4. 2. 1  Hecker and Raymond classifications

One of the first authors to write about the business prospects of free software was Frank Hecker in 1998 with "Setting Up Shop: The Business of Open-Source Software". In his article, he takes four OpenSource.org categories and adds others, analysing them on the basis of:

Recommended website

For more information, see:

http://hecker.org/writings/setting-up-shop

The table below summarises this classification, adding another characterisation parameter, which, though not expressly mentioned by Hecker, is a key feature: how is the company revenue generated?

Summary of classification of business models ("Setting up shop: the business of open source" Hecker, 1998)

Model

Source of revenue

Type of licence

Opportunities for differentiation

Price opportunities based on perceived value vs. costs

Cases

Support sellers

Sale of related services (covers all types of services, from custom developments to training, consulting, etc).

GPL

Quality, price, and simplifying and improving the user experience.

Limited.

Possible if it has a good reputation.

Cygnus Solutions

Red Hat

Caldera

Loss leader

Sale of other proprietary products

BSD or Mozilla

Based on the product.

Possible.

Sendmail

Netscape

Widget frosting

Sale of hardware

Based on hardware: functionality, performance, flexibility, reliability, cost...

Limited. The hardware pricing system is typically based on costs.

Corel

VA Linux

Accessorising

Sale of physical products (books, etc).

Product quality (books, etc.) and loyalty from "pro-free software" users.

Limited. Brand reputation can allow prices to be raised slightly.

O'Reilly & Associates

Service enabler

Sale of on-line services provided by the program

GPL or Mozilla

Back-end attributes, creation of unique and useful services.

Possible if a unique and inimitable service is created.

Netscape

Sell it, free it

As a cyclical "loss leader"

BSD or Mozilla

Software functionality (while it remains closed).

Possible until the product becomes an interchangeable asset (at which point, it is released)

–hypothetical–

Brand licensing

Sale of name rights. The version co-exists with the "generic" branded version.

 

Value added, for example, through additional validation and testing of the non-brand product.

 

–hypothetical–

Software franchising

Sale of franchise and percentage of franchise revenue

 

As a support-seller and brand licensing

Possible if it has a good reputation.

–hypothetical–

Hybrids (licences are neither free nor pure proprietary)

Limit code availability: sale of licences under certain conditions

Trolltech

Qt

User-based treatment on – sale to commercial users

Open Group

Treatment based on use – sale for commercial use, or sale for use on certain platforms

Qt

In The Black Cauldron, Eric S. Raymond also outlines the role of free software in business, focusing, among other aspects, on how free software affects the "use value" (value as an intermediate product) and "sale value" (value as the end product) of the software, proposing a taxonomy based on which of the two the company exploits.

Recommended website

For more information, see:

http://catb.org/~esr/writings/magic-cauldron/

For Raymond, only sale value is affected by a free software model, so his classification describes models based on use value and models based on indirect sale value, in which free software makes the sale of another product or service viable:

As we can see, in the models based on indirect sale value, Raymond includes those of Hecker, plus one new one "Free the software, sell the content". In this model, the value lies in the information provided by the software platform, which is the information sold through subscriptions. The software is released, meaning that it can be carried over to different platforms, thus expanding the potential market of the real product: the content.

Though he proposes it only as a hypothetical model, Raymond anticipates the "social website" concepts and paradigm shift proposed by O'Reilly in his article "Open Source Paradigm Shift."

Recommended website

For more information on "Open Source Paradigm Shift" see:

http://www.oreillynet.com/pub/a/oreilly/tim/articles/paradigmshift_0504.html

However, he does not recognise the role of the Internet as a platform or the subsequent "software as a service", considering that the value of releasing the software will lie in carrying it over to other platforms, thus contributing to its diffusion and market expansion.