Chapter 33

Open Source

The pattern

Open Source denotes that products are developed by a public community rather than a single company (HOW?). The source code is publicly accessible, so that anyone – a part-time tinkerer or full-time professional – can join the community and contribute his or her expertise. As a result, the solutions developed do not belong to a single company, but to the public as a whole. As such, Open Source products are freely available (WHAT?). This does not, however, rule out the existence of opportunities for income generation with Open Source business models: rather than earning revenues directly from the developed solution, indirect returns can be pocketed through products and services that build on an Open Source foundation (VALUE?).

Companies that wish to use this business model enjoy the advantage of not having to invest in the development of new products (VALUE?). Development is usually carried out spontaneously by community members, free of charge. These members are often personally motivated to participate in development, such as an interest in improving the current solution. Proponents of Open Source are often convinced that this approach results in better solutions than proprietary development, as it harnesses the community’s collective brainpower (WHAT?). Finally, a decidedly significant advantage is that Open Source development is free of dependencies on suppliers (WHAT?, HOW?).

The origins

Open Source originated in the software industry, first being used by IBM in the 1950s. Two years after IBM introduced its original computers, the Share user group was formed by IBM users to exchange technical programming, operating systems and database information. In the 1990s Open Source was applied to advance the development of the Netscape browser. With Microsoft’s growing dominance on the browser software market, the development team at Netscape Communications Corporation was pushed to seek an alternative path to value creation. This marked the start of the Mozilla Open Source project, which went on to develop the Firefox browser. In the meantime, Open Source Software (OSS) has become an integral part of the software industry. Red Hat is generally acknowledged to be the first company to have established a profitable business model in this area. Red Hat generates most of its revenues through the sale of service agreements and complementary software applications for the Linux operating system. The enterprise was one of the first businesses to attain revenues in excess of US $1 billion from Open Source products.

Open Source: Different Possibilities of Open Source

The innovators

Over the past few years, Open Source has moved beyond the software industry. Online encyclopaedia Wikipedia, launched in 2001, is perhaps the best-known example. It has now become the world’s most-used reference work. Wikipedia consists of articles composed by Internet users all over the world and is constantly edited and improved. Since the use of Wikipedia is free, the company is financed primarily through donations. Wikipedia has ousted many established encyclopaedia publishers from the market, forcing them to give up on an age-old business model.

Switzerland-based mondoBIOTECH also uses an Open Source business model. mondoBIOTECH calls itself the first Open Source biotechnology company in the world and has given itself the task of finding compounds to combat rare diseases, known as ‘orphan diseases’. Development of these substances is not done in laboratories but online by screening existing research results and information for their potential. This provides a more efficient way of exploiting the current knowledge of the modes of action of drugs and is also a significantly cheaper method. Just 11 years after the launch of mondoBIOTECH, its product pipeline contained over 300 active substances, of which six have even achieved orphan drug status to date. In the conventional pharmaceutical research world, this status is attained by only 1 in 10,000 active substances studied.

The Open Source pattern has made a myriad of research initiatives successful, including the Human Genome Project. The greatest challenge is not to ‘create value’, but to ‘capture value’. When designing such a business model, it is important to ensure that at least part of the created value stays within the originating company. The value of Open Source is illustrated by the venture capital (VC) investments made in companies that apply this principle. The concept of Open Source is also the base for Distributed Ledger Technologies (DLT) or Blockchain initiatives. Their major goal is to attack the dominant platform players with decentralised platforms and secure transactions. Most DLT platforms are Open Source – for example, Hyperledger, Polkadot and Ethereum.

When and how to apply Open Source

Open Source has found wide application in software design. While you relinquish a great deal of control over a given project, you can gain a competitive advantage by setting standards, sharing resources and risks and creating a community of users to whom you can later sell additional commercial products or services. Back in the 1990s, Open Source was still rather avant-garde, but today the pattern is finding increased application in more and more fields. Young programmers, in particular, are making use of Open Source. Firms in the biotechnology and pharmaceutical sectors are also increasingly opening themselves up to this pattern.