Open-Source Software: Business Strategies

John Koenig discusses 7 strategies: Optimization, Dual License, Consulting, Subscription, Patronage, Hosted and Embedded. From the section on the Hosted Strategy:

At the March 2004 Open Source Business Conference, Tim O’Reilly discussed what he called the “Open Source Paradigm Shift,” advising companies to look for “hidden service business models.” He pointed out examples like “Google and Amazon, whose APIs treat Web applications and their data as programmable components.”

In looking at open source business models, it is apparent that service providers have much to gain from OSS. They can use GPL-licensed software internally without restriction and without the obligation of sharing their code modifications. This allows them to leverage open source, and incur little or no competitive risk. The GPL license allows them to own and keep secret the intellectual property modifications they create, and as long as they don’t distribute the software, they don’t have to publicly share the modifications. Using open source allows them to lower costs, while delivering extremely reliable enterprise-quality services.

For example, in June of 2003, CTO Dave Moellenhoff disclosed to LinuxPlanet that his company used open source Eclipse and Linux., an application service provider (ASP), provides a net-native customer relationship management (CRM) application based on a monthly per-user subscription model. Netsuite, another ASP with both financials and CRM applications, also makes heavy use of OSS for delivering its services to customers.

Consider also Amazon, through which billions of dollars of consumer transactions flow each year. Amazon is a large user of OSS. CNET a few years ago discussed Amazon’s SEC filing, where Amazon attributed millions of dollars in savings to “migration to a Linux-based technology platform that utilizes a less-costly technology infrastructure.”

Google even more impressively bootstrapped its business using Linux and commodity servers, saving Google millions in server infrastructure costs. Sergey Brin, co-founder of Google, gave the 2002 keynote presentation at LinuxWorld, describing how Google runs Linux on more than 10,000 servers, generating advertising revenue through a search service that is known for speed and relevancy. Google is now rumored to be running more than 100,000 Linux servers, and laying plans to leverage its server infrastructure in ways that extend far beyond search.

Computerworld reported in 2002 that financial services companies, often the leaders in IT adoption, were rapidly deploying Linux servers. One major example is E-Trade, a successful Internet-based banking and securities trading service.

What do these companies all have in common? They are hosted service companies using OSS as a cornerstone to their IT platforms.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.