Business Models for Open Source Software Companies Tony Wasserman Carnegie Mellon West O'Reilly Open Source Conference Portland; July, 2006

Observation As long as there has been software, there has been free and open source software

Why Talk about Business Models for Free and Open Source Software? Many individuals believe that software should be free (as in both freedom and beer) Many individuals contribute their time and effort to open source projects with no expectation of remuneration for that work Many companies contribute money, space, machine resources, and their employees' time in support of open source projects However....

The Need for Business Models Some users of open source software, especially companies, want to pay and expect to pay for use of that software New companies have been created to commercialize and to build successful businesses based on service and support of open source software Many contributors and potential contributors to open source projects need a source of income to support their work

What drives commercialization? Growing acceptance of leading open source products (Linux, Apache, Firefox, JBoss, Eclipse) Relatively high quality of leading open source products User unhappiness with traditional software and fee structures

Subscription Model User downloads software and can usually use it indefinitely at no charge User can manually check for software updates, install them, and use discussion forums for answers to technical problems, again at no charge User can hire consultants and contractors to help with specific issues Supplier updates and support provided on a subscription basis Example: Red Hat

Commercial and Open Source Products Vendor's products include closed source products available under traditional license or by subscription Vendor's products include open source products that may be completely free or offered under a different business model Examples: Borland, CollabNet, SugarCRM

Support and Training Model Vendor may or may not be the developer of the software Vendor offers support services, training, and/or publications on one or more open source projects Examples: Many, including O'Reilly

Dual License Model Vendor offers open source software under an open source license, such as GPL or Apache Vendor offers the same software under a commercial license for those who want or need commercial support Example: MySQL

Hosted Service Vendor uses open source software to create services that can be given away or sold to customers Examples: Yahoo, Google

Packaging Model Vendor integrates two or more open source products into a new product stack Vendor offers the “added value” stack along with support, training, and consulting Examples: SpikeSource and OpenLogic

Commercial Enhancement Vendor uses suitably licensed open source software and derives a new product that can be offered commercially, either as closed or open source Examples: EnterpriseDB and SRA OSS (PostgreSQL-based)

Consulting Strategy Vendor offers no open source software directly, but helps clients make strategic decisions and investments related to open source Vendor obtains revenue by charging customers for their consulting time Examples: IBM Global Services, Accenture, Gartner

Patronage Model Vendor offers open source software, money, equipment, or people's time to the community with no direct expectation of revenue Vendor obtains revenue from other products and services, which may or may not be related to the open source software (and may not even be open source) Examples: IBM, Sun, Microsoft

Summary: Open source business models Subscription models for updated versions of open source products Commercial and open source model for different products from a single vendor Support and training model with books, courses Dual license model to offer free and licensed versions Hosted model to provide an online service based on open source Packaging model to integrate open source software into a product stack Commercial enhancement model building on open source Consulting strategy offering services for open source products Patronage model to drive open standards and other company businesses Reseller model offering free and open source products

Contact information Anthony I. (Tony) Wasserman post: Carnegie Mellon West Moffett Field, CA 94035 USA tel: +1.415.641.1180 (ofc) +1.415.612.0600 (m) email: tonyw@west.cmu.edu Skype: tony.wasserman AIM, YIM: twasserman Googletalk: tony.wasserman