Business models

Open Source
Business Models

Manuela Aparicio

Carlos J. Costa
ISCTE-IUL

Index
1. BM - Definition
2. BM - Open Source
3. Typologies
4. Dimensions
5. Players/stakeholders
6. Challenges

Manuela Aparicio & Carlos Costa 2

Context of BM
Many people confuse strategy with business model
The expression business model appeared in the late
1980´s
– People were gaining experience with pc´s and
spreadsheets software
– People found easy to modulate a business
associating the costs and revenues of an
economic activity
Scholars define business model as an economic
underpinning of an enterprise strategy


Strategy vs Business Model
“Business model isn´t a strategy”
(Harvard Business Essentials, 2005)

Strategy is on a long term level planning
●

(Organizational, Business Level & Opwerational)
A BM describes how the pieces of a business fit together
●

to produce profit
●
A BM do not describe a critical dimension of
performance: competition


Business Logic Triangle

Osterwalder & Pigneur (2002, p. 2); Osterwalder (2004, p. 148)


1. Business Model- Definition(1/5)
“A business model describes a variation of the value
chain that supports every business.(...) this chain has
two parts.”
– “Part one includes all the activities associated
with making something:designing it,
purchasing raw materials, manufacturing and
so on.”
– “Part two includes all the activities associated
with selling something: finding and reaching
customers, transacting a sale, distributing the
product or delivering the service”
(Magretta, J.(2002), “Why Business Models Matter”, Harvard Business Review,
May 2002)


●
A BM answers the following questions:
●
“How does this thing work?”
●
“What underlying economic logic explains
how we can deliver value to customers at
an appropriate cost?”

(Harvard Business Essentials, Strategy, 2005)


●
“A good BM answers Peter Drucker´s age-old
questions:
●
“Who is the customer?”
●
“And what does the customer value?”
●
“It also answers the fundamental questions every
manager must ask:”
●
“How to make money in this business?”
●
“How we can deliver value to the customer at
an appropriate cost?”
[Magretta, J.(2002)]
●
Value /Versus/ Cost


“why, how, and what means for a business to
generate revenues and achieve profit
objectives.”
(H. Chesbrough and R.S. Rosenbloom, 2002)

Why
How Business Revenue Profit
What



”A business model describes the
rationale of how an organization
creates, delivers and captures value”

(Osterwald, 2009)


Business Plan

“A business plan includes both an explication of the
business strategies and the business models
underlying the business. A company’s business
models, of which there may be a few, combine as a
means to achieve profitability goals under the
direction of an overall strategy, which itself also
concerns itself with positioning and the
competition.”
(Tapscott, 2000)


2. BM(1/4) – Grátis 1- Subsídios Cruzados
Anderson (2009)

Produtor
Produto 1 €€€ Produto 2
Pago Gartis

Amostras gratis
Consumidor Aulas Apple store
Periodo experimental
O que é grátis: Qualquer produto que incite a que se pague por
outra coisa qualquer
Para quem: Qualquer um que esteja disposto a pagar de uma
maneira ou de outra


2. BM(2/4) – Grátis 2- Mercado das 3 Partes
Anderson (2009)

Espaço Publicitário Produtor
€€€ Conteúdo
Pago Gartis
€€€
mkt

Produtos
Anunciante Pagos Consumidor

O que é grátis: Conteúdos, serviços, software e mais
Para quem: Todos
Nº 800 Free
E-mails gratis/lembrete
Popularity Dealer/fake calls

2. BM(3/4) – Grátis 3- Freemium
Anderson (2009)

Produtor
Produto Básico Produto Preemium
Grátis Pago

€€€

Muitos Consumidores
Consumidor
O que é grátis: Tudo o que é combinado com uma versão
preemium paga Skype
Para quem: Utilizadores básicos Bilhetes gratis crianças/pago o
adulto

2. BM(4/4) – Grátis 4 Mercados não Monetários
Anderson (2009)

Atenção Produtor
Reputação Artigos
Gartis

Consumidor
O que é grátis: Tudo o que as pessoas optam por oferecer sem
expectativa de pagamento MIT OpenCourseWare
Para quem: Todos Wikipedia
Google


3. Typologies (Schiff, 2002) (1/2)
Name Business Model Example

Loss-leader Use open source software to maintain Netscape´s open
Market Positioner a market position for a related source
Proprietary Software product. Mozilla web browser
and proprietary server
software
Widget frosting Sell hardware with open source driver Apple´s MacOs X
software

Accessorising Sell accessories for open source O´Reilly and
software such as documentation Associates

http://firstmonday.org/htbin/cgiwrap/bin/ojs/index.php/fm/article/view/1061/981


3. Typologies (Schiff, 2002) (2/2)

Free the future, Sell closed source software with a Alladin´s Ghostscript
sell the present license that makes it open source after
a specified time period
Free the software, Sell other developers a brand that Oracle (Sun StarOffice)
sell the brand certifies their implementation of the
open source technologies compatibility
with others
Free the Develop an open source product that N/A
software, sell the receives proprietary content that the
content sells


3. Typologies (Koenig, 2004) (1/3)

Optimizing Optimizing the adjacent software Oracle
(license based) layers, where applications are
optimized to achieve greater value to
the customer
Dual License The offer of free use of the software My SQL
(license based) with some limitations included, or
alternatively offers for free commercial
distribution rights and a larger set of
features. The free version do not allow
code use for commercial applications
Consulting Removing nearly all licensing costs Systems Integrator
from a proposed solution and had 10X
integration and maintenance
consulting fees.


Need leadership and consistency.
Objectives are to drive standards
adoption and enter in entrenched
markets. It´s expected that a de-facto
standard and supporting community
will converge around that contribution.
Other objective is to commoditize a
particular layer of the software stack,
Patronage eliminate competitors that are IBM
extracting revenue from that layer
(Microsoft with Windows for instance).
This creates an opportunity to offer
above the Open Source Software a
value higher up the stack through
clustering, availability, provisioning,
security, and all management software.


Using open source software to keep infrastructure
costs low and custom adaptable. “The GPL
license allows them to own and keep secret the
intellectual property modifications they create, and Salesforce.com
Hosting as long as they don´t distribute the software, they Amazon.com
don´t have to publicly share the modifications” Google .com
keeping their competitive advantage. Present in
service offers like Application Service Provider,
Transactions or Advertising.

Subscription fees of technical support and
Subscription maintenance that include configuration support Red Hat
and updates and upgrades of technology.

Using Open Source Software like Linux
Operating System in several kinds of systems
like TV set-top boxes, cells, servers, etc. and Tivo
Embedded
developing software over it that creates the real Netscreen
value for the customer


4. Dimensions
Main license model
– Twin licensing
– OSS and Commercial Versions
– Badgeware
– Pure OSS
Main revenue Generation
– Selection
– ITSC
– Subscription
– Licensing

Main License Model
Twin licensing- the same software code distributed under the GPL
and a commercial license.
OSS and Commercial Versions- this model distinguish between a
basic FLOSS software and a commercial version, based on the
libre one but with the addition of proprietary plugins.
Badgeware- Common Public Attribution License ("CPAL") the
Original Developer may include […] a requirement that each time
an Executable and Source Code or a Larger Work is launched or
initially run […] a prominent display of the Original Developer's
Attribution Information
Pure OSS- companies that created, or maintain a specific software
project, and use a pure FLOSS license to distribute it. The main
revenues are provided from services like training and consulting


Main Revenue Generation
Selection- companies in this class are not strictly developers, but
provide consulting and selection/evaluation services on a wide
range of project
ITSC- The main revenues are provided from services like training
and consulting
Subscription- Fee payment to access services
Licensing- Fee payment to use the software, sometimes there are
two licenses one that is free and another that is payed (premium
versions for example)


Examples- Twin License


Examples- OSS/Commercial


Examples- Badgware


Examples- Product Specialists


Examples- Platform Providers/
selection/ Consulting/ Others

http://www.robertogaloppini.net/documents/businessmodels.pdf


5. Players/Stakeholders

(Costa, 2009)
Government

IT Suppliers Users/customers

Education


Government

User Customers IT Suppliers
Users/
customers

– fee Education

(Costa, 2009)


Government

Government IT Suppliers
Users/
customers

– Government Education

– Local government
Government
– Financial perspective
• Budget (Costa, 2009)
– Economic perspective
• Economical growth
• Imports/exports


Government

IT Supplyers IT Suppliers
Users/
customers

– Already mentioned Education

(Costa, 2009)


Government

Education
Users/
– Level
IT Suppliers
customers

• Universities Education

• Professional Education
• ...
– Type
• End users education
• Developers education
• .. (Costa, 2009)



Internal Players
– Users
– Technical Support
– Developers
– Decisors
– ... (Costa, 2009)


6. Challenges

Open Source Business Models – Mapping
Portuguese Economy
Open Source - Impact Evaluation of Political
Decisions
Open Source Business Models – Case studies

(Costa, 2009)


Osterwalds´ 9 BM Building
Blocks (1/4)


Blocks (2/4)


Blocks (3/4)


Blocks (4/4)


Creating Value to the Customer
(Osterwalder, 2009)
Value Creation:
– Newness Types of Customer
– Performance Segments:
– Customization – Mass Market

– Getting the job done – Niche Market

– Design – Segmented

– Brand/ status – Diversified

– Price
– Cost Reduction
– Risk Reduction
– Accessibility
– Convenience


Channels (1/2) (Osterwalder,
2009)

Functions:
– Raising awareness among customers about a company’s
– products and services
– Helping customers evaluate a company’s Value Proposition
– Allowing customers to purchase specific products and services
– Delivering a Value Proposition to customers
– Providing post-purchase customer support


Channels (2/2) (Osterwalder,
2009)


Relationship (1/2) (Osterwalder,
2009)

Objectives:

● Customer acquisition
• Customer retention
• Boosting sales (upselling)


Relationship (2/2) (Osterwalder,
2009)

Types of Relationships:

● Personnal Assistance
● Dedicated Personnal Assistence

● Self-Service

● Automated service

● Communities

● Co-Creation


Revenue (2/2) (Osterwalder,
2009)

Types of Revenues:
● Asset sale

●Services

●Licensing

●Advertising


References

Carlos Costa, Professor and Reseacher
at Iscte - Iul | SlideShare N.d.
http://www.slideshare.net/carlosjcosta,


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