Open Source: Lessons Learned (2006)

1
Open Source: Lessons
Learned
Matt Asay VP,
Business Development

225 Jan 2006
Decades of disruption:
Learning from the entertainment industry
“At present…severe economic damage [is being done] to the property rights
of owners of copyrights in sound recordings and musical composition.…Unless
something meaningful is done to respond to the…problem, the industry itself
is at risk.”
Alan Greenspan. Testimony before Congress, 1983.
“The VCR is to the American film producer and the
American public as the Boston Strangler is
to a woman alone.”
Jack Valenti, President of the MPAA. Testimony before Congress, 1982.
“As the majority of hobbyists must be aware, most of
you steal your software…. [Y]ou…prevent good software
from being written…. I would appreciate letters from
any one who wants to pay up.”
Bill Gates, “An Open Letter to Hobbyists,” 1976.

325 Jan 2006
What we’ve learned:
How does open source work?

425 Jan 2006
What we thought open source was…

525 Jan 2006
How open source works
 The Internet: A network of networks
 Open Source
– A community of communities
~ Small core development team (10-15 people do 80% of
development)
 Note: Most projects are much smaller than this - 84% have fewer
than 10 developers
 73% have only one active developer (85% not actively developed);
80% have less than 10 active users (downloads)
~ Larger circle of bug fixers and still larger group of bug
finders/beta users (Big value)
– Facilitated by licensing that generally requires:
~ Right to access the source code (plus the right to modify it)
~ Right to distribute modified code (“derivatives”)
~ Requirement to distribute derivative works under same license
[NOTE: This is only triggered if you distribute the code]
Sources: Andrea Capiluppi et al., 2003; Mockus et al., 2004.

625 Jan 2006
Recipe for open source (comm/unity/ercial) success
 Code attributes
– Modularity - Easier to build plug-ins, facilitates casual, drive-
by development/bug fixes (Lowers the bar to contribution, as
does good documentation)
– Great initial code base
– Degree of applicability - Need a large user/developer
population from which to draw
 Market attributes
– Significant consolidation around 2-3 “gorillas”
– Multi-billion dollar ($2B+ industry with
~ Steep license costs
~ Trend toward services/maintenance revenues (50%+)
– Feature creep - Small subset of features actually required
– Complex technology such that buyers will pay for open source

725 Jan 2006
Reasons for involvement:
Pragmatics over religion
Percent of respondentsNote: Question asked for top three motivators of F/OSS participation, n=684
Source: Boston Consulting Group, 2003
Intellectually stimulating
Non-work functionality
Obligation from use
Work with team
Professional status
Other
Open Source reputation
Beat proprietary software
Work functionality
Code should be open
Improves skill
License forces me to 0.2
11.1
11.0
16.3
17.5
20.3
28.5
29.7
33.1
33.8
41.3
44.9
0 10 20 30 40 50

825 Jan 2006
Developers rule in open source…
…but how do you engage with them?
 The developer imperative:
– Developers are critically important
– Developers will play a major if not determining
role in the success or failure of your products
– Developers, like any audience, will have things to
say about your products
 Are you engaging with them?
Source: Stephen O’Grady’s “Bottom-up Marketing” presentation.

925 Jan 2006
The reality of marketing to developers
 Developers have become nearly immune to traditional
marketing (Haven’t you?)
 Developers spend far more time online than they do
with print publications
 Developers would rather talk with someone than be
talked at by something, and developers would rather
touch the code than to hear about it
 Developers are starting their own mini communities
via blogs
 Developers don't just code at the office
 Developers are not content to sit back and wait for
updates or news; they can make their own
Source: Stephen O’Grady’s “Bottom-up Marketing” presentation.

1025 Jan 2006
No one cares about source code…
…or do they?
 Microsoft survey of their customers
– >60% felt access to source code was “Critical”
– Yet only 5% said they planned to look at it, and a mere 1% expected to
modify it
– This is not Microsoft FUD - this is analogous to MySQL, Novell, JBoss, etc.
 Modify the source and you violate your support contract with
Novell, Red Hat, JBoss, MySQL, IBM, HP, etc.
 So, why the interest in open source/access to the source?
– You can’t do anything with it (without taking on the full support burden)
– You don’t have interest or time to do anything with it (That’s what you’re
paying the vendor to do for you - deliver value)
– What’s the point?
 Trust and flexibility (but mostly trust), and it’s the relevant
“currency” for developers

1125 Jan 2006
= meaningful choice
O P E N

1225 Jan 2006
The choice continuum:
Maximize choice by founding on open platforms
Operating System
Database
End-User Applications
Application Framework
Middleware
GPL
Closed, BSD, GPL
Closed, BSD
Closed, BSD
Closed
File Formats
Closed
Open
Open
Closed

1325 Jan 2006
Open source stops reinvention of the wheel:
driving innovation up the stack

1425 Jan 2006
What We’ve Learned:
How do you monetize communities?

1525 Jan 2006
Disruptive technologies:
Disrupt adjacent markets, rather than cannibalizing your ownPerformance
Time
Performance that customers
can utilize or absorb
Pace of
Technological
Progress
Sustaining innovations
Disruptive
technologies
Incumbents nearly always win
Entrants nearly always win
Source: Clayton Christensen, OSBC2004

1625 Jan 2006
Important business considerations
 The Internet grew because
– Open at the core, providing an open foundation upon which
to build and
– Closed at the edge of the network (promoting copyright-
induced innovation)
– Open source commercial growth can be the same.
 But:
– First mover advantage is huge in open source
– You don’t need to attract THE Community - you need to build
a vibrant user community
– Open source requires a different mindset, a different culture
– Use open source licenses as a valuable weapon - they are an
opportunity to you, and a threat to your competitors

1725 Jan 2006
Some rules of thumb
 Support is a weak business model
– Hard to scale
– Hard to monetize
 A dual-tiered model works
– Either open + less open (Fedora + RHEL) or
– Open + closed (Alfresco Community vs. Enterprise)
~ Why? Gives would-be customers a clear reason to pay (You do
not want to confuse them on this)
~ Ways to close off code:
 Certification
 Providing source (but not binaries - helps if the code is complex,
like an OS)
 Copyright
 GPL is closest to traditional copyright regime, and
makes it hard for competitors to rip you off

1825 Jan 2006
Option 1:
Run the IP race
 Innovation still pays…but where you innovate is paramount
– Cool new technology will find a paying audience
– Open source generally lags closed source in features
– Open source, definitionally, may not compete well with innovation
~ Open source depends upon a large population of developers with
aptitude and interest
~ Such a group cannot form until an innovation is established and widely
adopted
– You want to innovate at the edges
 Open source’s glass ceiling?
– Some code is less likely to be replicated in the open source
community
– Open source community may lack skillsets (high-end databases?),
incentive (TurboTax), or equipment to create an open source
alternative (NOTE: This does not apply to commercial open source)
– Remember: most open source developers participate because they
find it “intellectually stimulating” - create IP in unsexy areas

1925 Jan 2006
Option 2:
Embrace and drive commoditization
 The software industry may be maturing into a commodity
industry
 In commodity markets, there are three competitive
differentiation points:
– Price
~ Use open source to lower your costs, then sell for a lower price
 Sales, marketing, distribution, and QA costs lowered through open source
 Development generally not)
~ Price as a loss-leader for other, value-adding IP
– Service (“Professional Open Source”)
~ Huge need for open source software support
~ Risk mitigation services
– Brand
~ Source of code vs. source code (“Owning” project ‘committers’ gives influence/control,
which translates into margin)
~ Likely that users will pay for a trusted brand (certified, etc.)***
~ ***Red Hat has an ingenious model whereby they provide source but not binaries for free -
not sure this works in the embedded world, though….

2025 Jan 2006
Option 2.5:
Dual licensing strategies
 If you own the copyright, you can dual license
– Provide the same body of code under two licenses, generally both open and
closed
– Outside contributors (if any) assign copyright for their modifications back to
MySQL, Sleepycat, Trolltech
 Why this works
– Developers have an incentive to contribute
– Companies have an incentive to purchase
 Competitive advantage
– Give customers increased control, while preventing competitors from hijacking
your code
– Dramatically lower sales, marketing, distribution, and QA costs
– Undermine higher-priced, closed source competitors by providing a good enough,
cheap product that insidiously works its way into the enterprise, past
Procurement)

2125 Jan 2006
Option 3:
Change the rules of the game (soft(er)ware)
 Digital media entertainment and open source: Commonalities?
– Both involve industries based on intellectual property struggling to
deal with an apparent devaluing of IP
– Both have failed to innovate payment mechanisms (focusing instead
on protection of property)
 Salesforce.com and “The End of Software” (ASP/Utility model)
– Removes the open source licensing quandary (Open source licensing
restrictions are triggered by distribution, not use - so, if you’re
distributing a service, not software, you’re fine)
– Removes the problem of protecting property
– Refocuses the emphasis: solving business problems
– Facilitates support, scalability, application development (I.e.,
overcomes the top barriers to open source adoption)
– Maximizes choice (and Salesforce.com still gets paid)

2225 Jan 2006
Summary and conclusion
 Open source software
– The market’s response to vendor lock-in, inflexible & costly IT
– Imposing dramatic changes in the way software is developed and
sold
– Part of the emerging “upload economy”
 Have your cake. Eat it, too.
– Third wave business models compatible with free culture
– Where there is customer value, there will be someone willing to
pay
 The world is “flattening”…. Are you ready?

Open Source: Lessons Learned (2006)

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