“Practical Advice about Finance and Technology”

Open Source and Commercialization are words that we use everyday but the definition that we associate with these words is incorrect. The correct meaning of Commercialization for this paper is” the process of introducing a new product into the market” (Wikipedia). This meaning is far from the commonly used meaning of performing sales. Open source is a “set of principles and practices on how to write software, the most important of which is that the source code is openly available”.

 These principles are practices are declared in the open source definitions.  This doctrine has clear guidelines mainly declare that the source code remain available to the public.  This source code then can be used and modified by any developer who wishes to work on the code. This type of community allows for the public to have equity in the project as a whole. There fore the project it self can not sold without having a free version available for consumers. The traditional business model of selling the product or service is there for ruled out. Forcing many companies to create or change their business models so that they can negate the effects produced by open source. 

            Why open source? Open source allows for the greatest about of open innovation to a product or service by the community that creates the product. Meaning that users have input on the functions for the reason that the product is for them and they know what function they need in the end result.  Open source also has one other major benefit its cost. The cost of a open source product is usually free or reduced. The availability of products that are custom tailored to the general needs of the public allows for the reduction of prices and increase in the amount of customers that can afford your companies services.  Dirk Richle article “The Economic Motivation of Open Source Software: Stakeholder Perspectives” demonstrates this with the chart below.

A practical example of this is database licensing if there was no accessibility to MySQL. Many websites would not be able to have databases due to the extremely high price of Oracle. This would force also force developers to add a surcharge to database development because of the complexity of an Oracle installation and maintenance. But with the addition of open source, the complexity and the price of the database configuration allows for the development of product at a decreased price then it would have been if there was no open source product available for the consumer.  

There are many different business models that have evolved to take advantage of open source. The majority of models fall under 5 models Packager, Professional Open Source, Tri-level, Suites and my own creation Loops. Each of these models was developed over time to meet the specific needs and wants of the community both public and private. This allows for the maximization of the profits and end-user customizability.

Companies that follow the business model of Packagers combine several third party programs into one package. This company then allows users to download a preset package that the end user then installs to use one or several of the products. This model is use full because it allows company’s to add additional software that can generate revenue for them. Ie. The installation of a Google tool bar generates a cash inflow of 1 dollar per install for Firefox. This model is very similar to Suites the main difference being that packages do not certify that everything that they have in a package will work with other packages or programs that are included inside the package it self. Suites guarantee that all the products that are in suite will work together and if they do not the company will develop a solution so that the entire product will work.

            Two of the business models relate directly to support open source products. They are Professional Open Source and Tri-level.  Professional Open Source is the development of a product that can be divided in to 2 separate related products. One that is available for the every one and one is designed for higher end users. These higher end users are usually companies that need enterprise safe and support. These two licenses allow for updates of both products by highly paid developers. Hence, both the corporate and the public entities receive value from the business model. The tri-level model divides into an additional level which is low cost support.  This covers a larger percentage of the customer base.

The last model is my personal creation in my opinion it is present in the open source world, the loop. This is where an open source product is upgraded to develop itself into a new product. The creation of a new product is due to the direct relationship of the developers to the end users. In a sense it is open innovation at its best. Every upgrade they learn more and then add that know to the next upgrade along with extra functions.

This ability exists because the users themselves are the developers that use the products and support the errors that are produced by them. I do not consider this just an upgrade because if you think about it the product it self has a added value to it.  Is a hybrid car the same as a normal gas based car? This is the same the end product is different from the original it maybe part of the same idea but the product itself is new. A great example of a loop model is the wordpress software. Wordpress allows for the easy creation of blog on any webpage.  Every put date that occurs to the program itself adds a new function that did not exist in a prior version adding value to the program. Wordpress also allow developers to write there own software that can be used by other users to improver their blogs. Hence after all the possible combinations of plug-in and knowledge the final program is a fully commercialization and monetization.  In this manor, the users develop the next new product and the most popular functions and plug-ins are then added to the main program.

Many Large companies started to enter the open source community with own staff to assist community on its projects so that they will be able to implement their strategy for monetization of the community. Creating a influx of developers that have spent a  portion of there lives working as developer increasing the knowledge base of the community. This had one other effect it gave the community  the ability to work on projects that would normally be conducted behind closed doors. Companies starting doing more and more  projects in the open source community due to the communities ability to perform open innovation better then if they would just prepare the code by themselves.

Many people suspected that the increase commercialization and monetization of open source by cooperate entities would degrade the community and force developers away from theses projects.

The chart (Cnet.com) above is the graphic break down of personal both volunteers and corporate working on GNOME (GNU Network Object Model Environment).  It shows that the personal is divided very evenly between the two types. Adding the data from the job assignment chart below it is clear that the most complicated code it self is written by the paid workers.  The volunteers tend to stay more towards on the end-user related work. This allows for them to have the maxim input on the end product that they interaction with.  It is also that paid cooperate workers tend to stay on a project and support the projects that they help develop. Volunteers on the other hand are less likely to stay on set project and apply the same amount of effort unless they have a personal attachment or need for the update.

A interesting development also occurs from the interaction of paid and unpaid developers .  There is a knowledge exchange that helps to commercialization the developers them selves. The paid developers help nurture younger developers with experience and know while also trying to recruit them for there own company. In a sense making the volunteer in to a product that can be used by there own company.

Open source commercialization occurs in many different ways that all come from the nature of the product. But, if we look carefully at what open source is then we will see that it is commercialization in itself. The end result of an open source community will be a much different product then what was available before. It will new product with new a new value that did not exist before. In a sense open source commercialization is pure innovation. The value may not always be seen or known at first but the is definitely an increase in the value of the end product.