SYSC 5801 Open Source Business Session 9: Nov 14 Fall 2011 - - PowerPoint PPT Presentation

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SYSC 5801 Open Source Business Session 9: Nov 14 Fall 2011 - - PowerPoint PPT Presentation

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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

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weiss@sce.carleton.ca Licensed under a CC BY-SA license

SYSC 5801 Open Source Business

Session 9: Nov 14 Fall 2011

Michael Weiss

www.carleton.ca/tim www.carleton.ca/tim/tim.pdf

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weiss@sce.carleton.ca 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

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weiss@sce.carleton.ca 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

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weiss@sce.carleton.ca 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

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weiss@sce.carleton.ca 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

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  • 2. Making money from open source
  • Compare how traditional software companies make

money to open source companies

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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

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Canvas for n-sided platform

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Canvas for open source

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Level of investment in open source

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Bootstrapping Contribute Back Sell Complements Pool Resources Stage Level of investment

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Pattern thumbnails

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Bootstrapping Use existing open source in your products to get something working quickly and keep costs low Contribute Back Contribute back to the project in order to keep aligned with the open source projects Sell Complements Sell products or services (such as hardware or support) that complement the open source product Pool Resources Maximize use of your resources by pooling them with other companies to develop a common stack of

  • pen source assets that the can all build on
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Key decisions re: open source

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Create Pull Run a Tight Ship Donate Code No Single Vendor in Charge Dual License

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Pattern thumbnails (continued)

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Run a Tight Ship Keep in control of your project’s direction by 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 Vendor in Charge Attract companies to contribute to an open source project that you created by transferring ownership of the code to an independent foundation

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  • 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
  • bstacles to OI?

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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

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Structural approaches

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Pooled R&D Companies contribute to a shared effort, and exploit 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

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Product-oriented approaches

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Sell comple- ments Companies target the part of whole product with the highest value, building on external components Examples: Apache/WebSphere, WebKit/Safari Applicable when complements are more valuable than platform, and firms contribute back to the platform Donate comple- ments Companies offer an extensible platform, external contributors add variety and novelty Examples: Half-Life/Counter-Strike, open API/mashups Open source complements are less common than

  • pen source core innovations (customer facing part of

a system seen as best source of differentiation)

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Open source strategies and OI

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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

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  • 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

  • pen; however, experience with open source

increases openness, but ideology matters less

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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
  • ffers opportunities for learning and gives access to

customers, expanding on argument made in (von Hippel & von Krogh, 2003; Stuermer et al., 2009)

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  • 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

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Lessons

  • Granting access to platform involves licensing the

right to use platform (selective or all comers)

  • Access to platform can range from no access, select

licensees and niches, select licensees, to all

  • Highest innovation rate for select licenses
  • Granting access to operating system provided 5x

increase in rate of handheld device development

  • By comparison, the effect of giving up control over
  • perating system was much smaller (20%)
  • That is, innovation in complements was affected

more by opening than platform innovation

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  • 6. Key lessons

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  • 7. Key concepts
  • N-sided platform
  • Freemium
  • Complement
  • Open innovation
  • Hybrid business model
  • Accountability
  • Ecosystem

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  • 8. Questions
  • In Boudreau (2010), the platform was the software:

can the platform also be the hardware?

  • Boudreau (2010) discusses platforms provided by

specific for-profit entities: do the findings also apply to shared platforms like Eclipse (control is shared)?

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Upcoming sessions

  • Introduction
  • Participation
  • Community
  • Modeling
  • Process
  • Architecture
  • Business models (Nov 21)
  • Licensing

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weiss@sce.carleton.ca Licensed under a CC BY-SA license

Next class

  • Readings

– Feller (2006) – van der Linden (2009) – Rajala (2010) – Allarakhia (2010) – West & Mahoney (2009)

  • Key concepts

– Ecosystem – Commodification through open source – Strategic flexibility in design of business models – Knowledge production and cooperation – Participation architecture

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