOne

some $714 million was invested in 71 Open Source companies in 1999-2000, and most of those projects collapsed or were run down.

One of the biggest successes of those experiences is Red Hat which went public in 1999 and makes money by selling enhancements and maintenance services to corporations using Linux open-source operating system. Still that is relatively mild success as it still has some $200 million in revenues with capitalization of 2 billion. So this is certainly no Google or EBay that aggressive venture capitalists often use as a reference as companies they want to fund as the ‘Next Big Thing’.

Source: Ripos

Project

Financing

Reflections

2/2

After few years of trying to figure out whether money can made by Open Source companies, the answer from venture capitalists seem to be again a reluctant yes. 20 Open Source businesses raised $149 million in venture money in 2004 in United States alone (VentureOne).

There are no numbers available for the rest of the world, but at least in Europe several investments took place. Looking at that total it would seem that most of the investments are still on seed or first round level (comparing to average level on various rounds of realized investments) as if distributed evenly among companies the amount

would be $7.45 million. In other words, the first bets to the potential future successes have just been made and how successful those will be can only be known in the coming years.

Source: Ripos

Project

Web-Based-> Web 2.0

E-Commerce-> Open

Source

13Source:

Gartner ; Novell ; Press clippings ; SaS

analysis

LINUX HYPE CYCLE HAS BEEN GUIDED,

AMONG OTHERS, BY PERCEPTION OF PROs

AND CONs

Visi

bilit

y

Time

Slope of enlightenment

PROs CONs

Technology trigger

?

Peak of inflated expectations

PROsCONs

Plateau of productivity

PROsCONs

Trough of disillusionment

CONsPROsPROs

& CONs

in the press

2001-2002 2003-now2000-20011997-20001991-1996

Governing Model Technology Adoption Life Cycle

by Geoffrey Moore

Pragmatists create the dynamics of high-tech market development

Innovators EarlyAdopters

Early Majority Late Majority Laggards

Techies:Try it!

Pragmatists:Stick with the herd!

Conservatives:Hold on!

Skeptics:No way!

Visionaries:Get ahead of the herd!

Business Evolution

1.

Free Software 1985-2.

Open Source 1998-

3.

Commercial (Professional) Open Source 2005-

FOSS is Mainstream!

QuickTime™ jaTIFF (pakkaamaton) pakkauksen purkuohjelma

tarvitaan elokuvan katselemiseen.

The FOSS Future is Looking Very Nordic

LINUX

APACHE

MySQL

PHP

(LAMP)

+ Internet Relay Chat

Ecosystems’

Challenge

Nomovok

Gofresh

Jaiku

Dopplr

Yebotv

The role of VCs and public sector?

Maybe we should revise the terminology?

Maybe

we

should

start

talking

about

software (FOSS) driven

businesses

instead

of Open

Source

businesses.

After

all

Open

Source

is way

of producing

and distributing

software, not

a businessmodel.

...and the biggest

successes

in 2000’s have been

software (FOSS) driven

businesses

such

as Google, Amazon, Ebay, Sulake Labs.

Business Success

-

Historical

vs

Now

Initially very little compared to investments, remember 99-00!

Now some success among the true OS Start-ups, very little compared to competition (MySQL, JBOSS etc)

Real benefactors so far have been utilizers

of Open Source such as Google,using Joe Kraus’

formula would it have required 30x the used venture capital (26 million USD) to build Google, and would they have been able to raise that 780 million USD??? Maybe we would not have Google without Open Source??!!

Cases•

FIREFOX

• STARWRECK

OSS + Business By Accident business model

-> Now approaching Gary Player model ‘’The More I practice, the luckier I seem to get’’

The entire IT stack can now be commoditized. With little effort a commodity stack can be deployed for 95 percent of all IT buyers. If you think this is an absurd view, ponder for a moment what has already happened to most of the stack: Servers: Giants like e*Trade, Amazon, Yahoo, Google, and others are using x86 and x64 servers on everything except database hubs, and even those are targets for eventual replacement with massive multi-core x64 boxes. Little guys are using x86 servers universally. Operating systems: For new deployments, it is either Windows or Linux, and Linux - along with Microsoft's tardiness on Vista - has caused Microsoft server sales to stagnate. Linux was born a commodity, and remains such. Application servers: When Apache instantly dominated the Web server market, and started chipping away at the Java server market, once-mighty competitors started reeling.

IT Stack (Guy Smith)

Application development: With IT shops highly favoring Web-based application development for new projects, we see PHP, Perl and other Open Source systems replacing proprietary tool sets (what was the last 4th GL you sold?) Databases: Oracle and IBM have retreated to the high ground, and gone as far as offering free versions of their DBMSs to low-end users, in an attempt to forestall adoption of commodity database systems like MySQL, PosgreSQL, and others. Applications: The last refuge of high margin software is coming under attack in segments like CRM (SugarCRM, Compiere, OpenSourceCRM), ERP (Compiere, ERP5, OpenMFG), messaging and collaboration (SendMail, PostFix, Open-Xchange, Astrisk), verticals (MedSphere, OpenEMed, OpenClovis) and horizontals (Open Office, Plone, Zope).

IT Stack (Guy Smith)

Web-Based-> Open

Source

Web-Based-> Open

Source

Web-Based-> Open

Source

Web-Based-> Open

Source

Businessmodels

1/6

1) Open Source + ServiceWhat it means: Companies sell support and services around open-source software.

Who’s doing it: Compiere

(ERP), JBoss

(middleware), Red Hat (Linux)

Advantages for CIOs: You pay only for support, not software. The cost to switch providers is relatively low because the source code is available

to anyone.

Startup challenges: Difficult to build businesses because switching costs are low, as are barriers to entry. CIOs

will always favor large, established vendors over startups unless the startups also control code development. Hard to get venture funding because venture capitalists are looking for sustainable competitive advantage in their investments. Unless the software is complex or mission-critical, CIOs

may choose to support it themselves.

Businessmodels

2/6

2) MixedWhat it means: An open-source code base with proprietary add-ons.

Who’s doing it: Sourcefire

(security), SugarCRM

Advantages for CIOs: CIOs

may not need the proprietary stuff, but if they do they’ll already have acquired deep experience with the open-source product before buying the add-ons.

Startup challenges: There’s ample motivation to make the open-source product inferior to the proprietary package, transforming the open source into trial software. If that happens, there may be a backlash among open-source developers and users wanting to see all the code.

Businessmodels

3/6

3) Open Source + Buy OffWhat it means: Companies offer a proprietary license for their open-source software so that users can modify the software and redistribute it without having to make the code changes available to the public.

Who’s doing it: MySQL

(database), Sleepycat

(database)

Advantages for CIOs: The open-source software has all the features of the proprietary version.

Startup challenges: Sales of the proprietary version are limited

mostly to those companies that want to redistribute it as part of their own hardware or software packages.

Businessmodels

4/6

4) Open Source + AggregationWhat it means: Companies assemble various open-source software packages into integrated units that are easier for CIOs

to consume.

Who’s doing it: Exadel, Navica, SourceLabs, SpikeSource

Advantages for CIOs: Simplifies open-source integration and support.

Startup challenges: Barriers to entry are low, brand differentiation is difficult, lack of ownership of open-source projects limits the influence of the company in the development of the code.

Businessmodels

5/6

5) Open Source + HardwareWhat it means: Hardware makers use open source as the foundation

for the software that runs their machines.

Who’s doing it: Cisco, Digium, Netezza, Nokia

Advantages for CIOs: Lower prices on hardware.

Startup challenges: It’s difficult to differentiate on hardware alone, especially when CIOs

are looking to standardize their infrastructure

Businessmodels

6/6

These companies illustrate some of the OSS strategies being used to create product value.

2.3.2008 Managing Open Source Software as an Integrated Part of Business

34

Thank you for your attention!

Questions or comments?mikko.puhakka@gmail.com