Web: Email: [email protected] From Open Source to long-term sustainability: Review of Business Models...

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From Open Source to long-term sustainability: Review of Business Models

and Case Studies

Victor Chang, Hugo Mills, Steven Newhouse, OMII-UK

10th September 2007, AHM 2007


Content for this Presentation

• Motivation• Introduction• Software Business Models &

Classifications• Case Studies: Red Hat, MySQL, Apache,

XandrOS, OMII-UK & Business Model Comparisons

• Special Case Studies • Further Discussions• Conclusion• Questions and Answers


Motivation

• Study successful methods of generating money/ revenues from open source projects.

• Review and Classify Open Source Business Models.

• Achieve sustainability.


Introduction: OSS & Proprietary Software• Open Source Software

(OSS): - Source code is freely

available under a licence or agreement.

- allows users to study, change, and improve software, and to redistribute it in modified or unmodified form.

• Typical OSS projects criteria: (1) User Support and (2) Development Activities.

• Proprietary Software: - Close Source. - Requirement

payment for licences, software or service.

• Popular models for commercial firms such as Microsoft, Adobe & MATLAB.


Introduction: OSS Licences

• 50 OSS Licences and list 5 popular ones:

• The GNU General Public Licence (GPL)• The GNU Lesser General Public Licence

(LGPL) • Modified BSD (Berkeley Software

Distribution) Licence / new BSD• Apache Licence• Mozilla Public Licence (MPL)


Introduction: Sustainability

• A lot of academic projects die off.• Essential for OSS projects.• Definition for the paper: - Long Term Maintenance of

organisation, particularly securing funding, resources, operations and clients.

• How? We need to study and understand business models.


Literature Review: Open Source Models by JISC

• (a) Community Model: Apache.• (b) Subscription Model: SAKAI & Red Hat.• (c) Commercial Model: proprietary

software.• (d) Central Support Model: OMII-UK. - “A Central Body that provides robust

releases and support for open source products that are of strategic importance to community”.


Literature Review: Commercial Models by Forta & IDC

• Require a subscription fee of the product. Referred as Product in the IDC Model.

• Sell paid-for services. Referred as Services in the IDC Model.

• Selling intellectual properties or licences (Split-Licencing). Referred as Resale in the IDC Model.


Literature Review: Commercial Models by Forta & IDC


Our Model Classifications

• Subscription & central model, can be regarded as one – Support Contracts (Red Hat) based on different business requirements.

• Split-Licencing (MySQL): Sale Licence.• Each OSS organisation needs a Community (Apache).• Valued-added Closed Source (XandrOS): proprietary.• Macro R&D Infrastructure (OMII-UK): R&D based;

involved in high-level complexity challenges; collaborations & partnership between local/international institutes; come from government fund initially.


Support Contracts: Red Hat

• 24/7 service, 3 levels of support subscriptions.

• Obtain revenues from - RHEL subscription per system or per server; - Subscriptions from commercial open source

applications (JBoss et al) - System/Architecture management services; - Support services; - Red Hat Certification & Training.


Business Model Comparisons: Support Contracts

• Advantages - Ensuring long-term

sales and profits.

- Provides a more predictable & dependable revenue.

- Provides diff level of support. Provides users more options.

• Disadvantages - Customers may feel no

need to pay due to large amount of free info.

- Needs to ensure a large number of users already available.

- Easy for others to clone full architecture & services, having more competitions to deal with.


Split-Licencing: MySQL

• Offer both free & also commercial editions.

• Primarily obtain income from selling commercial licence, allowing them to use product without being restricted by GPL.

• Customers can include MySQL in their product for resale.

• Suitable for firms not wishing to release source code, or those not wishing to comply with GPL.


Business Model Comparisons: Split Licencing

• Disadvantages - Could be confused

with boundary between commercial or GPL licence under the same product.

- If users switch to GPL licence products, might reduce income. Less predictable for income.

• Advantages - Provides a high level

of flexibility for users & organisation.

- Allows clients to customise software for sales without licencing restrictions.

- If software include popular enterprise ones, it could increase sales & users.


Community: Apache Software Foundation (ASF)

• Apache HTTP server- 1994. ASF was started in June 1999. Non-profit organisation.

• Decentralised community of developers.

• Apache Licence – similar to new BSD Licence.

• Largest OSS organisation along with Red Hat. 66.9 million sites using Apache web server.


Business Model Comparisons: Community• Advantages - Backed up by large

community effort, it can become a main stream.

- Presented and appealed to a wider range of users & firms.

- Become a main

component in the market such as Apache HTTP, Tomcat, IBM Eclipse etc.

• Disadvantages - Leading developers or

donators/investors may influence its development cycle and direction.

- Find it difficult to sustain and often request community donations.


Value-added Close Source: XandrOS• Founded in 2001, to make easy-to-use

Desktop Linux.• Earns income from business &

educational partners. Operating like Split-Licencing at the beginning, then switching to this model in 2006. Recent partnership with Microsoft.

• Characteristics: (a) Pay for software; pay for service; attract investors & venture capitalists (b) Add new proprietary software & improve functionality.


Business Model Comparisons: Value-added Close Source

• Advantages - Can receive additional

funds from share, investor’s funds, sales commission, retailers.

- May generate higher

revenues if targeting the right market or products (VoIP, gaming).

• Disadvantages - If failing to impress

users, clients and investors, may fail to sustain themselves.

- Certainly not OSS developers’ favourite.


Macro R&D Infrastructure

• R&D project. Come from government funding initially.

• Traditional ways of funding academic projects.

• Can be viewed as a commercial model, or commercial operations.

Projects / organisations

Customers/ Users

Funders

FundingProducts & services

Positive feedback


Macro R&D Infrastructure: OMII-UK• Founded in JAN 2006, partnership between

Southampton, Edinburgh and Manchester.• Presents engineering/Grid challenges,

integrating 15 components for solution-focused projects.

• Offers a secure, robust & fully integrated Software Solutions for e-Research & e-Science.

• Involved in international partnership, community expansion, research & development.


OMII-UK e-Science Value Chain

InfrastructureProvider

ComponentProvider

SolutionProvider

e-ScienceEnd User

OMII


Business Model Comparisons: Macro R&D Infrastructure

• Advantages - Attract funds if meeting a

specialised area with high demands.

- Merge together to form a powerhouse in a specialised area to attract funding & expertise.

- Create spin-offs to generate

more revenues & research outcomes, particularly for bioscience or medical or e-Science R&D projects.

• Disadvantages - Sustainability model is

under development & influenced by investors.

- Seek funding at regular intervals, creating a sense of instability and insecurity at those periods.

- Might be difficult to integrate academic theories and industrial perspective in some organisations.


Special Case Studies: XenSource

• Move between business models.• Hypervisor / virtualisation software.• Before JAN 2005, Macro R&D +

Community at Cambridge. • £23.5 M venture capital in JAN 2005.• Provides Split Licencing Model: free

OSS and Enterprise version.• Acquired by Citrix for $500M (£250M).


Special Case Studies: National Computer Systems, Singapore

• Dual Business Models. Started in 1981 as Macro R&D Infrastructure.

• In 1996, became a close source model.• Singapore Government as its main client.• Partners with Singapore Telecom (£1.623

B value). Overseas offices in 8 countries.• Running support-contract and valued-

added close source model.


Special Case Studies: Sun and OpenJDK• More commercial firms starting OSS

projects.• Advantages: - Consolidate a stronger community; - Build up a more robust, reliable & user- oriented software.• OpenJDK in 2006, under GPL Licence.• IBM too – Eclipse, IBM JDK, Apache etc.


Discussions: Merger & Acquisitions (M&A)• M&A: Useful business strategy & have a

direct impact on OSS organisations.• SuSE: Acquired by Novell with $210M

(£105 M) in NOV 2003. Partnerships with IBM, AMD, ITV & Microsoft.

• Novell’s Benefits: (a) Provide enterprise-class services & support for Linux; (b) expand its business territory to get revenue from open source community.


Conclusions

• 5 OSS business models.

• Long term sustainability depends on

(a)adopting relevant business models;

(b)securing funding or revenues;

(c)reviewing the needs to move one model to another or use multiple business models.

• UK e-Science Programme helped setting up many e-Science organisations => Now facing long-term sustainability challenge!

• Worth to consider these models (esp. Macro R&D) if setting up spins offs from research projects, or setting up long-term entities from e-Science or OSS community.


Where is your organisation?

MySQL

Sugar CRM

Red Hat

customers / users funding / investors

XandrOSOMII-UK

Interface21

business partners

Hyperic

Canonical

OpenBravo, Compiere

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