Reconciling “Free” with “Profit”

What Business models will take advantage of Open Source?

Use Value (value as an intermediate good)

Sale Value (value as a final good)

The Overwhelming source software value is use value. Not sale value

Device Drivers

Software bundled with hardware

Business specific applications

Look at the newspaper hiring pages. Classify jobs that create use value versus sale value

Vendor has gone burst …is there a market for the company’s product ?

Vendor has discontinued support …is there a market for the company’s product?

Price a customer pays is the expected future value of vendor service

Software need not be a factory business

But a services model based on exchange of continuous value

If you are working in a ISV struggling with support calls and low customer satisfaction scores ask yourself:

Is the “20% of license” sufficient investment to supporting increasing usage of the product?

Will not my customers be willing to pay more if I could prove that it works for them?

Reduce Testing efforts

Reduce Bug Fixing efforts

Augment Feature Development efforts

All Bugs are shallow for a thousand eyeballs

Use Open source software to maintain/gain advantage in proprietary software

Use Open source software to drive gains in your hardware business (for drivers etc.)

Use Open Source to sell services (eg Red Hat, Zope)

Use Open Source to sell the content (share trading, education)

Id software’s Doom game: ◦ In 1993 really unique in its graphics on low end

processors ◦ Competitors appeared ◦ Markets matured in features, platforms and user

base◦ In 1997 Doom released full source◦ Third party developers added value to the game

This non “software” example crystallizes the issues….

Will I really benefit from network effects? ◦ Are the key methods common engineering

knowledge?◦ Can correctness be verified without independent

reviews?

How critical it really is?◦ For the business of my customers?◦ Is reliability/stability/scalability critical?

As customers mature the open source does become an option

“The Cathedral & The Bazaar” by Eric S Raymond