Ict@innovation: Free your IT Business in Africa/5-1
Module 5.1 How FOSS business is different from other types of business
For instructional purpose, it is advised that trainers/lectures use lectures, role play and group and individual exercises as a major means of delivering this module.
For a company, revenue streams may mean the range of services or products which brings income for the company. Wikipedia defines a revenue stream as 'methods' a company uses to collect money from the users of its product. Thus, revenue streaming can be viewed as and a combination of methodologies, techniques, or means a company uses to get income from selling goods and services to its customers. Therefore, it is not just sufficient that a company produces or customizes FOSS solutions, but appropriate and innovative techniques needs to be developed to market those services so that the company is able to generate income to support continuous developments and improvement of those services. This module harnesses business experiences in module 4, combined with some basic understanding of the FOSS environment (Module 1) to introduce revenue streams and the activities a company may follow which have an added value. In order to get high returns and generate revenue, a company needs to establish a healthy working relationship with its clients. This module ends by addressing vendor-client relationship which is so vital in developing and improving revenue streaming.
The most obvious difference between doing business with proprietary software and doing business with FOSS is that a FOSS company will usually not make money by selling licenses. Business models based on dual licensing are an exception in this case. However, this difference is not as significant by far as it would appear. For example, proprietary packaged software in the United States accounts for less than 10% of software developers employed (FLOSSImpact, 2006).
According to findings from the FLOSSImpact study, when re-selling licenses for proprietary software, most businesses only make single-figure profits (i.e. below 10% of the license price). The rest of the client's money ends up with the original seller of the software, quite frequently leaving the country and the continent for the US or Europe. The buying power of this money will effectively be lost for your business.
The absence of licensing costs has various effects:
- Your business is able to draw on a large supply of high quality software components free of charge. You will be adding value by configuring those components and making them work together, rather than by developing them from scratch.
- when your client's choice is between a solution based on proprietary software and a solution based on FOSS, the lack of license fees means that almost all of your client's budget can go towards paying the services you provide. This is money which your business will keep, as opposed to spending a substantial share of it abroad to cover license fees.
Targeting activities to add value
When working with FOSS, you can focus all of your business' resources on those activities that add value to your product or service. If you are putting together a FOSS solution, you will usually be able to draw upon a large number of ready-made libraries and software packages. You will put your expertise to work in at least some of the following fields:
- designing the solution
- selecting the appropriate software packages
- making them work together
- customise them for your client's needs
- setting up the new solution
- managing the client's migration to the new solution
- training users and system administrators to work with the new solution
- ongoing maintenance and support contracts
- These activities translate into at least the following business models. For further discussions on these models, see Module 2.9.
- Technical support
All of these services can be provided on a one-off basis, or can be sold to the client as a subscription. The need for FOSS-related services is an important business opportunity for you. It is also an important opportunity for local economic development.
In FOSS, all important components of a program - executable code, source code and documentation - are usually publicly available. This means that clients have the possibility to inform themselves about the software they might need, and gives them the opportunity to better judge the solutions that your business is offering. This allows for a much more equitable relationship between vendor and client. This relationship in turn means that the client is more likely to get exactly the solution she is asking for. Ideally, this leads to greater satisfaction on the client's part, laying the basis for a long-term business relationship. In sum, it might be helpful to consider yourself not as a software provider, but as a service business. Much like a car mechanic or a hairdresser, you are selling your time rather than any particular product, and you get paid at the level of your skills.
Module 5.1: ASSESSMENT
•Exercise 1: Spend five minutes browsing the following websites:
For each website list down the main business activities
- Identify the clients/customers and
- organizations using the products
- Exercise 2: Look at the case studies in Module 2.1 – 2.7 and identify the different revenue streams of each company described there.
Add those revenue streams to this module as “information”.
- Exercise 3: A client asks you to build a mail system for his enterprise, which employs ten people, including a mail server and desktop clients. He wants to be able to administer the easier aspects of this system himself. Go online to identify which existing FOSS components you can use to build the system.
- Discussion and Assignment: Discuss Canonical as the commercial sponsor of Ubuntu.
- List as many revenue streams of Canonical as possible
- In “Beyond Ubuntu: Canonical Pursues New Revenue Streams” Joe Panettieri discussed how Ubuntu is using grid computing as a new form of revenue stream. Does this mean that Canonical will generate less money in providing support services for the Ubuntu GNU/Linux operating system?
Write down your answer …............................................................................................................................................................................................................................................................................................................