Pricing and Business Models for Open Source Software

Pricing and Business Models for Open Source Software Jim Geisman Marketshare, Inc. jgeis@moreshare. com Don Rosenberg Stromian Technologies donr @stromian. com S STROMIAN TECHNOLOGIES ®

Overview • • Pricing Issues Business Models Comparisons …And Therefore S STROMIAN TECHNOLOGIES ®

Open Source Licensing A Multi-Player Game Customers Resellers Corporate Custom SW SMBs Single User SIs/VARs Developers OS Vendors App Devprs S STROMIAN TECHNOLOGIES®

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” S STROMIAN TECHNOLOGIES ®

Are Pricing Issues “Real” • SW <25% IT budgets – How much change in license costs? • HW < 25% IT budgets and falling • People costs > $50 -75 K average – 5 - 8 X cost of all SW – > 5 X TCO • Cost of downtime a killer – $25 -50/hr. x # people on a server – Add cost of recovery, sys admin S STROMIAN TECHNOLOGIES ®

Reseller Pricing Issues GPL 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 S STROMIAN TECHNOLOGIES ®

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? >> S STROMIAN TECHNOLOGIES ®

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 S STROMIAN TECHNOLOGIES ®

Significant Business Issues • How does Open. Source 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 S STROMIAN TECHNOLOGIES ®

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 S STROMIAN TECHNOLOGIES ®

Business Models Comparison How does Open Source change things? S STROMIAN TECHNOLOGIES ®

One Area of Hope: Server Pricing • Not much change in license costs – E-commerce web server $1 M 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 S STROMIAN TECHNOLOGIES ®

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 S STROMIAN TECHNOLOGIES ®

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: jgeis@moreshare. com Don Rosenberg, President Stromian Technologies 919 Monmouth Avenue Durham, NC 27701 Tel: 919 -687 -4172 Fax: 919 -688 -7210 E-mail: donr@stromian. com See also: www. stromian. com and www. softwarepricing. com S STROMIAN TECHNOLOGIES ®