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

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

3. 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....

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

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

11. 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

12. 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)

13. 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

14. 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

15. 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

16. Contact information
Anthony I. (Tony) Wasserman
post: Carnegie Mellon West
Moffett Field, CA USA
tel: (ofc)
(m)
Skype: tony.wasserman
AIM, YIM: twasserman
Googletalk: tony.wasserman