From Open Source to long-term sustainability Review of Business

							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



      Web: www.omii.ac.uk   Email: info@omii.ac.uk
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


          Web: www.omii.ac.uk   Email: info@omii.ac.uk
Motivation

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

• Review and Classify Open Source Business
  Models.

• Achieve sustainability.




        Web: www.omii.ac.uk   Email: info@omii.ac.uk
Introduction: OSS & Proprietary Software
• Open Source Software (OSS):      • Proprietary Software:
  - Source code is freely             - Close Source.
  available under a licence or
                                      - Requirement payment
  agreement.
                                     for licences, software or
  - allows users to study,
                                     service.
  change, and improve
  software, and to redistribute
  it in modified or unmodified     • Popular models for
  form.                              commercial firms such as
                                     Microsoft, Adobe &
• Typical OSS projects criteria:
                                     MATLAB.
  (1) User Support and (2)
  Development Activities.


           Web: www.omii.ac.uk         Email: info@omii.ac.uk
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)



        Web: www.omii.ac.uk   Email: info@omii.ac.uk
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.


        Web: www.omii.ac.uk   Email: info@omii.ac.uk
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”.




        Web: www.omii.ac.uk   Email: info@omii.ac.uk
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.




         Web: www.omii.ac.uk     Email: info@omii.ac.uk
Literature Review: Commercial Models by
Forta & IDC




       Web: www.omii.ac.uk   Email: info@omii.ac.uk
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.


         Web: www.omii.ac.uk      Email: info@omii.ac.uk
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.


        Web: www.omii.ac.uk   Email: info@omii.ac.uk
Business Model Comparisons: Support Contracts

• Advantages                    • Disadvantages
  - Ensuring long-term sales      - Customers may feel no need
   and profits.                   to pay due to large amount of
                                  free info.

  - Provides a more               - Needs to ensure a large
   predictable & dependable       number of users already
   revenue.                       available.

                                - Easy for others to clone full
 - Provides diff level of         architecture & services,
   support. Provides users        having more competitions to
   more options.                  deal with.


          Web: www.omii.ac.uk       Email: info@omii.ac.uk
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.



        Web: www.omii.ac.uk   Email: info@omii.ac.uk
Business Model Comparisons: Split Licencing
• Advantages                   • Disadvantages
  - Provides a high level         - Could be confused
  of flexibility for users &     with boundary between
  organisation.                  commercial or GPL
  - Allows clients to            licence under the same
  customise software for         product.
  sales without licencing
  restrictions.                 - If users switch to GPL
                                licence products, might
  - If software include
  popular enterprise            reduce income. Less
  ones, it could increase       predictable for income.
  sales & users.

         Web: www.omii.ac.uk      Email: info@omii.ac.uk
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.




        Web: www.omii.ac.uk   Email: info@omii.ac.uk
Business Model Comparisons: Community
• Advantages                       • Disadvantages
  - Backed up by large               - Leading developers or
   community effort, it can          donators/investors may
   become a main stream.             influence its development
                                     cycle and direction.
  - Presented and appealed to a
   wider range of users & firms.
                                     - Find it difficult to sustain
                                     and often request community
  - Become a main component in       donations.
   the market such as Apache
   HTTP, Tomcat, IBM Eclipse
   etc.



           Web: www.omii.ac.uk         Email: info@omii.ac.uk
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.


        Web: www.omii.ac.uk   Email: info@omii.ac.uk
Business Model Comparisons: Value-added
Close Source
• Advantages                      • Disadvantages
  - Can receive additional          - If failing to impress users,
   funds from share, investor’s      clients and investors, may
   funds, sales commission,          fail to sustain themselves.
   retailers.
                                    - Certainly not OSS
 - May generate higher               developers’ favourite.
   revenues if targeting the
   right market or products
   (VoIP, gaming).



          Web: www.omii.ac.uk         Email: info@omii.ac.uk
Macro R&D Infrastructure
• R&D project. Come from                            • Traditional ways of
  government funding initially.                       funding academic
                                                      projects.
            Projects / organisations

                                                    • Can be viewed as a
  Funding
                                   Products &         commercial model,
                                   services
                                                      or commercial
                                                      operations.

Funders        Positive            Customers
               feedback            / Users



             Web: www.omii.ac.uk                Email: info@omii.ac.uk
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.


        Web: www.omii.ac.uk   Email: info@omii.ac.uk
OMII-UK e-Science Value Chain
   Infrastructure Component   Solution           e-Science
      Provider     Provider   Provider           End User




            OMII




       Web: www.omii.ac.uk      Email: info@omii.ac.uk
Business Model Comparisons: Macro R&D
Infrastructure
• Advantages                          • Disadvantages
 - Attract funds if meeting a           - Sustainability model is under
   specialised area with high            development & influenced by
   demands.                              investors.

 - Merge together to form a             - Seek funding at regular intervals,
   powerhouse in a specialised area      creating a sense of instability and
   to attract funding & expertise.       insecurity at those periods.

 - Create spin-offs to generate         - Might be difficult to integrate
   more revenues & research              academic theories and industrial
   outcomes, particularly for            perspective in some
   bioscience or medical or e-           organisations.
   Science R&D projects.



            Web: www.omii.ac.uk            Email: info@omii.ac.uk
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).


       Web: www.omii.ac.uk   Email: info@omii.ac.uk
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.


       Web: www.omii.ac.uk   Email: info@omii.ac.uk
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.



        Web: www.omii.ac.uk   Email: info@omii.ac.uk
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.


        Web: www.omii.ac.uk   Email: info@omii.ac.uk
Conclusions
• 5 OSS business models.        • UK e-Science Programme
• Long term sustainability        helped setting up many e-
   depends on                     Science organisations =>
(a)adopting relevant business     Now facing long-term
   models;                        sustainability challenge!
(b)securing funding or          • Worth to consider these
   revenues;                      models (esp. Macro R&D)
(c)reviewing the needs to         if setting up spins offs from
   move one model to              research projects, or
   another or use multiple        setting up long-term
   business models.               entities from e-Science or
                                  OSS community.



          Web: www.omii.ac.uk       Email: info@omii.ac.uk
Where is your organisation?



     customers / users                       funding / investors
              OpenBravo, Compiere
                       OMII-UK    XandrOS


                            Red Hat   MySQL
                      Canonical
                                   Sugar
              Interface21          CRM Hyperic




                         business partners


       Web: www.omii.ac.uk               Email: info@omii.ac.uk