Welcome to this talk on commercial open source business models and our research on these

models. My name is Dirk Riedel. I'm a professor of computer science at Friedrich Alexander

University of Erlangen Nuremberg in Germany and I will be your host today. I've worked in industry

for a long time before I became a professor about 10 years ago and I specialize in software

engineering, building large software systems and in particular within that context on open source,

the use of open source, the use of open source in commercial products and in this talk how to go to

market, how to employ a commercial open source strategy. The agenda, the purpose of this talk

is to introduce you to a core business model around open source and also talk about our research

on a playbook for having or enacting that commercial business model in the market.

I would like to start by clarifying a few terms that otherwise might get confused.

In my book there are three different commercial open source business models, two of which are

venture capital funded. The most straightforward one is to have a service and support firm for an

existing community open source software project. In that case, community open source software means

you are not owning the software but rather a community does and so there are no barriers to

entering the market for servicing that component. So that lets you have a good service and support

firm but it will not attract venture capital. The second business model are the open source

distributors, companies who put together a large array of open source components into one cohesive

whole that you can use and subscribe to, think the Linux distributors. Those companies own the IP

around the configuration, the compatibility matrices, all of these things but not the IP

in the actual software. They can and have received significant venture capital.

This talk is about the third model which I call single vendor open source firms, which is

software developed by a single vendor who then goes to market by open sourcing some or all of

their product and while maintaining the intellectual property rights. Their goal is to remain the sole,

the single vendor providing services and extensions to that software. They attract and have attracted

significant venture capital creating outsize returns and are a common model now in the Silicon

Valley. To avoid confusion here are two related terms that you might have heard. One is called

dual licensing or multi-licensing. That's just a strategy in the playbook of commercial open

source. The idea here is that if you are the owner of some piece of intellectual property, IP,

like software, then as the owner you can license out your property using multiple licenses. Two

are often but even three or more. One license might be an open source license and the second

license might be a commercial license for paying customers. The second term you might have heard

is called the open core model. Here the idea is to chop up your intellectual property into pieces,

at least two, one of which is the core, a basic product, a basic piece of open source software

which users can use, but then provide extensions, additional software that makes the software the

core useful to companies only under a proprietary license. So you chop up your IP into at least

two parts and the whole is only available under a commercial license even though some core piece

may be available as open source software. Economists call that IP modularity.

And that often leads to, in the marketplace, as you can observe, a community edition of some software

which is pure open source software and an extended or expanded version that includes the community

edition plus additional modules as a commercial or enterprise version as its own.

Enterprise version as it's often called that customers have to pay for.

This model or this idea of going to market with an open source strategy as a single vendor who

originally developed the software is not very new. I think in my book we are in the third

generation already. The pioneers, that's MySQL and BerkeleyDB and Trolltech in the 90s, early 2000s

and onwards, they invented the model, they explored it, they pioneered it. Then a second wave starting

at around 2002 streamlined the model. These were the days, those were the days when venture captors

would look at enterprise software markets, identify incumbents that or markets that were

ripe for disruption and sponsored the development of, or basically supported and funded,

commercial open source companies like SugarCRM who were trying to disrupt or disrupted the CRM

market with an open source solution. Sugar, MuleSoft, Jaspersoft are known examples from that