Open Source Business Models: Xen’s approach

Simon Crosby, Xen Source CTO, wrote a post entitled “New open source business models based on Xen“, published by, by , talking about Xen business model.

Xen has pioneered a new model of open source business – one which uses open source as a reference standard implementation of a component of the offering, but which stops short of a whole product. This encourages multiple vendors to contribute, because adopting that model allows them to add value to the final product and be compensated for it.

While the Xen business model is not really new, think about the linux-embedded case, sharing standards or participating to sequential innovation sounds succulent, but is not for everyone.

Sharing the cost of production of a (pure) public good makes sense only if – as seen with the above mentioned linux-embedded vertical market – only a percentage of code is revealed. As a matter of fact part of it is kept private, and represents an opportunity to price the added value.

He put it really clear saying that:

The value-added components that vendors must add to the “engine” in order to deliver a complete “car” to their customers allows them to differentiate their products, and gives customers choice. By contrast, had it been the Xen project’s goal to deliver a complete open source “car” there would be no value proposition for the different vendors seeking to add virtualization to their products, and it would put Xen in conflict with the Linux OSVs — some of the most important contributors to the project.

It is still the split OSS/commercial products business model, a model that has the intrinsic downside that the FLOSS product must be valuable to be attractive for the users, but must also be not complete enough to prevent competition with the commercial one.

Note that the reduction of the attractiveness of commercial versions occur only if thid parties release new packages containing the missing functionality, but it is quite unlikely. It would require a deep knowledge of proprietary products and/or specific Linux distros, and may be some IP disclosure.

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