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Open Source Business Model Linköping Studies in Science and Dissertation from the International Technology, Thesis No. Graduate School of Management and LiU-TEK-LIC 2008:26 Industrial Engineering, No. 116, Licentiate Thesis Open Source Business Model – Balancing Customers and Community Thomas Rosén 2008 Department of Management and Engineering Linköping University, SE-581 83 Linköping © Thomas Rosén, 2008 Linköping studies in science and technology, Thesis No. 1368 LiU-TEK-LIC-2008:26 ISBN: 978-91-7393-867-9 ISSN: 0280-7971 ISSN: 1402-0793 Printed by: LiU-Tryck, Linköping Distributed by: Linköping University Department of Management and Economics SE-581 83 Linköping, Sweden Tel: +46 13 281000, fax: +46 13 28187 Abstract Free and Open Source Software has not only increased researchers’ interest about community-driven software development, but lately, interest from commercial actors increased as well. In addition, some scientists have claimed that Open Source Software has entered a new phase: OSS 2.0. Even so, a coherent way of analyzing commercial Open Source ventures is still missing. Commercial Open Source firms’ strategies are often described using the term “business models”. However, these models often lack stringent struc- tures and have been used primarily to describe the firms’ offerings and methods to earn revenue. Through the adaptation of an existing, firmly theoretically-based analytical business model framework, this thesis suggests a new analysis model for studying for-profit Open Source companies. In addition, the framework is generically constructed, ensuring its usability for other industries as well. The model consists of three elements: market positions, operational platform and offering. This particular study concerned four software product vendors, all of which base their products on Open Source Software. When analyzing their business, insights were made about how these firms operated. The result show that there are certain key elements and factors that determine if a company has a sustainable business or not. From the analysis framework, three elements were refined. The main Open Source Software project con- nects the market positions and the operational platform; and from the offer- ing, the product and service and the revenue model were very important. The study identified eight key factors which influenced the elements: brand for the product, the company and the Open Source Software project; com- munity, that is the sum of the non-paying users and developers connected to Open Source Software projects; resources, which are community-based re- sources such as development and testing; legitimacy, the perceived legiti- macy regarding licenses and the revenue models; control, i.e. the control the firm has of the software; ability to charge, or how the company can charge for its services; customers, the paying users; and finally volume, which is the number of paying customers. The findings also indicate that companies interested in working with the open-source community have to be able to balance the demands from both their customers and the community in order to benefit and gain competitive advantage. i Acknowledgements This has been one of the greatest challenges in my life, not only mentally, but also physically. During the time spent working with this thesis, I have managed to go from part to full-time PhD candidate. I have had a major sur- gery and had to recoup from that. Without my family (Hi mom!), this would not have been possible. Therefore, I am glad this ordeal is over and I am ready for the next… I would like to thank my supervisors, Staffan and Anna, for their patience, perseverance, advice and support that enabled me to get me through this. I would like to thank Daniel for the excellent help with the business model framework and interviews and his overall support. I would like to thank Pe- ter for our crazy trip to the United States for the first round of interviews. I would also like to extend my thanks to all the nice people in my department for all the support I they have given me through these years. A comforting thought is sent to poor Mica who graciously agreed to correct the language I so brutishly have mangled in this thesis. He may not have realized the magnitude of the task he accepted. I am forever grateful for your work! I am especially grateful to Peo, the CEO at Cendio. Not only did you let me start this endeavor part-time, but you also supported me when I decided to quit at Cendio in order to become a full-time PhD candidate. Heartfelt thanks go out to my other “victims” in the case companies: Inge and Daniel at Cendio; Jeremy and Jon at Codeweavers; Mårten and David at MySQL; and Michael at Red Hat. Without your help, this thesis would never have happened. Finally, I would like to express my gratitude to Lundbergsstiftelsen, which financed this thesis. Linköping, 2008 Thomas Rosén ii Content 1 Introduction...................................................................................1 1.1 Purpose................................................................................................. 2 1.2 The Study.............................................................................................. 2 1.3 Outline of the Thesis ............................................................................. 2 2 Free and Open Source Software .....................................................5 2.1.1 Hardware and software ............................................................................ 6 2.1.2 Licenses................................................................................................. 7 2.1.3 Hackers and crackers ............................................................................... 8 2.2 Free Software or Open Source Software ............................................... 8 2.2.1 Free Software, Free Society ...................................................................... 9 2.2.1.1 Free or open source software? .......................................................................... 9 2.2.1.2 Software patents ............................................................................................ 10 2.2.1.3 Understanding Stallman’s point of view.......................................................... 10 2.2.2 The Cathedral and the Bazaar ................................................................. 11 2.2.2.1 Commercializing “free software”...................................................................... 11 2.2.2.2 Business models and OSS.............................................................................. 11 2.2.3 Beyond software: OSS in political science ................................................. 12 2.2.4 User innovation..................................................................................... 14 2.2.5 The motivations of the developers ........................................................... 15 2.2.5.1 Floss report - developer survey ....................................................................... 15 2.2.5.2 Floss study – Source code authors ................................................................. 16 2.2.6 Economics and business of OSS............................................................... 17 2.2.6.1 Strategies for OSS companies......................................................................... 17 2.2.6.2 FLOSS study – Use of OSS ............................................................................. 20 2.2.6.3 FLOSS study – Firms OSS activities ............................................................... 21 2.2.6.4 FLOSS study – OSS Markets and Business Models......................................... 21 2.2.6.5 Gaming theory and other methods ................................................................. 22 2.2.6.6 Balancing closed and open source.................................................................. 22 2.2.6.7 OSS 2.0? ........................................................................................................ 23 2.2.6.8 OSS licensing ................................................................................................. 25 2.2.6.9 Licensing schemes.......................................................................................... 26 2.2.6.10 Enforcing the copyleft................................................................................... 28 3 Strategy, management and business models ............................... 29 3.1 Long-term strategy ............................................................................. 29 3.1.1 Structure and Strategy........................................................................... 29 3.1.2 Planning............................................................................................... 30 3.1.3 Positioning ........................................................................................... 30 3.1.4 Resource-based view (RBV) .................................................................... 31 3.1.5 Dynamic capabilities .............................................................................. 32 3.2 Short-term strategies and typologies.................................................. 33 3.2.1 Domains and uncertainty........................................................................ 33 3.2.2 Configurations ...................................................................................... 34 3.2.3 The Adaptive Cycle ................................................................................ 35 3.3 Vision and culture ..............................................................................
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