Jim Farmer As presented at Barcamp Saigon, 15 November 2008 Royal Melbourne Institute of Technology Ho-Chi-Minh City, Viet-Nam Open Source Business Models

Georgetown University Types of Business Models “Solution shops – “diagnose problems and recommend solutions” Value chains – transform by adding value, e.g. integrating and customizing software Facilitated user networks – customers exchange with each other; company makes money as “the one that facilitates the network” Clayton Christensen, “Disrupting Class,” McGraw-Hill, 2008, pages

Georgetown University Open Source Business Models “Commodity” development (Apache) Value-added packages (Sun Microsystems integrated “suites”) Insurance (Red Hat) Parallel “Products” - proprietary and open source versions (MySQL) “Brand” - service and consulting (Sugar CRM, Moodle) Community Source (Kuali)

Georgetown University “Scale Intensive” Software has high costs of development with incremental unit costs near zero. This gives financial advantage to large firms that can finance development and marketing, less so to those who attract venture capital and “start up.” Consolidation is inevitable; start-ups acquired

Georgetown University Disruptive innovation Serve the yet-unserved; “competing against nonconsumption” Replace current products and services after developing competitive features and quality, and achieving lower user costs Based the “Disruptive Innovation Theory” See Clayton M. Christensen and Michael E. Raynor, “The Innovator’s Solution,” Harvard Business School Press, 2003

Georgetown University “Sustainable” defined “What sustainability means can be centred on the user and their needs, as well as demands such as reliable software, long-term product support, good quality documentation and training, integration with other systems and reasonable costs. Open source software that can deliver this is much more likely to be economically sustainable.“ Paul Anderson, “Crossing the Chasm: open source software comes of age, Oxford University, 27 June 2006.

Georgetown University Levels of sustainability Sustainability I The application software meets immediate needs; the knowledge and skill set for maintaining the software is available to the users; user resources are sufficient to support maintenance and evolution (necessary further development) of the software. Sustainability II The application software meets the immediate needs of many users for the industry (e.g. higher education) as a whole; software suppliers are developing the product to support the emerging education and business processes of the colleges and universities; complete documentation is available; support is available as training, on-call technical support, and consultants.

Georgetown University Business models, described “Commodity” - Cooperative development yielding standards and cost saving for sponsors (Apache) Value-added packages (Sun Microsystems integrating and testing components for “packaged” release) Insurance - Technical support available 24/7 (Red Hat)

Georgetown University Business models, described Parallel “Products” - proprietary and open source versions of the same software; generally differentiated by function and support (MySQL, Spring) “Brand” – revenue from service and consulting; limited to a single developing company with external contributors and reviewers; (Sugar CRM, Moodle)

Georgetown University Business models, described Community source – creating products not provided by commercial suppliers; development and support by a small number of institutions with near identical requirements and willingness to pay more than license, but less than institutional development. Achieve savings through worker productivity Brad Wheeler, Indiana University

Georgetown University Possible business model, subscription funding “Subscription” – The community volunteers to financially support a development effort, usually through a “membership” fee; the software development meets (and gives priority to) the needs of contributors. (e.g. Sakai, DSpace, Fedora)

Georgetown University Success factors Short time to first “product” and to profitability Meets “compelling need” to “cross chasm” Through user satisfaction, avoid “forking” software creating competitors Protect “brand” by timely software design and development

Georgetown University Some numbers uPortal required 800 to 1200 installations to achieve a sustainable commercial partner. Sakai learning system needs contributions of US$2.5 million per year plu 4-6 full-time contributed developers. Moodle now has an estimated US$10 million annual development budget supported from partner contributions (based on revenue).

“Developing open source software is not sufficient; support and “marketing” are required to achieve sustainability."

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