Business of Open Source

The Business of Open Source
TIM Lecture Series
Dec 12, 2013

www.timprogram.ca
www.carleton.ca

Michael Weiss

weiss@sce.carleton.ca

1

Licensed under a CC BY-SA license

Outline
★ Part I

★ Part II

• Open source business

• Stage 4 open source
businesses

• Business patterns
• Stage 1-3 open source
businesses

• Licensing

• Lessons

• Future of open source

• Architecture
• Lessons
• Next steps


2


Open source
• Open source (OSS) has become an integral part of
commercial software development
• In the past, open source software development was
considered to be driven by volunteer effort
• Today, most of it is carried out by companies
• For example, over 80% of changes to the Eclipse
platform are made by paid developers
• How do you build a business around open source?


3


Deﬁning open source
• Free Software Foundation (FSF) deﬁnes open source
through four freedoms: freedom to i) run, ii) study and
change, iii) redistribute, and iv) distribute changes
• “Open source is a development method for software
that harnesses the power of distributed peer review and
transparency of process” (Open Source Initiative)


4


Not a business model
• Open source is used by the business as a strategy to
strengthen its business model (Bailetti, 2009)
• Elements of a business model and how OSS can help
Importance Community convinces customers on dimensions
of importance: eg functionality, avoid lock-in
Value Customers get eg higher quality, efﬁciency
Partners can spend more money on going to
market than on R&D, & can collaborate
Resources and Access to talent and customers
Processes Equal footing for small and large companies
Proﬁt Focus on IP that differentiates them
Generates demand for paid complements

5


Open source business
• Uses open source to develop new products
• Builds its products/services around open source offers
• Initiates its own open source projects
• Leverages open source as a form of co-opetition (ie
cooperation between competitors)


6


Open source engagement model
Proﬁt

Collaborate
Champion
Contribute
Use
Level

Modiﬁed from Carbone (2007)

7


Patterns
• Idea of patterns originates in architecture
• Have become popular in software (design patterns)
• A pattern is a recurring solution to a common problem
in a given context and system of forces
• Recently, patterns have been documented for other
domains than software, eg business patterns
• Patterns are mined by domain experts, reviewed by
shepherds, and subsequently workshopped


8


Example: Whole Product
• You sold your ﬁrst products to early adopters
• You need to sell more than a technology
• The solution needs to address the whole problem faced
by the customer in a particular market
• You may also need to provide training and integrate
your product with the customer’s existing systems
• Therefore, sell a whole product that includes
everything the customer needs
• The beneﬁts of your technology are clear to customers,
and you can differentiate yourself from competitors

9


Elements of a pattern
• Name that communicates the intent of the pattern
• Context in which the pattern applies
• Problem that the pattern solves
• Forces describe the conﬂicts within the problem
• Solution that resolves the forces
• Consequences of applying the pattern
• Known uses provide evidence that this is a pattern
• Related patterns link to other patterns


10


Pattern languages
• Patterns are rarely applied in
isolation; rather they become
words in a pattern language
• Each pattern describes how it
fits into a larger whole through
links to other helpful patterns
• Patterns also describe how their
solutions create benefits; a
pattern should only be applied
when its benefits are needed


11


Choose your own adventure
• Pattern languages can be
navigated in different ways like
the chapters in a “Choose Your
Own Adventure” book
• Each pattern solves one problem
and introduces new problems
that can be resolved by applying
further patterns in the language
• When you follow patterns you
create a pattern sequence


12


In parts the patterns draw on existing research and literature. Inevitably these
patterns represent the author’s understanding and views on how companies
should go about tackling the problems identified. While there are no right
answers to these problems - indeed some out dispute the problems identified
– it is hoped that these patterns can help expand the understanding of
business strategy in the technology domain.

Business patterns
3 The Patterns

Kelly (2008, 2012)
Figure 1 - Pattern sequence

13


Open source business patterns

Contribute
Champion

Architecture

Licensing

Patterns for each
stage of engagement

Use

Collaborate
Cross-cutting
patterns

14


Use
“It costs virtually nothing to start a software business
these days.” [when you use open source]
– Jason Fried, 37signals

Champion

Architecture

Contribute

Licensing

Use

Collaborate


15


Bootstrap
You need to shorten
the time it takes you to
create the ﬁrst version
of your product while
keeping your costs
low
Reuse existing open
source components to
develop your products


16


Example
• The initial version of the BigBlueButton open source
web conferencing system (www.bigbluebutton.org)
was built by combining 14 different existing open
source components, ranging from Red5, a streaming
server for managing voice and video streams, to Open
Ofﬁce for converting slides from various formats
• This approach kept the cost of developing the system
low and sped up the creation of the ﬁrst version
• However, bootstrapping also increased the complexity
of the software and breadth of knowledge needed


17


Related patterns
• Build on the Shoulders of Others
• Play by the Rules


18


Share of customer’s wallet
Price/
Customer
Services

Demand
curve

Price/
Customer

Demand
curve
Services
Increase

Software

Open source
software

Hardware

Hardware

Number of customers

Number of customers
Based on Riehle (2007)


19


Higher service revenue
Price/
Customer
Services

Demand
curve

Price/
Customer

Demand
curve
Services

Service cost
Service cost

Software

Open source
software

Increase
Hardware

Hardware

Maximum

Number of customers

Number of customers
Based on Riehle (2007)


20


Contribute
“Companies have also begun to recognise that making
money from open source software while not giving
anything back to the community or project is likely to
ultimately result in the failure of their open source
related products” – Matthew Langham, Indiginox

Champion

Architecture

Contribute

Licensing

Use

Collaborate


21


Contribute Back
You need to keep
aligned with the
open source projects
you use

Contribute back
resources (code,
people, money) to
these projects

22


Example
• Companies generally achieve three goals by
contributing back: i) build trust with the community, ii)
inﬂuence the development of the project, and iii)
demonstrate their depth of competence
• Companies like IBM and HP all contribute to the
development of the Mozilla Firefox browser. Their
contributions consist of code that makes Firefox
compatible with their Unix workstations
• Pivos is a hardware company that develops a media
player. It sponsors the XMBC open source media center
project as a member of the XMBC Foundation, and
pays developers to work on the project. It contributed
the Android port of XMBC (example of Feature Gift)

23


Related patterns
• Feature Gift
• Sponsor a project
• Chinese Wall
• Hire the Men Inside


24


Champion
“Let’s make it open source to share costs and give
others a platform to participate and contribute”
– Accenture

Champion

Architecture

Contribute

Licensing

Use

Collaborate


25


Credible Promise

Build a critical mass
of functionality early
in your project that
demonstrates that the
project is doable and
has merit

How do you
mobilize developers
to contribute to your
project?


26


Example
• BigBlueButton is an open source web conferencing
system whose functionality was sufﬁcient for teaching
our online courses, but did not yet have the bells and
whistles of competing commercial products (eg
recording and playback or desktop sharing)
• “What both projects [Fetchmail and Linux] did have
was a handful of enthusiasts and a plausible promise.
The promise was partly technical [..] and sociological
[..]. So what's necessary for a bazaar to develop is that
it be credible that the full-blown bazaar will exist!”
– Eric Raymond

27


Related patterns
• Feed the Community
• Modular Architecture
• Sell Complements
• Run a Tight Ship
• Donate Code


28


Feed the Community
How do you build
legitimacy with your
project community?

Nurture the
community without
expecting an
immediate return


29


Example
• A company builds up legitimacy with the community
by i) giving to the community (code, documentation,
participation in the discussion forum), ii) a clear
licensing practice, iii) a clear process for making
contributions, iv) making decisions in the open, and v)
not treating community members as prospects
• “We take the perspective that, if we consciously
commit a portion of our resources to assisting others
on the mailing list, then as their adoption of
BigBlueButton grows so does the pool of potential
customers that may approach us later on”
– Fred Dixon

30


Community funnel
• A community has three types of participants: i) users
who use the technology internally, ii) adopters who
integrate the technology into product or services, and
iii) contributors who advance the project technology
Users
Adopters

Contributors


31

Installed base
Complements
Evangelism
Technology


Related patterns
• Create Pull
• Prepare for Release
• Approved Open Source License
• Permissive License
• Self-Service
• Community as Supplier


32


Sell Complements
How do you
monetize an open
source product?

Sell products or
services (eg hardware
or support) that
complement the open
source product


33


Example
• IBM has made Linux the operating system of choice for
its servers and has ported most of its applications
• IBM’s support for Linux drives demand for its servers.
Example of a network effect: complements become the
more valuable the larger the installed base
• The creators of the BigBlueButton web conferencing
system sold add-on modules such as desktop sharing to
business users. These add-ons or Paid Features met the
needs of users willing to pay for them
• PostgreSQL Experts (PGX) is a core contributor to the
PostgreSQL project and sells a range of services

34


Services – PostgreSQL


35


Related patterns
• Derivative Product
• Services
• Paid Feature
• Support
• Distributor
• Ancillary Product
• Dual License
• Dual Product


36


Run a Tight Ship
How do you keep
control of the
project’s direction?

Maintain full
ownership of the
code


37


Example
• OpenOffice started as a closed source product
(StarOffice) that was bought by Sun and later released
as open source. When Sun was acquired by Oracle,
the project was again put under tight control in order
to sell a commercial version
• After receiving push back from the open source
community, Oracle again released control over the
project by Donating Code to Apache, but not before
the project was forked as the LibreOffice project
• Moodle, an open source e-learning platform, is
centrally developed by Moodle HQ and a network of
partners. Non-core contributors can author plugins
(https://moodle.org/dev/contributions.php)

38


Related patterns
• Dual License
• Dual Product (Open Core)
• IP Modularity


39


Dual Product (Open Core)
How do you
entice commercial
users to pay for an
OSS product?
Sell a commercial
version of the open
source product with
exclusive features


40


Example
• PhoneGap (a popular mobile application development
framework) is an Adobe-led Apache project
• PhoneGap was donated by Adobe in 2011: PhoneGap
is the brand, Apache Cordova the project
• Adobe sells a cloud-based service PhoneGap Build
• A similar service is offered by Icenium

PhoneGap Build

Cordova
41

Icenium

Related patterns
• IP Modularity


42


Pattern Map – Champion
Credible Promise

Donate Code

Feed Community

Pool
Resources

Create Pull

Foundation

Sell Complements

Support

Service

Distributor

Derivative
Product

Ancillary
Product

Paid Feature

Self-Service

Modular Architecture

Community as
Supplier

Manage
Complements

Dual Product

Run a Tight Ship
43

Dual License

IP Modularity


Embedded
Open Source

Lessons


44


Break


45


Collaborate
• Collectives are “used to achieve results that no single
member can achieve on its own”
– Bailetti et al. (2013)

Champion

Architecture

Contribute

Licensing

Use

Collaborate


46


Pool Resources
Pool resources with
other companies to
jointly develop a
common stack of open
source assets that the
companies can all
build on to develop
their individual
products

How do you
optimize the use of
your resources?


47


Example
• The members of the Eclipse project develop common
assets (such as GUI components and code generation
tools) that each of them requires, but that, on their
own, do not create value for their customers
• “[The Linux kernel development team adds] 11,000
lines, remove[s] 5,500 lines, and modif[ies] 2,200 lines
[of code] every single day. [...] It's something that no
one company can keep up with” (Assay, 2009)
• On the other hand, developing such assets requires
them to dedicate resources. All members win by
sharing those development costs with other members,
and focus on areas of differentiation

48


Related patterns
• Foundation
• Sell Complements


49


Foundation
How do you attract
other companies to
contribute to your
source project?
Transfer
ownership of the
code to an
independent
foundation


50


Example
• When Eclipse was spun out of IBM, a foundation was
put in place to manage the project
• While IBM still contributes many of the developers,
IBM does not own the project, and many of its
competitors, including Oracle and SAP contribute to
and build many of their products on top of Eclipse
• A foundation creates an arms-length relationship
between the project creator and the project
• It centralizes common functions that all members can
access (eg legal, marketing, project management)
• Creating a foundation builds trust and facilitates
collaboration among the contributors

51


Related Patterns
• Shepherd
• Incubation Process
• Whole Product
• Project Champion
• Permissive License


52


Collectives
• Projects play a central role in a collective: their role is
to reduce gaps and advance technology
Foundation
Governance

Projects

Resources

Collective

R
A

C

Contributions

Access

Platform

53


Economics of a collective
Time
• Time to market
• Coordination

1, 2

Level of
contribution

4, 5

• Core asset base
• Product

6

Number of
members

3

8

7

Diversity of use
9


Quality

54

Cost
• Organization
• Core asset base
• Reuse
• Unique


Propositions
• P1. (Early bird) Improved alignment between contributed assets
and contributor’s needs

T

• P2. (Track record) Increased trust between members

T

• P3. (Fit for use) Highest beneﬁt from assets to main contributors

C

• P4. (80/20 rule) Members can focus on value-added

T

• P5. (Too many cooks) Each member added to a team adds
overhead not spent productively

T

• P6. (Many eyes) Increased feedback from members

Q

• P7. (Sharing the load) Increased resources

C

• P8. (Many faces) Each new context of use hardens assets

Q

• P9. (Multiple perspectives) Low diversity, collective beneﬁts from
multiple perspectives; high, collective appears less cohesive

55


C

Licensing
• “To succeed, companies need to ﬁnd ways to use
outside innovations and to become part of a distributed
fabric of innovation through a combination of licensing
and well-chosen gifts...This is what open source is all
about: harnessing engines of innovation in software”
– Goldman & Gabriel (2005)

Champion

Architecture

Contribute

Licensing

Use

Collaborate


56


Play by the Rules
Link (2010)

Ensure license
compliance for open
source components
that are combined

How do you prevent
licensing problems
after your product is
released?


57


Example
• Components licensed under the GPL and the EPL are
not compatible. When the Mercurial Eclipse plugin
(EPL) uses Mercurial (GPL) it calls it as an external
executable to avoid license conﬂicts
• Closed binary-only loadable modules can be
combined with the Linux kernel as long as they use a
restricted interface and are marked as such
• Compliance can be difﬁcult to test – creates an
opportunity for compliance checking tools
• Eg compliance also requires you to check the license
compatibility across a chain of dependencies

58


Related patterns
• Due Diligence
• Contributor Agreement
• Prepare for Release
• Contribute Back Derivatives
• Shims and Friends
• Open Architecture


59


Dual License
Link (2012)

How do you
entice commercial
users to pay for an
OSS product?

Offer the same product
under an open source and
a commercial license


60


Example
• “You can make sure you own the copyrights by either
writing all your own code or obtaining third-party
licenses. In fact at SleepyCat and MySQL, all code
development is done in-house” (Albert, 2004)
• The MySQL database is licensed under an open source
license (GPL) as well as a commercial license
• Buyers of the commercial license are released from
some of the obligations of the open source license
• Eg, the GPL license, a reciprocal license, requires
anyone who integrates the software with their software
to license their software under the same terms

61


Related patterns
• Restrictive License
• Dual Product


62


IP Modularity
How do you
manage open
source and
proprietary
versions of a dual
product?


Align
intellectual
property with
product
architecture

63


Example
• SugarCRM’s business model is enabled by a modular
architecture that separates IP elements
• IP modularity facilitates development of complements,
and thus increases the platform’s attractiveness
Open source edition
DB access module

MySQL

Proprietary code tree
Platform
core

Accounts
module

DB access module

Oracle

MySQL

Build
Extension
modules

Reporting
module

Accounts
module

Commercial editions
DB access module

Oracle
Reporting
module
IP for commercial editions


MySQL
Accounts
module

IP for open source edition

64


Waltl et al. (2012)

Related patterns
• Modular Architecture


65


Architecture
• “There is a need to create an ‘architecture for
participation’ that promotes ease of understanding by
limiting module size and ease of contribution by
minimizing the propagation of design changes”
– MacCormack (2006)

Champion

Architecture

Contribute

Licensing

Use

Collaborate


66


Modular Architecture
How do you enable
external contributors to add
to the codebase without
requiring them to have
deep knowledge of it?
Partition the codebase so
that different parts (or
modules) can be worked
on and managed
independently.


67


Example
• Examples of systems using a modular architecture are
OSGi-based runtime frameworks like Apache Felix and
Equinox OSGi, as well as Eclipse, an integrated
development environment and rich client platform
• “GNU/Linux is known for being a modular complex
artifact and its successful development, accomplished
by a distributed community of hackers, largely
beneﬁted from that. Therefore, it may be surprising that
its core component, the so called kernel, was initially
conceived as a highly integrated product and that
eventually acquired a modular structure” (Rossi, 2003)


68


Related patterns
• Stable Core
• Create Options
• Refactor the Code
• Tuning (Mix and Match)
• Conway’s Law
• Manage Complements


69


Manage Complements
How do you
manage the quality
of complements?

Establish a governance
model and provide
regulatory tools to
manage complement
development

70


Example
• Eclipse had created a three-tier community where
external contributions can be made by anyone, but
developers who want to contribute to the Stable Core
need to follow a thorough incubation process with
“gates” at which their quality is assessed. Apache,
OpenOfﬁce, and SpringSource are set up similarly
• Complements can be either internal (deployed with the
core), or external (added by users)
• Owner of the core controls the interaction of network
members through governance structure (hierarchical or
ﬂat), openness (open or closed), and regulatory tools

71


Governance model: Eclipse
Project: Eclipse
Governance model:
Hybrid control
Community tiers: Core,
internal, and external

Openness:
Who can
participate?

Governance structure:
Who proposes complements?
Who selects complements?
Hierarchical Hierarchical
/Flat

Open

Closed


Internal

Flat

External

Core
Commercial

72


Related Patterns
• IP Modularity


73


Quo vadis, open source?


74


Beyond the desktop and servers
• “FOSS has had a signiﬁcant impact not only on
traditional desktop and server software, but also on
mobile computing, embedded, and cloud platforms,
making it a signiﬁcant factor in software adoption and
use for the foreseeable future”
– Wasserman (2013)


75


Open source in the Internet of Things
• “Open source software and collaborative development
have been proven to accelerate technology innovation
in markets where major transformation is underway.
Nowhere is this more evident today than in the
consumer, industrial and embedded industries where
connected devices, systems and services are generating
a new level of intelligence in the way we and our
systems interact. The AllSeen Alliance represents an
unprecedented opportunity to advance the Internet of
Everything for both home and industry. We are very
happy to host and help guide this work”
– Jim Zemlin, Linux Foundation

76


Open beyond software
• Open hardware
• Open data
• Open content

New business
opportunities

• Open knowledge
• Open APIs

New patterns ;-)

• Open access
• Open science
• ...


77


Lessons


78


Next steps


79


References
•
•
•
•
•
•
•
•
•
•

Bailetti, T. (2009), How open source strengthens business models, TIM Review, http://
timreview.ca/article/226
Bailetti, T., et al. (2013), Developing an innovation engine to make Canada a global
leader in cybersecurity, TIM Review, http://timreview.ca/article/711
Carbone, P. (2007), Competitive open source, TIM Review, http://timreview.ca/article/
93
Dixon, F. (2011), Lessons from an open source business, TIM Review, http://
Goldman, R., & Gabriel, D. (2006), Innovation Happens Elsewhere: Open Source as
Business Strategy, Morgan Kaufmann
Link, C. (2010), Patterns for the commercial use of Open Source: Legal and licensing
aspects, EuroPLoP
Link, C. (2011), Patterns for the commercial use of Open Source: License patterns,
EuroPLoP
Link, C. (2012), Patterns for the commercial use of Open Source: Economic aspects
and case studies, EuroPLoP
MacCormack, A., et al. (2006), Exploring the structure of complex software designs: An
empirical study of open source and proprietary code, Management Science, 52(7)
Muegge S. Business Ecosystems as Institutions of Participation: A Systems Perspective
on Community-Developed Platforms. Technology Innovation Management Review.

80


References
•
•
•
•
•
•
•
•
•
•
•
•

Noori, N., & Weiss, M. (2013), Going open: Does it mean giving away control, TIM
Review, http://timreview.ca/article/647
Riehle, D. (2007), The economic motivation of open source software: Stakeholder
perspectives, Computer, April
Riehle, D. (2012), The single-vendor commercial open source business model,
Information Systems and e-Business Management, 10(1)
Rossi, A. and Narduzzo, A., (2003), Modularity in Action. GNU/Linux and free/Open
source software development model unleashed, Quaderni DISA, 78, Trento
Skerrett, I. (2011), Best practices in multi-vendor open source communities, TIM
Review, http://timreview.ca/article/409
Waltl, J., Henkel, J., & Baldwin, C. (2012), IP Modularity in Software Ecosystems: How
SugarCRM’s IP and Business Model Shape Its Product Architecture, ICSOB
Wasserman, T. (2013), Community and commercial strategies in open source software,
Information Technology, 55(5)
Weiss, M. (2009), Performance of open source projects, EuroPLoP
Weiss, M. (2010), Proﬁting from open source, EuroPLoP
Weiss, M. (2011), Proﬁting even more from open source, EuroPLoP
Weiss, M. (2011), Economics of software product line economics, TIM Review, http://
Weiss, M. (2013), Enabling contributions in open source projects, EuroPLoP

81


Image credits
• Unless noted, images were sourced from Wikimedia
Commons and Flickr under a CC license


82


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