Opensource

The Business Model of Commercial Open Source Software
(Or: How MySQL AB Got to a $1BN Valuation)

Dirk Riehle SAP Research, SAP Labs LLC
dirk@riehle.org - http://dirkriehle.com - http://twitter.com/dirkriehle
This document is licensed under the Creative Commons BY-SA 3.0 license. © Copyright 2009 Dirk Riehle, see http://dirkriehle.com. Some Rights Reserved.

Commercial Open Source
●Commercial open source definition: “Commercial open source is [open source] software that a for-profit entity owns and develops. The company maintains the rights and determines what is accepted into the code base [...]” [1]

●

Core product is available to community under open source license
● ●

Available in source code form, modifiable, redistributable See http://www.opensource.org for“approved” licenses

The Commercial Open Source Business Model v2. © Copyright 2009 Dirk Riehle. Some Rights Reserved.

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Growth of Commercial Open Source
●

Gartner Group prediction: “By 2012, at least 50% of direct commercial revenue attributed to open-source products or services will come from projects under a single vendor's patronage.” [2]

●

Open source is growing exponentially,on a non-trivial base [3]
● ● ●

Individual projects are growing linearly or polynomially Number of viable projects is growing exponentially Projects are growing in every conceivable domain

The Commercial Open Source Business Model v2. © Copyright 2009 Dirk Riehle. Some Rights Reserved.

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Benefits over Traditional Commercial Software
All other things being equalcommercial open source firms

can go to market faster with a superior product at lower operations cost  and sell more easily
than possible for traditional competitors [4].
The Commercial Open Source Business Model v2. © Copyright 2009 Dirk Riehle. Some Rights Reserved.

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A Simple Open Source Project Classification

single proprietor

community-owned

single product or product line

Commercial OpenSource
(e.g. MySQL)

(e.g. PostgreSQL)

Community Open Source

multi-product assembly (“stack”)

Commercial Distribution
(e.g. Red Hat)

Community Distribution
(e.g. Debian)
The Commercial Open Source Business Model v2. © Copyright 2009 Dirk Riehle. Some Rights Reserved.

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Commercial vs. Community Open Source [1]
Commercial Open Source
● ● ● ● ● ●

Community Open Source
●● ● ● ● ●

One single proprietor Typically dual-licensed Increasingly open-core Venture capital backed Significant direct revenues Asymmetric community

Community of owners Single license No functionality withheld Cross-subsidized No direct revenues Symmetric community

The Commercial Open Source Business Model v2. © Copyright 2009 Dirk Riehle. Some Rights Reserved.

6

What's Differentin Commercial Open Source
(When Compared With Traditional Closed Source Firms)?

Revenue Sources

Need to understand all three aspects to understand commercial open source

Intellectual Property Rights

Open Source Community
The Commercial Open Source Business Model v2. © Copyright 2009 Dirk Riehle. Some Rights Reserved.

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Revenue Sources of Commercial Open Source
●

Coreproduct
● ●

Provision of the software under a commercial license Formerly equated with dual-license strategy

●

Whole product
● ●

Provision of an extend version of the software under a commercial license Now being called “open core” model

●

Operational comfort
● ●

Provision of a quality-controlled update and bug-fixes service (subscription model) Hotline support, bug-fixes ondemand, 24x7 availability

●

Support, consulting, and implementation services
● ●

Consulting and implementation services to customers and resellers Second level support for OEMs and resellers
The Commercial Open Source Business Model v2. © Copyright 2009 Dirk Riehle. Some Rights Reserved.

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The Intellectual Property Rights Imperative
Goal: Provide product as open source to...