52 Bicycles

The MIT Enterprise Forum of Cambridge held its winter conference, Charting Your Course through Open Source this past weekend. A few observations:

Is it just me, or were there a dozen vendors for every entrepreneur in the room?

Met Mary Ruddy, very sharp VP at Parity Communications. Have an only fuzzy sense of what they do, but judging by Mary’s wit, they do it well.

Met a couple of guys from Bluespec - seems an interesting business too.  

Open Source licenses gemerally fall into in three buckets (Props to Simon Philips for his clear description):

1. “A”: market forming models allow free use, modification and redistribution. Examples: BSD, Apache.
2. “B”: Community based (or file-based) models allow free addition, but restrict modification. Such that adding a new file is external to license restrictions, but changing a file triggers the license (i.e. must open-source the changes you made). Examples: Solaris, maybe LGPL?
3. “C”: Competitor threatening: any innovation needs to use same license: GPL

Almost all open source licenses only trigger when you redistribute - so you can use your modifications or addons internally all you like, as long as the code doesn’t leave your shop.

The previous phenomenon may be a big driver of SAAS/on-demand - a legalistic driver for this new delivery mechanism, rather than the economic/technical drivers often discussed.

Business models for open-source

1. Support: give away s/w, sell service contracts, subscriptions. Examples: JBoss, RedHat (Is this really an insurance product?)
2. Dual License: Have a second license that allows commercial use/redistribution. Example: Mysql
3. Two products: Have a free software product that drives value of a second, proprietary software or content. (interesting)
4. Hosted: offer as a service/on-demand (per the previous main point above)
5. Hardware sales / appliance (give away FOSS, sell all-in-one (IBM’s motive?)

Economic considerations for moving from proprietary to FOSS

1. Unit sale price will decline (because the license is essentially free now, so will only really be charging for service component)
2. Must cut cost of sale / COCA, increase volume to make up for the decreased price
3. The product must be mission-critical, such that the support piece is the key anyway (give the client a throat to choke)

OSS Unbundles complex software - allows the creation/rebundling of packages that meet specific needs

Seemingly fundable ways to make money with FOSS are about offering proprietary software that is bundled with / takes advantage of FOSS. These seem to include:

1. On-demand software / SAAS
2. Appliances
3. (Maybe dual license? No good models here yet, MySQL is exceptional, rather than a rule)
4. (Maybe two-product? Is essentially a razor-blade strategy, which might take advantage of OSS, but does not need to)

Other way to make money, services / “throat to choke” is easier to enter, may be good way to make money, but since it has the economics of a service business, is usually not fundable.

This entry was posted on Monday, February 13th, 2006 at 2:56 pm and is filed under Technology Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. Reddit This