Best Practice in Innovation, Entrepreneurship & Design

Open-source business models: Creating value from free stuff'

31 March 2010 - 18.00 to 19.30 Panellists: Prof. Bart Clarysse - Chair in Entrepreneurship, Imperial College Business School Ryan Ozimek - President, Open Source Matters and Co-Founder, CEO, PICnet Inc. Robert Ackland Technology Manager, The Symbian Foundation Prof. John Mullins - The David and Elaine Potter Foundation Term Chair in Entrepreneurship and Marketing, London Business School

Open Source

Prof. Bart Clarysse Chair in Entrepreneurship b.clarysse@imperial.ac.uk

Agenda
What is Open Source? History of Open Source Open Source Licenses Business Models of Open Source Conclusion

What is Open Source?

Open source is a development method for software that harnesses the power of distributed peer review and transparency of process.
(Open Source Initiative, OSI: www.opensource.org)

Source code is available (different from shareware for instance) Everyone can contribute to development Usage, modification and redistribution of source code are permitted under the corresponding license conditions OS software: Better quality, higher reliability, low cost

History of Open Source (1/2)

Early 1960s to early 1980s: Operating systems were being developed in academic settings like Berkeley & MIT, operating code was being shared. Co-operative software development was being undertaken for UNIX Early 1980s: AT &T began enforcing its IP rights related to UNIX 1983: Free Software Foundation was setup by Richard Stallman, and GNU project is launched 1989: General Public License (GPL) was written as part of GNU project

Simple Economics of Open Source, Lerner & Tirole, J ournal of Industrial Economics, June 2002, V ol. L(2)

History of Open Source (2/2)

1991: Linus Trovalds makes his Unix Kernel, LINUX, available. Early 1990s: Rise in internet access leads to acceleration of OS activity. Interactions between commercial companies and OS community rise. New Open Source projects emerged. 1998: The term Open Source is announced by Eric Raymond, Open Source Initiative (OSI) established. Today: Nearly 222,000 Open Source projects listed on SourceForge.net

Simple Economics of Open Source, Lerner & Tirole, J ournal of Industrial Economics, June 2002, V ol. L(2)

Open Source Licenses (1/3)

66 OS licenses listed on OSI (Open Source Initiative) GNU GPL, GNU LGPL, BSD, Apache License, MIT are listed as popular and widely used licenses by strong communities Copyleft: the right to distribute copies and modified versions of a work and requiring that the same rights be preserved in modified versions of the work Restrictive Strong-Copyleft -GNU GPL Weak-Copyleft -GNU LGPL -Mozilla Permissive No-Copyleft -BSD license -MIT license

Open Source Licenses (2/3)

Strong-copyleft: Derivative work based on the original must be licensed similarly Weak-copyleft: Derivative work based on the original must be licensed similarly However, derivative software can be released under a different license under certain conditions Large works incorporating such software can be kept proprietary No copyleft: Developers are not obliged to inherit the license of the original software for any derivative software
Determinants of the choice of OS license, Sen et al.,J ournal of Management Information Systems, 2008, V ol 25 (3) Choosing an Open Source License, Engelfriet, A. IEEE Software, Jan/ Feb 2010

Open Source Licenses (3/3)

On 25th March 2010, SourceForge.net hosted 221979 Open Source Projects
Open Source License distribution on SourceForge.net

GNU GPL : 49.7% GNU LGPL: 8.5%

28.21% 49.67%

BSD License: 5.5% Apache License: 3.1% Public Domain License: 3%

2.17% 3.15% 2.84%

5.48%

MIT License: 2.2 % Rest: 28.2 %

8.49%

GNU GPL

GNU LGPL

BSD

Public Domain License

Apache License

MIT

Rest

Business Models of Open Source

Company that owns OSS
Dual License Consulting and support services Loss leader for traditional commercial software Custom development Merchandise/ Accessorising Reducing development costs

Third-parties using non-corporate/ community OSS

Developing derivative products and extensions Consulting and support services

Who makes money with OSS

OSS

Corporate owned

Community owned

Corporate owner

Community

Thirdparties

Ways of making revenues with Open Source

1) Corporate Owner A. Reduce development costs B. Generate revenues
Dual License/ Loss leader for traditional commercial software (e.g. Alfresco Software, DotNetNuke) Consulting and support services (e.g. Acquia, eZ Systems) Custom development (e.g. Automattic Inc, Silverstripe) Developing Extensions (e.g. Alkacon Software)

Case: Alfresco Software, Inc

CMS: Alfresco Dual Licensing for Alfresco Open Source CMS
Subscriptions for Enterprise Edition Training & Consulting

Founded in 2005 (UK) License: GNU GPL VC funding: $19.45 million # employees: 37 Sales: 7.8 million

Case: DotNetNuke Corporation

CMS: DotNetNuke Dual licensing and commercial services Founded in 2002 (USA) License: MIT License VC funding: $ 8 million (+) # employees: 16

Case: Acquia
CMS: Drupal Commercial support services for Drupal Founded by Drupal creator Dries Buytaert in 2007 (USA) License: GNU GPL VC funding: $ 15 million # employees: 25 Sales: $ 1.9 million

Case: eZ Systems
CMS: eZ Publish Training and Consultation Services Founded in 1999 (Norway) License: GNU GPL, BSD, Own licenses VC funding: $ 5 million (+) # employees: 85 Sales: 3.3 million Profits: .15 million

Case: Automattic Inc.

CMS: WordPress Custom development, hire-out consultants Founded in 2005 (USA) License: GNU GPL VC funding: $ 29.5 million (+) # employees: 3 Sales: $ 0.19 milion

Case: SilverStripe, Ltd.

CMS: SilverStripe Custom Website Development Founded in 2005 (New Zealand) License: BSD License VC funding: No SilverStripe recorded 190% revenue growth between 2007 and 2009, ranking SilverStripe the 37th fastest growing business in New Zealand as calculated by Deloitte for their 2009 New Zealand Fast 50 awards

Case: Alkacon Software

CMS: OpenCMS Developing Extensions Founded in 2000 (Germany) License: LGPL VC funding: No # employees: 10 Sales: 1 million

Who makes money with OSS

OSS

Corporate owned

Community owned

Corporate owner

Community

Thirdparties

Ways of making revenues with Open Source

2) Community

Pay off the server and hosting expenses

Merchandise/ Accessorising (e.g. Joomla!, DokuWiki) Donations (e.g. e107, MediaWiki, Impress CMS) Advertising (e.g. ModX)

3) Third-parties Generate revenues

Developing derivative products and extensions Consulting and support services

Third Parties-Joomla Extensions and Service Providers

~300 micro and small companies, none have VC investment Statistics*
Employees: 3 2006- Revenues: 51,197 2007- Revenues: 115,706 2008- Revenues: 124,237 2006- Net Income: 12,786 2007- Net Income: 11,892 2008- Net Income: 13,576 (900)# ( 15.4 million) ( 34.7 million) ( 37.2 million) ( 3.9 million) ( 3.6 million) ( 4.1 million)

*MEDIAN values based on financial data for EU companies available in Amadeus database
# Extrapolated

for 300 companies

Conclusion

Open Source is indeed changing how software is built and how money is made!

Biz meets open source CMS

A short, practical example of business success in a free stuff marketplace Ryan Ozimek Imperial College Business School March 31, 2010

Who am I?
Ryan Ozimek Chief Executive Officer, PICnet President, Open Source Matters Evangelist, open source software

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

25

Overview
Joomla!: an open source success story Business ecology around the Joomla software Micro-level implementation and success

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

26

The key market opportunity

Open source freedom means free as in free kittens An ecology of businesses blossom around providing services and extended the value of open source software

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

27

The key market opportunity deliverables

Infrastructure tools and services Productised add-on functionalities Implementation services Customisation services Education and training Support services

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

28

A short story of open source success

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

29

Joomlas success story

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

30

Joomlas success story

Content management system (Web framework) Created by a corporation in Australia Open sourced to the community Community involvement skyrockets, development boom Small businesses begin selling add-ons Consulting firms provide implementation services Cloud computing firms virtualise services The results

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

31

Joomlas success story

15,605,591 downloads of Joomla 1,992,970 posts on the Joomla forums 365,883 registered community members 201,200+ registered developers 2,000,000+ estimated live sites 4,565 registered extensions (add-ons), all GPL licensed

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

32

Possible business models?

Products Services

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

33

Product models
Design templates Development extensions Packaged suite offerings

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

34

Design templates

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

35

Develop productised extensions

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

36

Service models
Custom design/development services Retained support services Product delivery models

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

37

Success is in servicing the niche markets

www.nonprofitsoapbox.com
March 31, 2010 Imperial College Business School | Ryan Ozimek @cozimek 38

Success is also in the long tail

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

39

A short story of an OSS + biz relationship

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

40

PICnets short history

1999 an NGO trip to Kosovo

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

41

PICnets short history

2001 a political Web portal

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

42

PICnets short history

2003 open source Web development firm

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

43

PICnets short history

2007 software as a service provider platform

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

44

Integrate, dont reinvent

Open source tools can provide the pivot point Its 2010, theres TONS of great software and Web services out there. Add value by delivering the niche solutions to the marketplace. Use the right tools for the problem

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

45

Be a bridge builder

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

46

How to build bridges

Build it yourself

Build it together with the community

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

47

Relationships are greater than the tools

>
March 31, 2010 Imperial College Business School | Ryan Ozimek @cozimek 48

What to look for in your OSS community

Active communities with strong diversity (engineers, businesses, users, views and values) Strong local language community

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

49

What to look for in your OSS community

Lots and lots of users, leverage the crowds Joomla has more than 300k registered and active users, with more than 15.6 million downloads

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

50

Nurture relationships with the community

Free support! Easier access to thought leaders and experts your business might need for future solutions Opportunity to reach large community of potential users

Cultivate relationships, dont just use tools

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

51

Impact of Joomlas success

More than 2 million easy to manage sites published Code valued at more than US$2,000,000 Provisioning of powerful and affordable software to those who normally couldnt afford it

March 31, 2010

Imperial College Business School | Ryan Ozimek @cozimek

52

Thanks!
Ryan Ozimek CEO, PICnet www.picnet.net President, Open Source Matters www.joomla.org Twitter: @cozimek cozimek@picnet.net
March 31, 2010 Imperial College Business School | Ryan Ozimek @cozimek 53

Initial code contribution 250 million phones shipped 250 different phone models 2009 100 million phones shipped Symbian Ltd was founded 1998 2006 2008

Nokia acquires Symbian Ltd

Copyright 2009 Symbian Foundation.

Public