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Tuesday, November 22, 2005

Open Source: Economics & Innovation

Closely following Larry Augustin’s views on opensource, Marc Fleury writes that the business model of software MUST include R/D. He sees that FOSS development models are economically sustainable, have lower expenses associated with them, specifically in the QA arena and that for-pay licensing-based software, while greatly profitable, can be undermined by cheaper models. Marc who earlier wrote about VC investments in open source now writes that JBoss sees FOSS is about a better way to develop, distribute and support software. Today's software have tons of room to grow in terms of technical maturity, the economarket dynamics have tightened since the bubble forces The dirty little secret of the enterprise software model in today's maturing market place is that, with the notable exception of a few players , the days of the hugely profitable sotware license are gone. In With the traditional software development model, your cost of sales, marketing and distribution is so high that these models completely depends on the for-pay license. An optimally functioning FOSS business model needs 20 cents of sales and marketing to acquire 1 dollar of maintenance, where a traditional software company will have to spend around 2 1/2 dollars. Professional FOSS businesses can sustain sales and marketing costs out of the maintenance revenue stream. This model produces earnings (EBITDA) according to the P&L of stable software business models, those in mature subscription-based phases. The P&L of these business sustain R&D of 20%, where we are today at JBoss. Thus Professional FOSS, in theory and practice, sustains the research and development expenses associated with the classic business model. On innovation as a proof point, JBoss and the FOSS community in Java have been pushing the frontier with EJB3, annotations, light-weight containers, IoC, SEAM etc and a lot more in the pipeline. The days of fat profits in licenses may be gone but software is moving ahead, as vibrant and innovative as ever. Look at where Jboss mostly operates in the enteprise layer - the answer lie there.

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"All views expressed are my personal views are not related in any way to my employer"