SYSC 5801 Open Source Business Session 9: Nov 14 Fall 2011 www.carleton.ca/tim Michael Weiss www.carleton.ca/tim/tim.pdf weiss@sce.carleton.ca 1 Licensed under a CC BY-SA license
Objective • Upon completion of this class, you will know about: – Making money from open source – Strategies for benefiting from investments in open source – Hybrid business models – More on professional open source • And you will be able to: – Start designing your own open source business model weiss@sce.carleton.ca 2 Licensed under a CC BY-SA license
Agenda 1. Administrative 2. Making money from open source 3. Leveraging external innovation 4. Hybrid business models 5. Second generation open source 6. Key lessons 7. Key concepts 8. Questions weiss@sce.carleton.ca 3 Licensed under a CC BY-SA license
1. Administrative • This week is Global Entrepreneurship Week • TIM Entrepreneurs celebrates entrepreneurs in Canada’s Capital Region, Wed, Nov 16, 4-7pm http://timentrepreneurs2011.eventbrite.com • LTW entrepreneurs social, Thu, Nov 17, 4-7pm http://leadtowinentrepreneurs2011.eventbrite.com • You can invite anyone who is interested weiss@sce.carleton.ca 4 Licensed under a CC BY-SA license
Readings • Weiss, M. (2010), Profiting from open source, European Conference on Pattern Languages of Programs • Weiss, M. (2011), Profiting even more from open source, European Conference on Pattern Languages of Programs • West, J. & Gallagher, S. (2006), Challenges of open innovation: the paradox of firm investment in open-source software, R&D Management, 36(3), 319-331 • Bonaccorsi, A., Giannangeli, S., & Rossi, C. (2006), Entry strategies under competing standards: Hybrid business models in the open source software industry, Management Science, 52(7), 1085-1098 • Boudreau, K. (2010), Open platform strategies and innovation: Granting access vs. devolving control, Management Science, 56(10), 1849-1872 weiss@sce.carleton.ca 5 Licensed under a CC BY-SA license
2. Making money from open source • Compare how traditional software companies make money to open source companies weiss@sce.carleton.ca 6 Licensed under a CC BY-SA license
Freemium with a twist • Traditional vs open source business model – Traditional software business model: employ software developers and charge for licenses – Open source business model: manage community that develops software and charge for complements • Instance of “freemium” model: free + premium – Offer different value propositions to different customer segments with different revenue streams – One of the revenue streams is free or low-cost • N-sided platform strategy – Platform links distinct customers segments that need to be brought together, but need all to be present weiss@sce.carleton.ca 7 Licensed under a CC BY-SA license
Canvas for n-sided platform weiss@sce.carleton.ca 8 Licensed under a CC BY-SA license
Canvas for open source weiss@sce.carleton.ca 9 Licensed under a CC BY-SA license
Level of investment in open source Level of Pool Resources investment Sell Complements Contribute Back Bootstrapping Stage weiss@sce.carleton.ca 10 Licensed under a CC BY-SA license
Pattern thumbnails Bootstrapping Use existing open source in your products to get something working quickly and keep costs low Contribute Contribute back to the project in order to keep Back aligned with the open source projects Sell Sell products or services (such as hardware or Complements support) that complement the open source product Pool Maximize use of your resources by pooling them Resources with other companies to develop a common stack of open source assets that the can all build on weiss@sce.carleton.ca 11 Licensed under a CC BY-SA license
Key decisions re: open source Run a Tight Ship Dual License Create Pull No Single Donate Code Vendor in Charge weiss@sce.carleton.ca 12 Licensed under a CC BY-SA license
Pattern thumbnails (continued) Run a Tight Keep in control of your project’s direction by Ship maintaining full ownership of the code Donate code Extend the lifespan of your proprietary code by relinquishing control and releasing it under a flexible license that allows others to build on it easily Create Pull Market your product by making it easy to access your product and leveraging distributors, partners, and community members to market your product No Single Attract companies to contribute to an open source Vendor in project that you created by transferring ownership of Charge the code to an independent foundation weiss@sce.carleton.ca 13 Licensed under a CC BY-SA license
3. Leveraging external innovation • Open innovation – Motivate external innovation – Integrate external innovations with company's resources and capabilities – Exploit internal sources by revealing them • What are potential obstacles to OI? weiss@sce.carleton.ca 14 Licensed under a CC BY-SA license
Open source as open innovation • West & Gallagher (2006) describe open source software as a “great exemplar” of open innovation for two characteristics: shared rights, collaboration – Shared rights to use the innovation – Collaborative development of the innovation using freely contributed (donated) resources • Open source addresses the tension between appropriation from an innovation (value capture) from getting the innovation adopted widely weiss@sce.carleton.ca 15 Licensed under a CC BY-SA license
Structural approaches Pooled Companies contribute to a shared effort, and exploit R&D common benefits from pooled contributions Examples: Mozilla project and hardware vendors such as IBM, HP and Sun (benefit: compatibility), Eclipse Similar to a consortium, but non-members can gain access to pool, as well as contribute to pool Spinouts Companies seed open source project with internally developed technology, but remain involved Examples: Jikes, Eclipse project which formed basis for coalition of tool vendors (including competitors) Makes most sense for technologies that are not yet commercialized or that will become commodities weiss@sce.carleton.ca 16 Licensed under a CC BY-SA license
Product-oriented approaches Sell Companies target the part of whole product with the comple- highest value, building on external components ments Examples: Apache/WebSphere, WebKit/Safari Applicable when complements are more valuable than platform, and firms contribute back to the platform Donate Companies offer an extensible platform, external comple- contributors add variety and novelty ments Examples: Half-Life/Counter-Strike, open API/mashups Open source complements are less common than open source core innovations (customer facing part of a system seen as best source of differentiation) weiss@sce.carleton.ca 17 Licensed under a CC BY-SA license
Open source strategies and OI Motivation Give and take of IP, but may require company to “prime the pump” (spinout, complements) Example: spinout requires significant up-front investment (example of Credible Promise) Integration Shared rights to use the open source software External innovation creates variety and/or provides basis for internal development (complements) Example: Pooled R&D is designed for integration Exploitation Companies must have some internal IP in order to be able to exploit external innovation or to share Example: companies selling complements need to be able to target high value segment of market weiss@sce.carleton.ca 18 Licensed under a CC BY-SA license
4. Hybrid business models • Few companies use a pure OSS business model, but combine proprietary and OSS solutions • Revenue of hybrid companies come from license fees and complementary products/services • Companies differ in the openness to open source: from mainly open source to proprietary solutions (see also Dahlander (2008): access, align, assimilate) • If network effects (installed base and existing complements) are high, companies tend to be less open; however, experience with open source increases openness, but ideology matters less weiss@sce.carleton.ca 19 Licensed under a CC BY-SA license
Lessons • Going open source is not irreversible: open source and proprietary strategies can co-exist • Software can be adapted to customer needs: unlike proprietary model, customers can make changes • Rational not to free ride: participating in projects offers opportunities for learning and gives access to customers, expanding on argument made in (von Hippel & von Krogh, 2003; Stuermer et al., 2009) weiss@sce.carleton.ca 20 Licensed under a CC BY-SA license
5. Partially open systems • Platform consists of elements that are common or used across implementations – Operating system (software) as platform – Handheld devices (hardware) as complements • Two fundamental approaches to opening: – Granting outsiders access to the platform, thus enabling complementary innovation around the platform – Give up some control over the platform itself • Key trade-offs in opening your platform: adoption/ appropriability and diversity/control weiss@sce.carleton.ca 21 Licensed under a CC BY-SA license
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