Business models of open source software and free software

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و CONSULTING Research paper — September 2007 Business models of open source software and free software: a few landmarks (> 

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Executive summary @ The open source software industry is experiencing a strong growth that should continue in the years to come ™@ Open source companies have structured themselves around four business models: @ The service model ‏و‎ The distribution with value added mode! ‏ه‎ The double license model = The mutualization model @ These business models are profitable and sustainable over time @ Beyond the diversity of business models, some key success factors are common to all open source companies ® Several factors, such as the intensified competition and the lingering distrust towards open source solutions, could lead to strategy changes from companies in the future FABER! 

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Summary ® Context and objectives of the paper ® Typology of different business models ® Key success factors shared by all models @ What are the strategies to come for open source software? (FABERNOVEL 

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Summary ( ® Context and objectives of the paper ۱ ® Typology of different business models ® Key success factors shared by all models @ What are the strategies to come for open source software? (FABERNOVEL 

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Before open source: the free software movement @ Free software appeared in 1985, when Richard Stallmand founded the Free Software Foundation (FSF) @ According to the FSF, free software must respect four freedoms © The freedom to launch software for any use ®@ The freedom to study the way software works and thus to freely access its source code ® The freedom to redistribute and sell copies ‏و‎ The freedom to enhance software and publish the results ® The FSF grants several licenses, the most widespread being the General Public License (GPL). In 2004, it accounted for 68,5% of the projects listed by SourceForge ® To avoid confusion between what is free of use/free of charge, the Open Source Initiative, created in 1998, wrote up the Open Source Definition es hs Sec forme ere absent ta ‏رنه و و همه‎ opn sou (FABERNOVEL 

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Open sources licenses fulfill ten criteria Free redistribution ‘Access to the source code Right to change the source code and develop derived works Respect of the integrity of the author's source code: the license can require derived works to be made available under a different name, or that the original version is distributed along with the patches Forbidding discrimination against persons and groups Forbidding discrimination against fields of endeavor @ Universality of the rights attached to the program. They must apply to anyone to whom it is redistributed, without making it mandatory to obtain an additional license (that way, programs which initially had the Open Source Definition license would not be closed up using indirect means such as requiring a non-disclosure agreement) @ Protection of the program, and not of the product Lack of contamination of other products containing a protected source code ® Technological neutrality, The license cannot discriminate against any technology or style of interface. (FABERNOVEL 

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Three kinds of licenses can be identified according to their permissiveness ۳ 3 ۳ ۳۹ mus! be ploced | tad ne ‏و‎ Examples: ۳ | 5 ‏سي‎ a5 0S ie) coiaina caiae ase ‏جهن‎ 0 1 3 the softwere wan proptery setare and | ۸ 1 | anion that be Ree moaseremasie under FS = | ۲ 1 3 I 5 5 3 5 a 2 ‏و و‎ a source code unset fy, 1 10 wihow ecinowfedgng fs erga p dveloper Examples 6 0000 ed ‏مد و‎ Leones te + permissiv (FABERNOVEL 

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Open source software’s growth should keep up in the years to come ‎Open source solutions maintain a significant margin of progress‏ و ‎‘Open source solutions’ adoption in Europe* (2005) ‘i ‏م مجه عمد حت‎ ‎wo Soop!) 59 06 ‎a 20% ‎wm ‏مسي‎ ‏مها مدا 60% ممما اهرمد نب 1 ی ‎on‏ ‎Europan average ‎Buri toa) ‏لوي ممم‎ ‎ ‎ 

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Open source solutions’ attributes are widely acknowledged today ‎surer and more flexible use:‏ ۸ ه ‎Money saved since open source solutions are in use”‏ ارسي اب وناب بين ‎one's exact needs with the source 0 ‏و فييكت‎ code © Software's transferability is less 5-7 0 ۱۵900۵۲00 wi © Frequentupdates ‏و‎ Patches’ emission is easy 2000 1900 @ A quality product, cheaper than 4, proprietary software 00 @ Particularly likeable and adherence to ۰ the open source movement's values ade cone High income ‘rpanzations _ergarizaions_Veryhigh income ‏الل رضن‎ ‘nest a) ‏ماو‎ ‎Deen ‏ا ل ل ا‎ ka ‎۲ ‏یت‎ Sanat ‎ ‎capa, gvermera sce anther erie) beta Aug ea‏ سای رسد قآ جر ‎Sauces Cpsos Ses abun anaes‏ ‎ 

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The objective of this paper is to analyse the different open source business models ® Broadly, a business model is made up of two elements. @ Value creation: definition of the offer @ Definition according to the cost generating the highest willingness to categories (raw materials, marketing, pay R&D, administrative) and their types ‏ها‎ Capture of the value created through: (xed or variable} ® The sale of fights (sale of | @ Identification of the company's palenis,leenses or even cient les) spectic skills which give a = The sale of products competitive advantage The sale of eonsoes ‏؟'‎ © Determination of the capital sources @ A feature of the open source business models is that their main difference lies in their revenue models. For the sake of clarity, we will present a typology centred around these models wrrasernove. [EB 

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Summary @ Context and objectives of the paper ypology of different business models @ Key success factors shared by all models @ What are the strategies to come for open source software? 

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Four business models can be identified ۱ uc eee ur a See ee ee eee Stic mrasernover [ERI ات 

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The service model [a The service model takes two forms @ Simple service model ‘commercialization of services that have no link to a specific product Ce ‏ا ا ل‎ nce Pets meet a nets @ A variant of this model involves providing an application service without any direct link to the open source software used via an Internet network using a standard protocol (ASP model) -<-{ can a 757 hanes taupe @ Indirect monetization model: _/ Sveum. cuca: ae commercialization of ‏سس | مه‎ monty associated to software developed ‏,ه‎ ١١ ‏كتج‎ packaged internally 

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The service model 9 TE <Algorithms control Bug detection “Surveillance of securty problems coming from ‘ther open source sotware Help with the integration of tested software Guaranteed interop erabilty Tests and guarantee wae The services offered are of different types Formation Help Publication of support documents ‘Creation of patches should a problem occur عع مقغداددة اقعاماعة1 

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The service model 9 The simple service model relies on two opposite levers Growth levers عط ونام عط وما ممع مع 5۵۳۵5 ۲ © Segments of the market available: @ The competition's level of intensity on @epending on the number of companies the services offered: the stronger the commercializing open source solutions _compelition Is, the more i isin the open, without offing complementary source company's interest to develop senices of satistying quality specific skills around a few products ‘The company's faculty to offer services @ The consumer's need and their on a great number of sofware that it did willingness to pay: if potential clients not develop itself have specific needs and are not very sensitive to price, it would be better for the open source company to specialize around 2 few profitable services for ‘which the company can charge a lot Evolution Factors OFFABERNOVEL 

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The service model 9 The success of the indirect monetization model relies on two levers و و ۱۵/۵۲5 Increasing the size of the market ۱ poet te ‘The competition's level of intensity on™ The competition's level of intensity on the software offered, which depends complementary services offered 5 ‏سد ال ويس‎ The choice of the product's level of @ The license’s choice: Fefinement: |= Ifthe products are made for @ direct A product hal f= 0 sophistionle only Use, no ober sofware wil be coveleped ‘eecs a fw complemertary services wih! tne source code mado by Me ‏نوميم ع سر‎ thats ot reales enough to he company. As 8 consequence, 8 copyleft ‘operational produc il be rejected by type license i= sdaptea because there i= Saran aneepers rk catenin ‏كام‎ the products are modes Wad as tbe anid alte poss, a kperave hale ‘company uses a copylefted persistent Evolution ‏وی مه مس‎ ممم و ‎seta eet a‏ دیعس هه هه دیع سل[ 

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An example of a company offering a Thessivies medal al service model: Spikesource ® The Spikesource company is specialized in the testing, the ۰ certification and the integration of LAMP open source 5 ‘ike software and the different applications that may use it In SOURCE 2008, its sales figure amounted to $76,000, and it had raised $21 million to pursue its development @ The company has two offers: ‎Spikelgnite Platform:‏ ها ‎Asset of open source guaranteed and integrated software and middleware‏ © ‎© Updates developed using the platform, allowing the count of 25.000 patches and updates {or the sortware supported by Spkesource every week: ‎© A starting offer at about $1,890 a year ‎© Spikenet. a technical help and maintenance system, which starting price is $7,500 a year ‎ 

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The value added distribution model consists in selling ‏اما‎ eet = a standard version of an existing product © With this model, open source software is not developed by the firms that commercialize their services: they already exist and are packaged in a standard version that can be downloaded, pre-installed on computers or sold on physical bases ‏مره‎ ‏مسبت مسب 7و‎ تسس و @ The « sale» is generally made es a yearly subscription to the product and a set of attached services* Community of Customers programmers the subscription socounts ‏اوه را‎ of Red Hat wenn 

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This model offers a triple client deen rot value Client Value EL ‏و۳‎ 0۵ dredty gets a packaged ne ie Ee ce Ce eT ‏لي‎ ‎Bes ۳۲۸۶۲۱۱0۷8 

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An example of value added distribution: es ™ Red Hat distribution model © Red Hat specializes in the distribution af Linux. It reported for the 2006 financial year a revenue of $401 milion and a net income af $59,8 milion In Apri 2008, the company tock aver Jboss, an open source frm ‘specializing in middleware solutions, for _a sum of $350 milion. In July 2007, its market capitalization on the NYSE was $4,1 billion and it ‎perone rediat‏ اس ‎@ Red Hal's offer is made of two versions! ‘= The Enterprise version, which is tested and whose interoperabllty is warranted RedHat ErtarenseLinn, ee RHEL. whieh ‏وب راي وماق‎ vserstohave RHEL serutarcoush HEL Aavancea Pla, neh lowe sh unimges number ctuserts nave tne ‏وه‎ 02 © The « communty » version (Fedora) ‎ ‎@ The enterprise version offers 5 different modules: @ Forthe RHEL version ote, | per year 2tuehes answer ‏موجه همه اما اجه عادو ام‎ ‎ ‎ ‎ ‎۶ Slardard eer 1790 pe your, 12:3 shone aes, united isles (= Forthe RHEL Advanced Platform version ‎ ‎10150007 41 ‎01 ‎ ‎ ‎ ‎Even though Fedora does not provide any revenue, Red Hat is careful not to neglect its community‏ و ‎version and partipates actively n its animation‏ ‎WhFABERT ‎ 

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The double license model Cormunity of Customers progenies wrasernover [EB The double license model relies on a discrimination of the users ‘This model rests on a double license system: |= Anopen source Scene forthe standard product ‘= Aticonse ints more protected, which comes win 2 ‘uarariee ands generally inked o a procuct that fers more functonalsies ‘The open source license has to be proliferate copylefted because every enterprise wishing to integrate the source code to a larger set of products and keep it under proprietary license vill then have to buy the commercial version of the solution offered Symetrically, the commercial version must be Under proprietary license to avoid forking risks, for free non-copylefted or persistent to aveid proliferation effects ifthe o¥ent company wishes to integrate the source code in a larger system This solution allows the combination of the tree licenses’ advantages (creating a community of programmers, fast diffusion to benefit from network effects) and those of the proprietary license (stable and known revenue flow, no contamination risk from open source licenses) 

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The double license model Open source companies using this double license model have to arbitrate twice عم موتكم اتطيم “The company’s internal resources and shite Ihe double toense model Is pert suited or fomparies nich devecp Meir components [Companies nnn make Ihe choke ty devekp frighed products must hav the eral res noeessary to foad a community ‏رو اه‎ orice ‏کی موی‎ io buy he ‘onmerael version, efertoshnica auger or an ‏اه مه هه‎ Factors of choice STR ano) Peer ee nate) Role played by the community the Woe ‏اش‎ ty ie is, he higher Me camera Versions. tee shoud) be included IO Product renown ths betrnenin the prosust pd the need it arevers aro, he easier uses ll See te useLiness. The company wl nat have to ‏ره مس موس‎ Company renown | i, te lane he fen flea comer ean soues vats an ths conan a vow iipatatt pat of the ormetil versions code, winout ang the ise of sang teres compass eee 0 ie hs less depen on the commu tse he Purchase of fn commer worsen te Fo ts Feasan, the enn verson does net need To bbeskse tthe commercial verso 

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The example of a company using the Ane doable Nearee meds) = double license model: SugarCRM ‎SugarCRM is one of the leading companies in the open‏ وه ‎‘source CRM tools sector. In 2006, it reported a sales‏ ‎figure of $6.6 milion and employed over 100 persons.‏ ‎© SugarCRM's offer is divided into two versions: ‘© The communiy version, wich contains 88% of he commercial (2 The commercial version © Sugar Professional $27 peryeer and per user (© Sugar Enfomyise: S49 per year and per user, ‏بلاطم‎ ofers more advanced funcionalies (Oracle database suppat, fine cle synchronization. fc) ‎@ SugarCRM also offers: | Aselofsonices (lechnical assistance, ortne ksining, patches sending, ef) avaiable on fs platform Sugar Network ($119 peryear and per user) = TheSugar Saes Professbnal Serie, hich allows me ] personakzee oer, It may contain an msialetion ‏هنن‎ 2. more sevarced technical assistance and 9 Coneuling of fo optimize SugarCRM sofware and adap ito ‘he specite neegs ofthe cleri. The cost of nese services can vary great (betwoon $239 and $4,995) ‎ ‎Sousas SiaaCRN, me) ‏مراف‎ (FABERNOVEL ‎ 

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A variant of this model: the commercialization of ‏اعفد‎ an associated product ‏ييا‎ ‎@ This variant consists ‏م1‎ Sete commercializing associate software, instead of selling almost identical products under two different licenses come [Sy @ The complementary monetization 4? 2 7 resis on the conversion of users dati ‏ما‎ speometstrate senor into clients: ۱ ‏نح قرست‎ ‘= The user base cannot be seen as a 4 revenue source © This base must be monetized with the adoption of @ complementary Gee mode! @ Until 1999, the company Roxen was an excellent example of this principle | Focused on the development and the improvement ofits web server, the only way to measure its suecess then was the number of daily dovmnloads and the total number of users |= Things have changed with the renewal of the management team and today, to quote one of the managers: "We have constantly moved away from the OSS concept towards a more trecitional ‘approach of selling proprietary software, We felt thet something had to be done in order to survive. The original epproach which was strongly influenced by idees within the free and open source software movement was impossible to combine with profits in our case.” (FABERNOVEL 

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The « mutualization » model rests on the ‘The mutualization mode! successive development of several modules... @ The mutualization model consists in the development of a relatively simple version of the product and the subsequent development of modules on demand ( ——— Software developers ) ع كه متا دما شا 4 4 4+ ‎nies‏ دید ‎nile‏ as ‏مهد‎ { Distrbution of tha packanes product) ‘peomore 12, Fane wrazernover [EB 

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... and generally results in the creation of ‏و‎ at on sear a community of clients @To make the development of ¢ Software developers expensive modules easier, the open source company can create a community of clients, pooling their resources to fund the module's development ‎customer «‏ معا میا متا ‎XN 4‏ — ا ‎@ This community can become durable and turn into an investors’ club, which regularly orders new modules ‎mancingo move colon ose ‎ ‎Finalized product ‎wrrasernover [Ei ‎ 

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A variant of this model consists in the ‘The mutualization mode! mutualization of modules by developers @A model frequently used by al ‏سس ال سي‎ develop the modules a ‏وا و یو وت‎ distributor-integrater has asked ==’ for foeveiocers —foevetoper2 —foovetopera— fooveioper + + 14 + @ Several developers will Jk ie 1 ۳ participate in the development wadlie nile 2 nadie 322 of the finished product which, 4 once packaged, willbe distributed to the integrators clients (chan te cage 

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The mutualization model only applies to 11112 1۳3/922/۳ very specific conditions a Solutions for v ‘argetedreeds aliowg the fast pre- erpton of he market andthe curbing ofthe competion ‘Complex product 0 the igh thm of evelopment of ‏ی‎ ofthe ‏ام هم‎ Stone develope moc WFABERNOVEL 

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The revenue configuration of companies ‘The mutustization model -] that follow this model varies Costs forclient | Costs‘or client ۳ 5 2 Core forts 0 2 eco) ntenaty ‏مد مومس‎ ‏و‎ ‎ot‏ مدب ‎= Development integration vaton 1 d0vaoprants 2 ‘thar on pay For + integration ‏ع‎ 9 integrations: ose 1۵ ‏عه 1/3 ماه‎ ‏و ی‎ development} dewlonment + 30 + integration + Integration ‎+ integration ‎Club entry fee Clubentry fee Club entry fees ‎Cuber ee Seay cen aay clits ater ‏سياه‎ contriaution contribution contribution of ‏و ی ها چم‎ egrain of ‏تاف‎ ‎sees ne ‏وا سم‎ ۳ ‏ات تیه‎ ‎ 

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The example of a company using the ‏و‎ at on sear mutualization model: Open Trust = @ Open Trust is an open source company a specialized in information security sofware, OPENTRUST™ | seven neta which employed 60 persons and had a $6.7 —— million sales figure in 2004 @ It internally develops a basic Public Key Infrastructure module: ®@ The module is presented to potential clients © Theclient community takes form © Each client wil pay for the development of 2 new module which answers his specife needs © The modules funded this way will be packaged into unique products © These products are distributed fo all members of the alient community, without other clients having to pay for modules they have not funded ™ This upgraded version is later made publicly available through ۵ downloads, aftera duration of 6 to 18 months. © Open Trust also created a « contributors’ club » with an entry fee varying from €50,000 to €100,000 and a yearly contribution varying from €15,000 to €25,000 ۳۸۵۸۵ سرع سونو مت 

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Synthesis of the different business models Spikesource, SourceLabs, ا ی کی موه مور امه سورد Senice ‏لماه‎ Sauroesotware or nteal pero, Open Cascade, deveupedsotune "™”” ‏ماوت ا‎ EON Car Teske, tesa supp ee Inert offre ‏جیوه‎ ‎Value adds codes panes oferand Teteand gaat pales aguas Novels SUSE, distnbution Updates only forthe 0 Mandiva, Mostick disinbuted sofware oe Commercial version ofthe Sofware containg pat the tay othe comurty Development of enterprise —_—_version’s code, adaptable MySQL, JBoss, SugarCRM, Double tcense Sofware (CRM ERP EMS, ‏مک مه مس هر امرس ماس‎ ). patches and updates. ‘sending and updates and/or Wengo, ExoPlateform personalaatn tthe soars to fit the client company's ae ‘Specie services, totaly suted {forthe company's needs, adaptable and at far cheaper cost than the market's prices Development of enterprise ‘Mutualization software and its complements ‘OpeniTrust, AFB, Emencia, fora pool of cients (FABERNOVEL 

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The business models distinguish themselves by the extent to which their licenses can be claimed and their monetization model Proliferating product تا وی ‎t MB bearrvech‏ اس 20۵۹۴ ‎mem Mencrve‏ ‎ca‏ هو ‎Musou‏ Spike cenicess ده Product that ean be wrrasernover EB ‘claimed (BDS license) 

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Summary @ Context and objectives of the paper @ Typology of different business models © What are the strategies to come for open source software? (FABERNOVEL 

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Four key factors must be taken into account in the success of an open source company 

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The community of developers of an open ‏و هه نع‎ source company represents an essential resource Corea Eee) rian rey 0 0 Non-price Preeti ‏و‎ ors Lena wate atngusn menses ton ctter user ty ‏م عه قط‎ eas aa fang cna nas ca sume maria es. The wees hese wrasernover BB 

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The realization of an open source project does ١ 7 Community of developers @ not guarantee the creation of a community © Community of developes are "scale ‘ree networks’, which means they are organized around a few hubs and develop according to the ‘preferential attachment’ principle stating that the more connections @ hub has, the more likely he is to gain new ones: vipassana: Example oa sate ree neers © Given these conditions, though some communities will grow quickly, a majority of projects are doomed to stagnation if they do not reach a enitical size of approximately 100 people ‘Composition of the projects developer community on Sourceforge in 2003 an el ee ita cen Pont aa Corea ees ‏هک‎ )19941(11.6% )19.8%( 33275 )34959(20,6% )47.8%( 80329 ت )31.7%( 9124 )603%( 17334 (5796) 1703 )1% 500(2 103 8544279 )40.6%( 38593 )65.8%( 53030 .۰ 287012790 (099) 796 7 2278 wrrasernover 8 

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Three levers exist to unite a community of Community of developers @ developers 

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Nevertheless, the community's contribution to the development of the source code must not be overestimated Community of developers @o @ The community of developers takes an active part in the improvement of a product but only rarely develops the care program ©@ Among the 50 developers who contributed the most to the development of SugarCRM, 95% were associates of the firm while the company only boasts 5,000 members working on some 220 extensions. Broadly, less than 15 developers create more than 85% of the basic program used in software distributed by open source companies @ The participation of users abides by the 1000/10/ rule: 1000 use the software, 10 report bugs and 1 develops patches Users’ activity ‏دور‎ ‎Simple use 1000 1 ‘= Bugs reporting = Patches development ‎aes FFFABERNOVEL‏ مها امد دج ‎ 

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Itis best for open source companies ro Established market work on an already established market @ Working on an established market ensures: = That consumers are educated, Potential customers have precisely identified their needs, which makes the monetization of the service sokd by the open source company easier ‎That a benchmark exists. Open source companies are plagued by confidence‏ ها ‎issues from users, which tend to decrease if one or more proprietary software‏ ‎have already proven their efficiency, The existence of a benchmark also‏ ‎highlights the pros of an open source product (price, quality of service, etc.)‏ ‎@ Open source's main successes emerged on a market that was under the sway of a proprietary software seller ® Database: MySQL et PostgreSQL vs. Oracle, IBM and Microsoft ®@ ERP: Compiere vs. Oracle and SAP @ CRM, SugarCRM et Compiere, vs, Siebel 0 Oracle ® OS: Red Hatvs. Microsoft ‎(FABERNOVEL ‎ 

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Managers distrust open source Alleviation of the @o@ managers’ fears companies Wain resons for refusing to adopt open source Main problems identifed among companies which solutions (2005) have adopted open source solitons and whose costs have not decreased significantly *! (200) 100%, 100% 90% ~~ 80% ‏ع‎ ‎70% 70% 60% 60% 0% 0% 40% 40% 20% 20% 20% 20% 10% 10% ont ost ‏مها فاکتعا‎ Laci of ‘west Lack of Lack of Lack of Fear of issues: ‏الت‎ appiealione’ supports’ produels supped fiom suppoditom suppottiom "relsteaio eEOorine “ereculves’ Mehead ofthe helectal od ofthe IT department "propery commer sagen nt * : Fearing lack of applications or supports forthe implemertation of open source solutions can be equaty abuled f tho realty of some stuatons and to the projudce and mtrust managers nurture towards open source solulons. These fears show wa tle knowledge managers have of open source solutions ‎BB‏ ۳۳۲1۱0 الله ها ید که ایس ند ‎ ‎ ‎ 

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Alleviation of the e managers’ fears @ Taigeted actions towards managers and business unit directors © Goal: to contradict common prejudice on the risks linked to the management of intellectual property @ Highlight the Jow legal risks that effectively come with the use of open source solutions 1 Insist on the fact that companies are in tact more likely to be prosecuted by proprietary software companies for licenses! account management problems, than by open source companies for any problem that has to see with intellectual property (rFABERNOVEL 5 Open source companies must adopt a communication policy focused on addressing the managers’ distrust یت و سرا © Targeted actions towards managers and business units directors @ Goal to contradict existing prejudice on the quality of the product and show how serious the company is about its work | Put forward the security of the ‘solutions and the guarantees offered by the open source company ‘= Prove that the provider is viable and will ast aver time, present the business mode! 

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Open source companies must provide their clients — commercial Infrastructure with a stable commercial infrastructure ۰ @ Most non-specialist users and client companies have yet to really comprehend how the open source world functions and fear they will have no one to talk to if problems arise 47% @ The only way to alleviate this fear is through the iil ae existence of an apparent commercial entity, aco sri, committed to the guarantee of commercialized eee ‏ماقا‎ 200 products and able to provide an after sales service ™ The necessary creation of an after sales service represents an important cost center for open source companies saree. prs 2008 betes ana ۳۳۸۵۴۳۸۵۷۵ [EE 

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Companies that already use open source solutions Commercial infrastructure are plagued by a lack of follow-up and support e ‘Main fears of T managers using or planning to rat renee eae ree Main disappointments after having adopted open ‘source solutions” (2005) ‘ie 100% oe: 20% 0% 20% 70% 70% 60% ae oe 50% 40% 40% 20% ‏د‎ 20% 10% 20% 0% 10% Lackottotow-up Immature product Lackatshiis gy. No Opeatngiscoster ue eo0e, ‏العام اسمس‎ “andere congas ‏دوعن لقا ف‎ then permed does ntmetsiperaons @ Open source companies must make their solutions less complex to use. This must be accomplished through an improvement of the customer relationship management. ‘on aseteoras erage, rs لتر مسد wrrasernover 

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Summary @ Context and objectives of the paper © Typology of different business models @ Key success factors shared by all business models to come for open source software? 

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Open source companies’ strategies could go through major changes in the coming years + What marketing model should be adopted? - What importance should be given to marketing and distribution? How can one deal with the competition of proprietary solutions giants setting a foot in the open source market? + How can one avoid the intensification of the competition from other open source companies? the op ۳۲۸8۲۲۱0۷۶۹ (ET) 

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Marketing strategies > ‎Companies devote an important part‏ هر ‎of their resources to thelr marketing‏ ‎depariment‏ ‎MySOL and Sugercea are srengtnering‏ =( ‎‘eirmarkeing department‏ ‎SugaCRM and JBoss ate studying te‏ ها ‎ossbilly of using Google Adverds and‏ ‎feunch advertising. campaigns on web‏ ‎banners‏ ‎1m In 2008, Firefox asked te user community‏ ‎ta controute fo the elaboration of vee‏ ‎ads, m prevsion of faure televised and‏ ‎‘ved campaigns‏ ‎Companies do not rely solely on vial‏ © ‎adoption and develop _— their‏ ‎‘communication capacity‏ ‎This strategy allows companies to‏ و ‎better target their clients and gives‏ ‎them more control on their image‏ ‎ ‎Two marketing models go up against ‎Trial versions relatively close to the commercial ane are available through free download ‎(© The communty version of SugarCRM ‎contains 05% ef Sugar Professionals code ‎1 Aesco's tel version contains 100% of the commercial version's code ‎After @ trial period, the user needs ‎support and additional functionatities ‎Marketing expenditure is limited, the company's resources being focused on product development ‎each other ‎ 

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Most open source companies’ managers Marketing stratesies i underline the low marketing and distribution costs @ The marketing model of open source companies would be of pull type, with the objective of getting the maximum number of downloads of the free version and monetizing this base @ Open source companies do not have to push for the adoption of their products with massive marketing campaigns ‘Acquisition cost of a eient[% ofthe سوه یه هه ‎eth is hae rou cong ere‏ 2500 ۳0 ‎os‏ ‏مم ‎om‏ ‎mm‏ ‎o 3‏ = 100% 9 = ۳ 2 2 0 2 ‎‘SugarCRM Proprietary software boss Proprietary software‏ ‘Sautces Goaman Sachs, SugaCRM, Joes, taerovel analyse ۱ ‏ع/ا0‎ 

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However, the marketing expenditure of open source Marketing strategies 05 companies increase with their development ‎Marketing and distribution spendings are cost tems that are not important when the company is created‏ وه ‎but that are bound to grow with its development‏ ‎© The ‘adoption through use” process does not perform well for transactions dealing with high emounts of money, buts nevertheless vindicated when It comes to the ones dealing with low amounts ‎Thus, the business model of an open source company can:‏ و ‎Net Integrate high marketing anc distrouslon caste inthe feet place. tring resources the company can use fo‏ ©‘ ‎focus on Me development of Hs product. The product by self must bring inthe rt cSents (constitution of‏ ‎community of users)‏ ‎Plana some pol inthe ture high marketing expencture to controls corperate image‏ ©‘ ‎Add commercial acion expensiture, focused on the corporate customers‏ =| ‎© An intensified cammunication policy is all the more important that the access to the sauree cade is nat a reason to adopt open source solutions in its own right Use of the source code by the companies* (2005) ‎ ‎‘The souree code is sean The source cade The souree cade ischanged No ona has bt not changed is changed ‘and the community of seen the source code developers is informed sep 96 mares ‎‘net 205 anal anes ۳۲۸۵۴۳۸۵۷۵ 5 ‎ 

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Communication strategies could become Marketing stratesies i > more targeted ® The cost of IT tools is rarely supported by the departments who use them, but is allocated either * ® Tothe IT department ®@ Tothe company as a whole @ Members of a company’s different departments would rather order a proprietary software, because ‏ها‎ They find it more “secure” and are used to working with it ‎They do not have to bear the cost of using a proprietary software, as it is‏ ها ‎allocated to another department‏ ‎@ Open source companies must consequently have an active communication policy towards companies’ general management, insisting on the overall reduction of the costs should open source solutions be extended to the whole of the companies’ departments ‎1+ Tne pursue a ta ene tyne maki dept are a’ ost tan be recy site pata Be aie cate 2 panes mes ‎ 

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Open source companies must deal with the Eibrmer,cqmpstiionenthe open competition that proprietary software firms source solution market z= represent ‎Proprietary sofware companies have recently made massive investments in the open source‏ ها ‎sector:‏ ‎= 18M 2001 : announcement of a $18 investment programin Linux ‘= IBM 2005 : $4.58 estimated revenue coming fom open source ‎© This orientation corresponds to a change in strategies from proprietary software companies, more than to a simple effort to improve their image: | Ona sample of 50 open source projects having areal acivty in 2005"), 18 received 99.99% ofthe Investments mace between 1995 and 2005 ‘= This high concentration reveals an internal selection process of the investments and highlights the strategie nature ofthese actives for the proprietary sofware companies ‎ ‎100% 7 Companies that contribute the most to the impravement of open source ‎es ‘solutions according to IT managers" (2005) ‎70% ‎60% ‎50% ‎40% ‎04 ‎2% ‎10% ‎۷ ‎RedHat an ‘The Apach Sun FreeSofware Oracle ‎1 Solyrece Microsystems Foundation ‎onsale cts ‏توس‎ soem ‎ ‎۳ ۳۵۵ ‎ ‎ 

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1 i Fiercer competition on the open Open source software companies remain the oe et elution market = biggest contributors to open source codes yet ۳ © Open source firms keep investing extensively in source code develoment Top contributors to open source code development” [Ie] (2006) sun 0 RedHat Silicon SAPag MySQL ab sraphies com. ® However proprietary software companies are integrating the development of open source codes into their strategies. The amount spent on open source by these firms should increase in the near future “ena sample o 960 companies wich reprecet tll of 128 coe ‏اوه‎ ‎‘Sources: UE 2005, aberNovel analyses ۱ B 

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Proprietary software companies now use Fiercer competition on the open open source solution to monetize their source solution market == proprietary solutions © Proprietary software companies resort to the complementary monetization model and to a users locking policy: @ The free or at a very low cost distribution of open source solutions grants influence in determining which standards will be used by the user community and leads them towards proprietary solutions on different segments ® Once this influence has been exerted, users are more likely to pay @ high price for the proprietary solutions offered @ IBM and Oracle are a periect example of this strategy ‏ه‎ The two firms are in direct competition with open source solutions on their core business, especially middleware solutions and company applications ‏ها‎ They develop open source projects on market segments that do not correspond to their core business. Thus, Oracle contributes to the development of Apache, Eclipse or PHP on the middleware tools development segment FABER! 

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Fiercer competition on the open The open source world could be led to ‏اما -سيتكا‎ evolve along 3 axes 3 Sector integration 1 انا ع ی ين So ‏نهاء‎ Niche seeking strategy Increased cooperation with proprietary software ‘companies wrrasernover [ER 

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1 8 Fiercer competition on the open Atrend towards the integration of open ‏اماد سيتكا‎ = source companies is appearing ۳ ® Sector integration Is one of the standard outcomes of an increased competition @ In the open source sector, there are two different forms: ® Vertical integration: the companies of the same industry (application server, database management) integrate the elements of the value chain as a whole, from the production to the distribution, to the sale of complementary services, e.g. Novell Bull and Open Trust signing a partnership regarding technical support for Novell solutions in September 2004 ® Horizontal integration: companies keep the specificity of their business model and try to reach a sufficient critical mass, e.g, Alliance Open Trust HP and Atos Origin collaborating to create a unique and centralized support platform (FABERNOVEL 

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Niche seeking or cooperating with proprietary software Fiercer competition on the open compa iF , lution market 's are riskier solutions at first glance ‏هک‎ == 0 @ The relatively low development costs @ The cooperation with proprietary of open source products software companies ® Allow the adoption of a niche © Allows open source firms to strategy (amortization of the benefit from precious skils (e.g, Investment on a scaled-down user ‘marketing and commercial) base) © Can recultin a providericlient type © Limitthe sector's barriers to entry of relationship (a catalog of small (constant threat posed by size providers for a global client) newoomers) (FABERNOVEL 

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Allow us now to introduce ourselves... ۳۲۸۶5۲۱0۱۶ [FF] 

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faberNovel’s activities are split into 3 units Consulting ۳ (Bo venturi ‘Strategy and organization for Experimentation and project Internal project development growth and innovation management and investment @ Venture capital, “excubation” ‘slovestment and development 1m Strategic experimentation ‏موه‎ of anavalion risks W Assisting large groups on methodology, analysis and ‎mains ssFast acauistion of key now efintemal projects‏ معدم ‎hove and sits ‘company creation assistance‏ ‎Innovation consulting ‘© Conception and development incaptal shacesofering‏ هو ‎overage‏ مامه امه اقمع ‎‘minnovaionstategy of innovative products and‏ ‎smorgarization and innovatien cones‏ 0 بویت دنه ‎ye‏ هد ام اوم مهس موق انواس ‎smanagene‏ ‎‘=RED potfoto management‏ ‎smconception and business 282‏ ‎vatiaton‏ ‎andidetfesion of iAdigitick‏ جو لصفي عه ‎pases caMprod ‏ماهس‎ ‎Timuzo ‎wrrasernover [ES ‎ ‎ ‎ ‎ 

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faberNovel oversees projects from their positioning to their realization ~ ‏في‎ ‎Ascending innewation ‏تن‎ ‏ورزصيويية‎ Stevens md ‏هد‎ ‎Process Change Investment Campton ‏معاد وی‎ Development R&D innova ‏ممع ار‎ CONSULTING ۳۵۳ Fis oat ۵۵ ‏ات‎ ‎۱ —" Création de startups "=" Organization pict Entrepreneurship a Technology transfer Susy Projects ‏مس‎ ‎Mathxtalogy‏ سود ‎ ‎Coneeption ‎ ‎Prospective intelligence Experimentation Uses Early adapter xP i Partners: Fosity Test ‎Benchmark ‎(FABERNOVEL ‎ 

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faberNovel Consulting heads all of faberNovel’s consulting activities faberNovel consulting’s mission: stimulate firms’ innovative genes. @ Prospective intelligence @ Strategy ® Implementation, ‘= Technologies ‏و‎ Growth strategy ‏و‎ Compatiive benchmark Markets ‏ل«‎ Innovation platform ‘a Functional specifications = Uses. |= Project portfolo management |= Parinerships/Monetizaton |= Innovation management = Organization ‘= Change management (Participative imnovaton(idea | Sharng best practices ۳ ‏سب و‎ inien | Caliaborative innovation {Qustomer Relationship | ‏دا هرهب‎ 5903-0 ‏ل«‎ Technology transfer |= rsraprenourship development wrrasernover [EB 

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If you want to know more on this subject, do not hesitate to contact us... 42, boulevard de Sébastopol | 75003 Paris | France Tel: +33 1 42 72 2004 | Fax : + 33 1 42 72 2003 Email stephane distinguin@fabernovel.com ۳۲۸۵۶۲۱۱0۷۲ 

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FABER NOVEL [fabern>vel] cabinet de conseil - 2003 : lat. faber, qui fabrique et novel, dimin. de novus, nouveau. le STRATEGIE Politique d'entreprise dans les secteurs impliquant des technologies de pointe ; innovation de rupture. 2+ ORGANISATION Services d'optimisation pour la performance de l'innovation 36 MISE EN ۵ Déploiement de dispositifs d'impulsion et de gestion de l'innovation, conduite du changement et formation pour l'innovation. 4 ASSISTANCE A MAITRISE D'IOUVRAGE Etude de faisabilité, pilotage et accompagnement de projets innovants. 5+ PROSPECTIVE Anticipation de tendances et d'usages technologiques, études veille et méthodologies pour l'innovation, wrazernover [BB 

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‎and apprctiy in Open Sours fiver’ intemaioa! Jowna f inavation Management ۵ ۵۱5۲‏ له و۱ .| ههام ‎Spt 2005,‏ ,25-205 ‎Soul Rehab Aer, MERIT (2008), “Eeonemk, nese! of FLOSS on lmievaien end combetiveneas of the EL ICT, sedar ‎ ‎‘Golde mst Muligan, x A (2007, How to Tun an Gpan Source Prodi int a Carmatca Busnsse, Fonalar Resour, January ae a ‎olde, (2005), "Open curs saps fsup, bt Concams Linge’, Forester Reseach Paper, June 2% 2005, ‎lensis Mateo and chars GregotyL (2008), ‘Ts Eusiess of Free Software: Enric ncenties, Invent and Motivation inthe ‘pen Source Communty), Working paper, Harvard Busness Schoo ‎Juin. Glrane Fontaine, M. ana Dsle.1Mjunderthe deeton cf}, Neweaux Wbabesezcnomiquss, newll acandie a logiciel, Fr roper Jay 2000 ‎sna Sandeep (208), « An Analss tf Open Source Business Mdels , lng parr, nvesy a Washinain, Bea Lema, Jandel, J 2000, "The Simple Eexncics cf Spon Source", NBER Wha Paper, No, 7600. Lea, J anal, J (2007, The Opn Seu Movamant: Key ResBeren Ovestone’ Euneean Ecwmone Revaw, 58105598 Mie. (2004) « Uceneas omnis ot medias aares open sae, 19° MS coofrene, 2008 ‎۱ (2007), “snes rms and te payment of epet-soutce satiare puLSnET, Muaisahon ‏اق‎ ofanal twsineds moos [Contence* Their af FLOSS ana th Crgaeaton ofthe Satwaca neiay: From Sel Natwest enna and onal Dds NeeSophes Ape, May Sth nd ie jun 2009 ‎Pal Ne Madanmotan T2002), “Competing en Gpan Sour ‏و‎ and Practise’ MIT Wonng Papa Rogers, Cus a navstens th Free Pres, 1095 Raymon E (1800), « The Cathedral and ‏اه ادف اوه سور له و۱ و سس‎ ‎Schif Aaron (2002), « The Econcmis o pen Saree Shite Suvey cf he ‏رد مه سا وه‎ of Melman Economic, ۱ Iseoue tac 2002 ‎omer, M 2000 Open Sau» Commuity Bulking», Worg Pager, Open Souree Commanty, MIT ‏یاه هه اه هل‎ ‎‘alas. (2008, «Ova Licensing in Open Scurce'Sétwareincusty x Sytem avGrmeten f Management!) 5 ‎Wall, S, Gynn D. st yon Retz B, 2005) “The Growth of Open Source Soars in Cromnzations’, Oniats Wl paper, ‎XU, 1, Gan Y, Chasey, Set Maroy G. (2008), “A Topleacél Anoyse Gf the Open Source Severs Development Communi Precesenasrina 35% ewan inomalna! Canfyence on Systm Siencee 2005 ‎۳۲۸۵۲۱0۷۵ ‎