The Business of Open Source. Richard T. Watson University of Georgia

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1 The Business of Open Source Richard T. Watson University of Georgia

2 What do customers say?

3 What do customers say?

4 What do customers say?

5 What do customers say?

6 What do customers say?

7 What do customers say?

8 What do customers say?

9 What do customers say?

10 Weather.com Dan Agrow (CIO) My experience is we have actually received better support of open-source software than we have with commercial software Lots of open-source products work very well and can be deployed and run for about half the cost of commercial products

11 Sabre Holdings Moving off fault-tolerant Compaq Himalaya servers onto a combination of Linux and the MySQL database running on clustered Intel servers Total cost of ownership will be at least 40% cheaper, with anticipated savings of tens of millions of dollars [Craig Murphy (CTO)]

12 La Quinta Shifted online reservation system from BEA s WebLogic to JBoss Rationale Good service Increased flexibility Lower costs

13 Gothic Cabinet Craft 40 Stores in New York and New Jersey Switched to Google Apps from MS Office Cost USD 32,000 versus USD 100,000+ Nov 2008

14 What do suppliers say?

15 MySQL Mårten Mickos (CEO) How do you turn a $9 billion market into a $3 billion market and dominate what is left? Sep 2004 Acquired by Sun Microsystems Jan 2008 for USD 1 billion

16 TrollTech Haavard Nord (CEO) By next year, it may sound bold and stupid, but in fact we are going to overtake Microsoft in terms of device shipments Nov 2004 Acquired by Nokia in Jan 2008

momentum The move from IE to Firefox is also shown by the fact that

17 Mozilla Bart Decrem, spokesman for the Mozilla foundation, about Firefox I think we'll get to 10 percent over the next year we have the momentum The move from IE to Firefox is also shown by the fact that half of Firefox downloads are from IE users Oct 2004 Estimated 23% in Aug 2010

18 Jaspersoft Brian Gentile, CEO Our major customers do not want to spend 250,000 to 500,000 a year with the major suppliers Nov 2008

19 Jaspersoft David Norfolk, Bloor Research You may need professional support from Jaspersoft. There is a cost of ownership, even for free software, and although this might well be less than for commercial offerings, you cannot just assume this Nov 2008

20 Business Models

21 Business Models Open Distribution / Open Source Linux Apache MS Windows Websphere Proprietary / Closed Source Star Office

22 Proprietary / Closed Source Developed and supported by employees Funded by customers Recognized viability Offer support & education Traditional marketing & distribution

23 Open Distribution / Open Source Developed by volunteer developers Supported by volunteer community Completely free of cost Viability? Nano markets?

24 Business Models Corporate Distribution / Open Source Red Hat Open Distribution / Open Source Linux Apache MS Windows StarOffice WebSphere Proprietary / Closed Source

25 Corporate Distribution / Open Source Bundlers / value added resellers Do not necessarily contribute code to OS community Usually make installation / configuration easier Offer support & education Viability signal

26 Business Models Corporate Distribution / Open Source Red Hat Open Distribution / Open Source Linux MS Windows Apache Websphere Funded Open Source OpenOffice Proprietary / Closed Source

27 Funded Open Source Some support provided by external agents Most often provided as code/support from salaried employees of sponsor Sometimes provided as direct or indirect monetary contributions Viability signal Brand inheritance Sponsors often bundle / enhance OS projects in proprietary products

28 Business Models Corporate Distribution / Open Source Open Distribution / Open Source Linux Red Hat MS Windows Websphere Proprietary / Closed Source Apache OpenOffice Pentaho Funded Open Source MySQL Professional Open Source

29 Professional open source Open source software Professional accountability and service

Proprietary / Closed Source Apache OpenOffice Pentaho Funded

30 Business Models Corporate Distribution / Open Source Open Distribution / Open Source Linux Red Hat MS Windows Websphere Proprietary / Closed Source Apache OpenOffice Pentaho Funded Open Source MySQL Supported Open Source Professional Open Source

31 Supported Open Source IT service firm supports a range of open source products as part of a service contract HP Unisys SoftPro Level 1 & 2 support

32 JBoss

33 Evolution & revolution Evolution Revolution Crisis of scalability Growth through ecosystem Professional open source Crisis of coordination Growth through support Support services Phases Change in customer demand Growth through consulting Consulting services Crisis of revenue Creation of JBoss Growth through education Education and documentation Application service provider Age of Organization

34 Ecosystem Cooperative challenges Maintain innovation within ecosystem Self-renewal Competitive challenges Shape the larger ecosystem Evangelize POS Leadership Extend JBoss AS ecosystem to stall competitors Hire OS developers Expansion Establish JBoss AS as a market leader Gain support of JBoss AS developers Birth Establish viability of JBoss AS as a J2EE option Age of Organization

35 Leadership J2EE market Open source movement Java community

36 Reactions IBM purchases Gluecode Sun opens its J2EE server RedHat purchases JBoss in March 2006 Oracle enters Linux support market

37 Risk analysis Demand Innovation Inefficiency Scaling

38 Demand risk Customer has near zero acquisition costs Service revenues more stable than licensing fees

39 Innovation risk Open code permits others to submit improvements Worldwide recruiting of developers Open roadmaps

40 Inefficiency risk Lower sales and marketing costs Not all users need to be customers Seed and harvest Users participate in bug detection

41 Scaling risk Separation of adoption from purchase Large pool of potential customers Highly qualified leads Scaling through the ecosystem

42 Distinctive features of POS Separation of adoption and purchase Seed and harvest marketing strategy Dual growth

43 Assuming POS model spreads Cost of running IS unit will decline Software innovation and quality should improve Benign POS monopolies might emerge TCP/IP Apache

44 Assuming POS model spreads POS escalation Open standards drive commoditization Vendors move up the stack Adoption pressures external to IS unit Traditional software companies adapt to OS IS units develop OS strategy

45 Survey Greatest perceived benefits TCO (88%) Opportunities for innovation (81%) Dependence on software vendor (74%)

46 Survey Greatest perceived risks (or shortfalls) Documentation availability (44%) Maturity of product (32%) Documentation quality (31%)

47 International Windows XP with Office is 2.5 months of per capita income in South Africa 16 months of per capita income in Vietnam

48 International Proprietary formats will no longer be acceptable in communication between citizens and government. Norwegian Minister of Modernization Must implement ODF by 2009

49 International Japanese government gives preferences to ODF in July 2007 Belgian federal administration specifies ODF for all exchanges by September 2008 Trend in Europe

50 Application market There is an open-source application that is maturing in every software category that exists Open-source is poised to commoditize those segments. We're already seeing it Pete Kronowitt, a strategic planner for Intel (Sep 2005) 50 open source firms venture funded by 2008

51 Ecosystem Cocoon is a suite of Java Servlets that transform.xml files using XSL Apache JBoss IBM Tomcat JBoss IDE Eclipse Lenya Cocoon Orixo XML business alliance T-shirts & hats Hosting Web sites Add ons Consultants Lepido Applications Evangelizing Information Books Training

52 Venture Capital Annual VC funding USD 2.80 billion to date Average deal about USD 10 million

53 Trends 25% of end user organizations are planning to adopt open source BI in the next months Aberdeen Group (Dec 2007) 1 Million businesses have adopted Google Apps Business Week (Nov 2008) 20 million users Google executive (Dec 2009)

54 Trends About one in three mid-market companies are on their way to being open source dominated shops 79% agree that My company s experience with open source products, other than Linux, has been so good we plan to expand their use CIO Insight (Dec 2007) 78% of enterprises have deployed open source solutions and adding more Accenture (Aug, 2010)

55 Trends The rate in which open source software is being adopted across the enterprise to build and deploy mission critical transaction intensive applications is accelerating at a pace that far exceeds previous rates of adoption by enterprises and is largely at the expense of the proprietary vendors market share The rapid acceleration of open source adoption is directly attributable to the quality of the software that is available Within five years there will be an open source offering that is viable for an enterprise to run its business on for every sector in the industry (e.g., ERP, CRM, Supply Chain) Rob Bearden, Entrepreneur in Residence, Benchmark Capital

56 Conclusion New products, new markets, and new forms of production and distribution fuel free enterprise creative destruction and dislocate existing patterns of business New corporate forms evolve to fit the changed competitive environment Internet innovation is evolving and threatening old business models

The Business of Open Source

The Business of Open Source R i c h a r d T. W a t s o n M a r i e - C l a u d e B o u d r e a u M a r t i n a G r e i n e r D o n a l d W y n n P a u l Y o r k U n i v e r s i t y o f G e o r g i a r