Product - and Service Related Business Models for Open Source Software

The buzzword “open source software” is gaining in importance and popularity in public, and more and more people are interested in this phenomenon. Yet up until now most of the literature concerning open source has mainly dealt with the technical aspects of the software. The non-technical side, such as discussing the economic aspects in an overall concept, have been neglected thus far. This paper presents a scheme to describe and analyse business relation of the interacting parties involved in the open source process. Additionally business models will be described briefly, divided into two categories: the product-related and service-related. Both business models can be applied to participants in the open source model. The product-related business model deals with the issue of distributing open source products (like Linux and StarOffice). The first model is handled quickly, as much has been written about this in different studies. The service-related business model is handled in greater detail, as the services constitute new business opportunities for companies, particularly also companies today mainly active in the market for proprietary software. As an example which questions have to addressed in a business model the role of system integrators in this market segment is discussed 1 Open Source Business Models Open Source Software (OSS) has gained a lot of attention recently. OSS addresses more and more user groups, customers are beginning to ask directly for OSS-based solutions, and the OSS market is maturing. Under these conditions, many bricks-andmortar companies are discovering the field of Open Source Software and discussing challenges and benefits. A substantial discussion would fill an entire book. So only a brief summary of the economic aspects of OSS and some hints for relevant questions to be answered for valid business models can be given 1.1 Definition of Different Roles in the Open Source Process To make use of the advantages that software development in an open source style provides and to make use of the results already available, business models for OSS have to be developed that constitute a win/win-situation for all parties involved in the open source process. This seems to be even more relevant in this market than in others, because the fundament – the OSS-community – is not controlled or steered by the “normal” economical driving forces. Instruments usually used to handle partnerships like contracts and commissions are missed. So on one hand, we must find out how companies can benefit from the open source approach by selling OSS-related products and services. New business models have to be developed that allow companies to use OSS in their portfolio. Simultaneously, the reward and contact to the OSS-developer community has to be secured. In the beginning there were two main roles – developers of OSS and users of OSS. Often these two groups were the same people. With the growth and maturity of the segment, some intermediary roles arose to offer OSS in a marketable and customeroriented way. Still some users take OSS directly from the developer community. But, as the market continues to develop, more and more customers are non-IT specialists, and intermediaries are needed. An example: A company wants to change its operating system to Linux. It needs consultancy for this change process, authorizes a system integrator or software company, gets the Linux packages from a distributor, such as SuSE or Red Hat. The distributor, in turn, takes input from the developer community and adds modules to it. This results in a completed Linux package. Full services along the software value chain, including consulting, customization, implementation, integration, training and support must also be provided to the end-user. So by analyzing the open source process, five different roles can be identified in the open source development. To better understand the open source phenomenon, these five roles need to be differentiated, as regards their functions and interrelations. The five roles1 are: • Developers: Private developers, professional developers, developers from academia • Distributors: Bundling and packaging of software. Offering releases in a product-style. • System integrators: Providing services along the value chain. Consulting and customization of software for customers. Integration of software into existing customer structures. • Software and hardware companies: Selling software and hardware. • Users: Home users, software developers, companies or institutions. 1 “NOW”-project: introduction in open source software and analysis of economic and legal aspects of the open source concept; definition of different roles involved in open source process; p. 98 Open Source Software Open Source Products payment Open Source Software Open Source Software Open Source Products Open Source Products