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RED HAT BUSINESS MODEL

Free Software Business Models
From a text at http://dasht-brk.livejournal.com/28013.html?nc=1
This text explains why the traditional corporate model is difficult to implement in case of free software, with some exceptions. Read the whole article for insight into this rule and its exceptions.
See also our entry on Open Source Business Models

Contents[hide] * 1Definitions * 2 Typology * 3 Discussion * 3.1 Proprietary Software has higher margins that Free Software * 4 Case Study: Red Hat * 5 More Information * 5.1 Audio/Video |
Definitions
From: http://dasht-brk.livejournal.com/28013.html?nc=1

"* What is A Software Business?

We adopt a simple model of a "software business" as one which provides three services:

1) BasicSupport
Customers can report bugs or other problems with the software products. The software business responds with fixes or work-arounds.

2) Critical Maintenance
Customers have already installed and are using the software product. The software business proactively supplies the customer with essential patches. Patches for bugs with security implications are an important example of what issupplied by critical maintenance.

3) Inventing the Future
Computing systems evolve rapidly -- faster than the rate at which they can be deployed and replaced.
A customer often can not buy a software product today unless the customer is reasonably assured that in future years, progressive upgrades to the product will be available. Upgrades must keep up with changes in hardware. Oftenupgrades must add new features that help a customer to compete.
If a business model can *break even* by performing these three tasks in combination, we define that to be a "software business".
If a software business can return a *profit* by performing the three tasks in combination, we define that model to be suitable for a corporate software business: one which can return a profit to shareholders.* What is a Free Software Business?

We define a "free software business" to be a software business in which all software is exchanged under a free software license such as the GPL.
In contrast, a "proprietary software business" is one which supplies software to customers only under terms which do not permit the customer (or supplier) to freely examine and modify the source, make copies,use the software without restriction, and redistribute the software (modified or not)."

Typology
Carlo Daffara:
"A recent update (february 2009) of the FLOSSMETRICS study on Free Software-based business model is presented here, after an analysis of more than 200 companies; the main models identified in the market are:

Dual Licensing: the same software code distributed under the GPL anda proprietary license. This model is mainly used by producers of developer-oriented tools and software, and works thanks to the strong coupling clause of the GPL, that requires derivative works or software directly linked to be covered under the same license. Companies not willing to release their own software under the GPL can obtain a proprietary license that provides an exemption from thedistribution conditions of the GPL, which seems desirable to some parties. The downside of dual licensing is that external contributors must accept the same licensing regime, and this has been shown to reduce the volume of external contributions, which are limited mainly to bug fixes and small additions.

Open Core (previously called “split Free Software/proprietary” or “proprietary value-add”):this model distinguishes between a basic Free Software and a proprietary version, based on the Free Software one but with the addition of proprietary plug-ins. Most companies following such a model adopt the Mozilla Public License, as it allows explicitly this form of intermixing, and allows for much greater participation from external contributions without the same requirements for copyright...
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