A Framework for Understanding The Open Revolution How the Open Source movement is changing the world

Agenda  What –Definition  Why –Economics  Why Now –Disruption –Participation  What Next –Business Models

What

What is the Open Source Revolution  Technical “Commun”  Socialist Movement  Hobby  Disruptive Technology / Economic Fight (The Innovator's Dilemma - Christensen) Open Source is a disruptive technology that will restructure the computer industry and bring pervasive, customized computing to all. Definition

Open Source Definition  Free Redistribution  Source Code  Derived Works  Integrity of Author’s Source –Patch files for build time modifications  No Discrimination Against Persons or Groups  No Discrimination Against Fields of Endeavour  Distribution of License  License Must Not Be Specific to a Product  License Must Not Restrict Other Software  License Must Be Technology-Neutral Definition

Time Line Definition Berkeley Software Distribution (BDS) /BDS 1983 – GNU Project 1995 – Apache (from NCSA 1.3) - PostgreSQL 1987 – Perl – Mozilla Foundation 1994 – Linux 1.0 – BIND move to ISC 1997 – KDE – Firefox /96 – CPAN (Comprehensive Perl Archive Network

Domains of Open Source Definition Domain Technology Core Infrastructure Development KDE, Eclipse, Gcc, Gdb Graphics GIMP, Blender Productivity Linux, Apache,..., Xen OpenOffice, Crome,... Simulation Simutrans

Economics Lab

Power of Open Source (Netcraft, 2005). Web Server Survey.

Why

Economic Event  Each Project competes for resources  User expects a return All Software efforts are an economic event. The only true measure of success is meeting the expected economic return. Economics

User's Return  User's expected risk adjusted return –Expected –Risk adjusted –NPV (net present value) –Return The Unified Theory of Software Quality (UTSQ ) develops an econometric model defining Quality as providing the users Expected Return. Economics

Software Portfolio  Users pursue strategy that optimizes the return of their software portfolio.  Does not dictate proprietary or open source software  Easy to speculate this leads to “Mixed” strategy Economics

Cost to User of Market Power Return to User User Cost of Capital Developer Marginal Cost Commodity Differentiated Single Player Pricing Power Monopoly Extortion Economics Risk Premium

Controlling Market Power  Standards –Interface API (XML domain schema) –Data Structures (SQL) –Data and Operations (IETF Internet RFCs)  Open Infrastructure –Source Code –User documentation –Architecture documentation  Transparent State –Bugs, benchmarks, etc. Economics

User's “Capture” of Economic Value Openness User Capture of Economic Value Economics Closed Standards Open Infrastructure Transparent

Why Now

Disruption  Framework to understand how technology Paradigm shifts happen –Why do the market leader always expose themselves to competition from upstarts –Paradigm shifts always change the winners and losers  See the Open Source Revolution as part of a normal market dynamic Disruption

 The theory of Disruptive Innovations developed in The Innovator's Dilemma and The Innovator's Solution –This is a shortcut to understanding the economics –C. Christensen, Harvard School of Business  Presents the dynamics of why established firms always create an opportunity for disruptive technologies –They innovate faster than the clients can adopt new features or performance –Thus, they always create a market segment that is over-served Disruption

Time Performance Sustaining Innovation User Absorption Rate Over served Needs Disruptive Innovation

Participation Influenced by the gravitational pull of a project

Participation  Driven by economics –“Brand Me” –Cost Reduction –Value-Add Enhancement –Research  What about “hording” fixes or enhancements  What about “free rider” problem Participation

What Next

Shifting Value Chain Models Returns Time Line HardwareCore Software Applications Value Stack HardwareCore SoftwareApplicationsServices Core SoftwareApplications Services Hardware Services

Open Model  Open Source  Sell Services from 3 rd Party –Installation services –Support contracts –Training –Customization  Many different bundles Models

Presentation and References