OSS Business Models Touch

1
OSS Business ModelsTouch Go
René F. Reitsma Jan. 25, 2007
2
OSS Business Models Overview

• OSS Business a love/hate relationship?
• Revenue side OSS businesses
• Heckers/OSIs four OSS business models.
• Hybrid complex models e.g., SAP/IBM.
• Does the market buy it?
• Cost side Businesses using OSS
• Cost accounting issues.

3
Do OSS Business go together?

• OSS is collectivism/ideology/cultall and any of
  which are bad for business
• Threat to free enterprise.
• Cooperation inferior to competition.
• Ignores peer review (Raymond, The Cathedral the
  Bazaar).
• Rejection of intellectual property rights
• IP protects property investments.
• Threat to innovation.
• Direct threat to proprietary vendors.
• Linux/OSS as a disruptive technology.
• Halloween documents (Microsoft, 1998).
• Steve Ballmer (Microsoft, 2001) Linux is a
  cancer that attaches itself in an intellectual
  property sense to everything it touches

4
OSS Business From Free to Open

• 1984 2007 Richard Stallman Free Software.
• 1998 Open Source Initiative
• Free software does not sit well in the business
  community.
• Free-of-charge cannot possibly be good.
• Ideology-driven software is suspect.
• Raymond Stallmans wholesale attack of
  intellectual property in software is lousy
  marketing.
• We realized it was time to dump the
  confrontational attitude that has been associated
  with "free software" in the past and sell the
  idea strictly on pragmatic, business-case
  grounds
• Open Source stuck.

5
(F)OSS Business

• Richard Stallman (1984) GNU Manifesto
  Programmers need to make a living somehow.
• A manufacturer introducing a new computer will
  pay for the porting of operating systems onto the
  new hardware.
• The sale of teaching, hand-holding and
  maintenance services could also employ
  programmers.
• People with new ideas could distribute programs
  as freeware, asking for donations from satisfied
  users.
• Users with related needs can form users' groups,
  and pay dues. A group would contract with
  programming companies to write programs that the
  group's members would like to use.

6
OSS Business Models

• Late 1980s 1990s OSS Businesses established
• Frank Hecker (1997Netscape)
• Netscape Source Code as Netscape Product.
• if the business benefits of releasing source
  code outweighs the benefits of keeping it
  private, then companies should seriously consider
  whether, when and how to release source.
• Introduces several business models.
• Business Models (http//www.opensource.org/advocac
  y/case_for_business.php)
• Support sellers. Sell services for OSS users
• Cygnus Solutions (founded 1989 merged with Red
  Hat Inc. in 1999).
• Red Hat Inc.

7
OSS Business Models Cont.d

• Loss leader. Give away something to sell
  something else
• Adobe reader, FrameMaker reader, Authentic
  (Altova), IE, Netscape Communicator, etc.
• Is this a marketing rather a business model?
• Widget frosting. Sell hardware, make it
  attractive with OSS utilities, drivers, etc.
• VA Linux (now VA software).
• IBM/HP workstations.
• Accessorizing. OSS accessories
• OReilly Associates Inc.
• ThinkGeek.com taken over by Andover.net taken
  over by VA Software.

8
OSS Business Models Cont.d

• Multimodel hybrid model companies
• Linuxcertified Inc.
• Support.
• Linux laptopswhat model would this be?
• Training (support seller).
• International Business Machines Corp.
• Rethinking the current IP systems business
  approaches.
• Customers want Linux on their IBM machines.
• Sell system design development turn-key
  solutions.
• Systems themselves can be open source.
• OS is open source.
• Support third party vendors such as SAP on Linux
  IBM.

9
OSS Business Models Cont.d

• Larry Augustin (VA Software, SugarCRM, MedSphere,
  etc.)
• Compressing the cost of the computational stack
• Apps e.g., SAP
• Servers (Web, database, etc.)
• OS
• Hardware
• Cost savings (not a real business model)
• CUPS (Common UNIX (Cisco Universal?) Printing
  System).
• DEC accounting system.

10
OSS the Market Volatility

• Red Hat Inc.
• Founded in 1993, Raleigh, NC 1740 employees,
  worldwide.
• IPO 1998 (NYSE, RHT).
• Fiscal 2007 3rd Quarter
• Revenue US105.8M (45 up year-over-year).
• Subscriptions US88.9M.
• Net income US14.6M 7 of revenue
  US0.07/share.
• Share price US22.
• P/E ratio 80 (IBM 20 Microsoft 21 Google
  50).
• Volatility What causes the big swings?
• What about VA Linux/Software (LNUX)?

11
OSS Cost

• Businesses create income in two basic ways
• Increase revenue and/or lower cost.
• Big question does using OSS lower your IT cost?
• OSS world yes! Proprietary world no!
• No generally accepted OSS cost accounting
  practice.
• Assignment three Linux vs. Windows cost
  accounting studies
• Cybersource (2004) Linux wins.
• Gartner (Yamamoto Krammer, 2005) Windows wins.
• Yankee group (2005) Windows wins.
• Describe and critique the cost accounting
  methodologies of each of these three studies.

12
OSS Cost Cont.d

• Cybersource Explicit cost model
• Advantages
• Explicit (theory-based) cost model.
• Can be individually modified.
• Separates cost structure from cost amounts.
• Disadvantage
• Validity of the model.
• Equivalence among alternatives? (e.g., SQL Server
  vs. MySQL).

13
OSS Cost Cont.d

• Cybersource Explicit cost model
• Advantages
• Includes explicit cost model.
• Can be individually modified.
• Separates cost structure from cost amounts
• Disadvantage
• validity of the model.
• Equivalence among alternatives? (e.g., SQL Server
  vs. MySQL).

14
OSS Cost Cont.d

• Gartner/Yankee Opinion survey, non-structural
  cost model
• Advantages
• Provides a community or average view.
• Easy to collect.
• Intangibles (security reliability freedom!),
  easy to collect as opinions.
• Disadvantage
• Poor correspondence between average and an
  individual firm.
• No real cost model independent cost categories
  importance weights

15
OSS Cost TCO Woes

• Yankee Group (p.2)
• more than 50 of the respondents said that they
  had performed a thorough TCO analysis. But when
  asked to calculate their specific Linux Windows
  capex and maintenance costs, 75 could not
  answer explicit questions.
• The absence of such crucial financial
  information makes it difficult for corporations
  to make informed purchasing decisions and it
  heightens the risks when choosing technologies
  that are ill suited to their business needs.