BUSINESS MODELS FOR OPEN SOURCE SOFTWARE

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					                                                                               PANEL – OSS 2006
The Second International Conference on Open Source Systems




                                                                   BUSINESS MODELS FOR
                                                                  OPEN SOURCE SOFTWARE:
                                                             TOWARDS A MATURE UNDERSTANDING OF THE CONCEPT
                                                                    AND ITS IMPLICATIONS FOR PRACTICE



                                                              Joseph Feller, Patrick Finnegan & Jeremy Hayes
                                                                      University College Cork, Ireland
                                                                              Björn Lundell,
                                                                        University of Skövde, Sweden



                                                                                 Como, 8th - 10th June 2006
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                                                                 AGENDA
The Second International Conference on Open Source Systems




                                                             ●   What do we not know?
                                                             ●   What is a business model?
                                                             ●   Business models in the context of
                                                                 OSS networks.
                                                             ●   Open source in large companies




                                                                              Como, 8th - 10th June 2006
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                                                                         WHAT DO WE (NOT) KNOW?
The Second International Conference on Open Source Systems




                                                             ●   An analysis of 155 peer-reviewed research
                                                                 artifacts (1998-2004)
                                                             ●   Analysis – not review
                                                             ●   What types of OSS projects have been
                                                                 researched?
                                                             ●   What has been the area of research?
                                                             ●   What methodologies have been used?




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                                                                 WHAT TYPES OF OSS PROJECTS HAVE BEEN RESEARCHED?
The Second International Conference on Open Source Systems




                                                             ●   Ad Hoc Communities
                                                             ●   Standardised Communities
                                                             ●   Organised Communities
                                                             ●   Commercial Organisations




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                                                                 WHAT HAS BEEN THE AREA OF RESEARCH?
The Second International Conference on Open Source Systems



                                                             ●   Software Engineering Issues
                                                                  –   Version Control
                                                                  –   Software Architecture
                                                                  –   Development Methodology
                                                             ●   Economic and Business Model Issues
                                                                  –   Revenue Models
                                                                  –   Resource Allocation
                                                                  –   Market Drivers
                                                             ●   Socio-cultural and Organisational Issues
                                                                  –   Conflict Resolution
                                                                  –   Motivation
                                                                  –   Legal Issues
                                                             ●   Software Application Spaces
                                                                  –   Specific Vertical Sector (Automotive, Health, etc.)
                                                                  –   Specific Horizontal Sector (Financials, Human Resources, etc.)
                                                                  –   Software Acquisition and Management

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                                                                 WHAT METHODOLOGIES HAVE BEEN USED?
The Second International Conference on Open Source Systems




                                                             ●   Anecdotal / Descriptive
                                                                  –   Little or no formal data-gathering methodology.
                                                             ●   Secondary
                                                                  –   (Re-)Analysis of previous research.
                                                             ●   Case Study
                                                                  –   Formal, high-depth data gathering focused on a single research site.
                                                             ●   Cross-Case
                                                                  –   Formal, medium-depth data gathering focused on 2-3 research sites with
                                                                      comparative analysis.
                                                             ●   Field Study
                                                                  –   Formal, low-depth data gathering across a wide number of research sites
                                                                      with comparative analysis.
                                                             ●   Survey
                                                                  –   High-volume structured questionnaire.
                                                             ●   Experiment
                                                                  –   Laboratory or field-experiment.
                                                                                               Como, 8th - 10th June 2006
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                             The Second International Conference on Open Source Systems




Como, 8th - 10th June 2006
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                                                                            THE “BUSINESS” GAP
The Second International Conference on Open Source Systems




                                                             ●   Commercial Organisations (particularly their
                                                                 relationships with other kinds of communities)
                                                             ●   Economic and Business Models (Full models, not
                                                                 just revenue models)
                                                             ●   OSS research literature requires greater discipline
                                                                 and rigour and more interdisciplinary research
                                                                 (cross-topic analysis)
                                                             ●   There is a relative lack of robust models and
                                                                 theories
                                                             ●   There is a relative lack of “why’s” and “how’s”




                                                                                    Como, 8th - 10th June 2006
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                                                                      WHAT IS A BUSINESS MODEL?
The Second International Conference on Open Source Systems




                                                             ●   Consultants, executives, researchers and
                                                                 journalists have “abusively” used the phrase
                                                                 “business model” but have “rarely given a
                                                                 precise definition of what they exactly
                                                                 meant by using it.
                                                             ●   Business model as a way of doing business
                                                             ●   Business model as simplification of complex
                                                                 ‘real world’ description
                                                             ●   Business model as archetype




                                                                                Como, 8th - 10th June 2006
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                                                             BUSINESS (REVENUE) MODEL ARCHETYPES
The Second International Conference on Open Source Systems




                                                             The initial collection are as follows:
                                                               • Support Seller
                                                               • Loss Leader
                                                               • Widget Frosting
                                                               • Sell it, Free it
                                                               • Accessorizing
                                                               • Service Enabler
                                                               • Brand Licensing
                                                               • Community Enabler




                                                                                    Como, 8th - 10th June 2006
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                              The Second International Conference on Open Source Systems




 Como, 8th - 10th June 2006
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                                                                 DELIVERING ‘WHOLE PRODUCTS’ WITH OSS
The Second International Conference on Open Source Systems




                                                             ●   Challenge for Libre software businesses is
                                                                 effectively delivering the “whole product” in
                                                                 a manner that takes account of, and in fact
                                                                 leverages, the unique business model
                                                                 dynamics associated with Libre software
                                                                 licensing and processes.
                                                             ●   Importance of business webs / networks in
                                                                 delivering ‘whole product’




                                                                                 Como, 8th - 10th June 2006
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                                                                  WHAT IS A BUSINESS MODEL? (OSTERWALDER, 2002)
The Second International Conference on Open Source Systems




                                                                           It’s the business logic of how a
                                                                             company makes money in a
                                                                                    sustainable way

                                                                  HOW?                  WHAT?                        WHO?
                                                             •Capabilities          •Value Proposition        •Target Customers
                                                             •Value Configuration                             •Channels
                                                             •Partnerships                                    •Customer Relationship


                                                                                    HOW MUCH?
                                                                                    •Cost Model
                                                                                    •Revenue Model


                                                                                        Como, 8th - 10th June 2006
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                                                             Business Model Ontology (Osterwalder and Pigneur, 2002)
The Second International Conference on Open Source Systems




                                                             Product Innovation      •   Target Customer Segment
                                                                                     •   Value Proposition
                                                                                     •   Capabilities
                                                             Customer Relationship   •   Information Strategy
                                                                                     •   Feel & Serve
                                                                                     •   Trust & Loyalty
                                                             Infrastructure          •   Resources
                                                             Management              •   Activity Configuration
                                                                                     •   Partner Network
                                                             Financials              •   Revenue Model
                                                                                     •   Cost Structure
                                                                                     •   Profit/Loss




                                                                                     Como, 8th - 10th June 2006
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                                                              Effects of network on participants' business models
The Second International Conference on Open Source Systems




                                                                . Business Model Pillar                      Effect of Network on member’s business
                                                                                                             models
                                                             Product                Target Customer          Enhances reputation and branding of participants
                                                             Innovation             Segment                  by providing a single ‘market leader’ brand.

                                                                                    Value Proposition        Extends geographic coverage, supports the ability
                                                                                                             to offer specialised expertise, products and
                                                                                                             services in many languages and leveraging local
                                                                                                             knowledge.
                                                                                    Capabilities             Enhances existing capabilities by providing a
                                                                                                             broader range of business capabilities, especially
                                                                                                             project management and customer Relationship
                                                                                                             Management.




                                                                                                   Como, 8th - 10th June 2006
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                                                             EFFECTS OF NETWORK ON PARTICIPANTS' BUSINESS MODELS
The Second International Conference on Open Source Systems




                                                                . Business Model Pillar                       Effect of Network on member’s business
                                                                                                              models
                                                             Customer               Information               Network aims to provide lead referrals and to
                                                             Relationship           Strategy                  contribute to the sharing of experiences and
                                                                                                              knowledge.
                                                                                    Feel & Serve              Facilitates profile building through common
                                                                                                              branding.
                                                                                    Trust & Loyalty           Leverages access to expertise of software
                                                                                                              originators to build customer trust.




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                                                              EFFECTS OF NETWORK ON PARTICIPANTS' BUSINESS MODELS
The Second International Conference on Open Source Systems




                                                                 . Business Model Pillar                       Effect of Network on member’s business
                                                                                                               models
                                                             Infrastructure          Resources                 Lowers friction when building teams, through
                                                             Management                                        information sharing, common methodology,
                                                                                                               tracking results, reporting bugs, etc.
                                                                                     Activity                  Enables members to act as a “value shop”
                                                                                     Configuration             configuration. Network reduces the information
                                                                                                               asymmetry between client and consultant resulting
                                                                                                               in customers ‘joining’ the community.
                                                                                     Partner Network           Network means that members do not have to
                                                                                                               outsource to partners outside the network.




                                                                                                     Como, 8th - 10th June 2006
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                                                                EFFECTS OF NETWORK ON PARTICIPANTS' BUSINESS MODELS
The Second International Conference on Open Source Systems




                                                                 . Business Model Pillar                     Effect of Network on member’s business
                                                                                                             models
                                                             Financials              Revenue Model           Increases deal size for members by creating
                                                                                                             “whole product” consortia.
                                                                                     Cost Structure          Enables cost-sharing amongst members.
                                                                                     Profit/Loss             Increases revenue and lowers expenses through
                                                                                                             sharing among members, leading to bigger profits.




                                                                                                  Como, 8th - 10th June 2006
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                                                             COMMODIFICATION OF SOFTWARE
The Second International Conference on Open Source Systems




                                                                technology
                                                                                                                                losing
                                                             differentiating                                                 intellectual
                                                                                                                               property




                                                                                   te
                                                                                    ch
                                                                                        no
                                                                                         lo
                                                                                          gy
                                                                 basic for



                                                                                              lif
                                                                                               e
                                                             the business



                                                                                                cy
                                                                                                                             COTS




                                                                                                    cl
                                                                                                    e
                                                                                                                           Open source

                                                               commodity

 wasting valuable
  engineering                                                                  intra         inter               open     cooperation
   resources                                                                   company       companies            (van der Linden, 2006)
                                                                                    Como, 8th - 10th June 2006       (www.itea-cosi.org)   19
                                                             HETEROGENEOUS DISTRIBUTED DEVELOPMENT
The Second International Conference on Open Source Systems




                                                                              outsourcing                     external
                                                               in house       bounded                         open
                                                                              collaborations                  collaborations

                                                                  company                                     knowledge
                                                                  control &                                       & cost
                                                                  ownership                                      sharing




                                                                                software shift




                                                                                                             (van der Linden, 2006)
                                                                                Como, 8th - 10th June 2006      (www.itea-cosi.org)   20
                                                                 OPEN SOURCE IN THE STEEL INDUSTRY
The Second International Conference on Open Source Systems




                                                             ●   SSAB Oxelösund
                                                                 –   a member of the SSAB Svenskt Stål AB Group
                                                                 –   the biggest Nordic manufacturer of heavy steel plate
                                                                 –   profits for 2003 totalled SEK 312 million
                                                                                        http://www.ssabox.com/company/en_index.htm



                                                             ●   SSAB Oxelösund & Open Source
                                                                 –   “SSAB Oxelösund releases its process automation
                                                                     system Proview as open source.”
                                                                         http://www.ssabox.com/news/pressreleases/h/en_proview_h.htm

                                                                 –   Proview is available on SourceForge (under GPL)
                                                                                                http: //sourceforge.net/projects/proview/
                                                                                                                  http: //www.proview.se

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                                                             OPEN SOURCE IN LARGE COMPANIES
The Second International Conference on Open Source Systems




                                                             In a study of state of practice with respect
                                                             to Open Source in Swedish companies
                                                             which have adopted Open Source Software
                                                             one interviewee commented:
                                                               “We use ObjectWeb, from a European OS
                                                               consortium, which I would call a hidden pearl.
                                                               We have used this in a large project at a customer
                                                               site, and it runs like a Swiss clock.“
                                                                                                      See paper in OSS 2006
                                                                                                         (Lundell et al., 2006)




                                                                                 Como, 8th - 10th June 2006
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                                                                           DISCUSSION
The Second International Conference on Open Source Systems




                                                                   BUSINESS MODELS FOR
                                                                  OPEN SOURCE SOFTWARE:
                                                             TOWARDS A MATURE UNDERSTANDING OF THE CONCEPT
                                                                    AND ITS IMPLICATIONS FOR PRACTICE




                                                                 This research is funded by the European
                                                               Commission via IST Project 004337, CALIBRE
                                                                          (http://www.calibre.ie)

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