Business models for OSS
Business models for OSS

Four Business Models for Doing Business with OSS

There are various debates about business models for OSS; here, I have grouped them into the following four categories.
(1) Distribution Model
(2) System Integration Model
(3) Service Model
(4) Other

There are various debates about business models for OSS; here, I have grouped them into the following four categories.
(1) Distribution Model
(2) System Integration Model
(3) Service Model
(4) Other

(1) Distribution Model

  1. In the distribution model, a company distributes and provides support for software developed by the company itself or by the development community.

    A well-known example of a company using this model is RedHat. RedHat provides RedHat Enterprise Linux (RHEL), a package consisting of a Linux kernel, developed by the community, and peripheral software. The company also tests which kernel version and peripheral software to use and if they will run together. Thus, the RHEL package is a product of RedHat, but the software included in the product is all open source, so none of the software itself is a product of RedHat. By purchasing a subscription to RHEL from RedHat, users can receive maintenance support for the kernel and other included software, bug- and security-related updates, and other such services.

    I’d also like to introduce an example of one other type of distribution model that is slightly different. I’m referring to MySQL, provided by Oracle. MySQL was originally developed by MySQL,AB, a Sweden-based company, but in 2008 it was purchased by Sun MicroSystems, which in turn was purchased by Oracle two years later. Now, Oracle holds the trademark rights and copyright. 

    MySQL was released in 1995. Initially, it was distributed under the company’s own license, but in 2000, they adopted GPL V2, and began providing MySQL as dual-licensed software under the GPL V2 license and a commercial license. Thus, we have a business model wherein MySQL was mainly developed by the employees of MySQL,AB, and while the developed software was released as an OSS, it was also sold as a commercial package.

    There is various other software provided in the same manner. In Japan, SRA OSS distributes PostgreSQL as its own package, sold under the name “PowerGres.” Likewise, Miracle Linux distributes Zabbix as its own package, sold under the name “Miracle ZBX.”

(2) System Integration Model

  1. In a system integration model, a company constructs systems using OSS and provides other professional services (such as consulting, etc.).

    Some famous examples of this model are system integrators such as NTT Data, SIOS, SCSK, and CTC (Itochu Techno-Solutions). I believe this is the most common model in Japan. System integrators select OSS suited to customer requests when constructing a system. When selecting OSS, they generally use past combinations with which they have experience and combinations that have been tested. However, depending on the customer requests, the system integrator may need something with which they do not have experience. In such circumstances, a verification process is necessary. Also, the system integrator selects the best hardware composition to match customer needs, and chooses the most appropriate settings. Once the system begins running, they must monitor operation and handle problems appropriately when they occur.

    Unlike commercial software, OSS has no pre-requisites for use, so when implementing it in this manner, there is demand for appropriate technical skill. Some may be of the opinion that, because all the information for OSS is made public, its implementation shouldn’t be so much trouble, but this is misguided. Similarly, because all the information related to OSS is public, people tend to think that there is no gap in the information held by developers, vendors, and users—in other words, that there is no so-called “information asymmetry”—but in reality, this is not the case. There is in fact a very large business chance hidden there.

(3) Service Model

  1. In the service model, a company provides a service that is constructed by using OSS. Some famous examples include Google, AWS, and Facebook. In this model, a company selects the OSS that are most appropriate for its service and builds a system using them. The company being able to select the software composition itself is the most significant characteristic of this model. When deciding which OSS to use, the company can choose for itself to use only OSS combinations that have had success in the past and that have been properly tested. Thus, I feel this is the most appropriate model for business. 

    In addition, there are some cases wherein rather than simply using an OSS as-is, companies add various peripheral software and provide its service with them. For example, AWS uses MySQL’s storage engine InnoDB and additionally use a MySQL compatibility function developed within their company to provide their Amazon RDS service Aurora.

    There are similar examples in Japan of companies using OSS to provide services, such as Cybozu. Recently, mainstream vendors such as NEC and Fujitsu have also begun using OpenStack and Cloud Foundry, combining them with various OSS, developing peripheral software, and providing cloud services.

(4) Other

  1. Finally, there is the “other” model that does not fit into the three categories listed above. In this model, a company uses OSS to accomplish a goal such as hardware sales.

    Well known examples include hardware vendors such as Hitachi, Fujitsu, IBM, NEC, and HPE. This model resembles the service model, but what is being provided is not a service, so it’s slightly different. The companies using this model must test operability and obtain authentication for various software in order to sell hardware, so ultimately what they are providing is hardware.

    That being said, with the cloud becoming popular in recent years, the conditions in which it was enough for hardware vendors to simply sell servers are changing, so in the future, it’s likely that examples of this model will start to lessen in number.

    This concludes my very rough overview of the different business models. So, which business model is used most on the front line?

All company names, product names, and logos appearing in this article are trademarks or registered trademarks of their respective companies.

Yukio Yoshida

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