T ECHNOLOGIES ® S TROMIAN S Pricing and Business Models for Open Source Software Jim Geisman Marketshare, Inc. [email protected] Don Rosenberg Stromian.

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Pricing and Business Models for Open Source Software

Jim GeismanMarketshare, [email protected]

Don RosenbergStromian Technologiesdonr @stromian.com

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Overview

• Pricing Issues• Business Models• Comparisons• …And Therefore

Corporate SMBs Single User

Custom SW SIs/VARs

OS Vendors App Devprs

Customers

Developers

Resellers

Open Source LicensingA Multi-Player Game

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Customer Pricing Issues

• Corporate/SMB – Decrease license costs– Increase reliability– More customization, support (if desired)– Server vs. desktop

• Single Users– Very price sensitive– Want “choice”

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Are Pricing Issues “Real”

• SW <25% IT budgets – How much change in license costs?

• HW < 25% IT budgets and falling• People costs > $50-75K average

– 5 - 8X cost of all SW– > 5X TCO

• Cost of downtime a killer– $25-50/hr. x # people on a server– Add cost of recovery, sys admin

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Reseller Pricing IssuesGPL Software Means Make Money by Customizing

• Custom Software Houses– Selling time (like any service business)– Depends on place, expertise, demand

• Systems Integrators and VARs– Selling proprietary software and systems– Support as a service– Software customizations

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Open Source A New Opportunity

• Another new sales platform– Extend product offering

– IBM, EDS, Applix Corel ...

• A new opportunity– A new point of entry

– Red Hat, <<Don - names?>>

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Vendor Pricing Issues

• OS Vendors– Retail packaging, downloads + OEM sales– Add-on services to resellers– Packaged upgrades, enhancements, applications

• Applications vendors– “Off the rack” (less-than-finished retail)– Proprietary (closed) applications

• Horizontal apps can go direct to desktop• Vertical apps more likely to go through channel

– Customization services

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Significant Business Issues

• How does OpenSource Software Compare…– As a business ...

• Vs. traditional software vendor models?

• Vs. traditional service offerings?

– With other product alternatives?

• How do economics differ?– Support?– Lost time/wasted effort?– Get leverage over other parties?

• What elements of risk change?– Business (esp. Marketing/Sales)– Technical

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Our Conclusions …About Open Source SW Opportunities

• Corporate/SMB – Lower cost desktops but higher training?– Server reliability probably more important

• Single Users– SOHO maybe in the future– Developers probably soon

• Installed base of software here to stay– Will slow migration to Open Source/GPL

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Business Models ComparisonHow does Open Source change things?

TraditionalSW or Svcs

Open SourceSoftware

Open SourceServices

Revenue Baseline Lower No change

GrossMargin

SW: 90 - 95+%Svcs: 30 - 65%

A little lower A little lower

Sales & Mktg 25 - 35% Same or more No change

Prod Devpt SW: 10 - 20% A little higher No change

G&A 5 - 10% A little lower Lower

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One Area of Hope: Server Pricing

• Not much change in license costs– E-commerce web server $1M average (Gartner)

– SW 10-15%• HW about same as SW

• People the other 70-80%

– How many % points will go to open source?

• But cost of downtime is a real killer– Lost revenues

• # Hrs. offline x Total revenues / 8760

– Recovery costs

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In Conclusion …

• Extend existing service businesses– A “hook” for new ones

• Proprietary add-ons to GPL SW will be a tough business– No block busters; few large companies

• Many service opportunities in the Bazaar

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Contact Information

Jim Geisman, President

Marketshare, Inc.

35 Main Street, Suite #8

Wayland, MA 01778

Tel: 508-647-0330

Fax: 508-647-4876

E-mail: [email protected]

Don Rosenberg, President

Stromian Technologies

919 Monmouth Avenue

Durham, NC 27701

Tel: 919-687-4172

Fax: 919-688-7210

E-mail: [email protected]

See also: www.stromian.com and www.softwarepricing.com