Now, however I have undertaken a challenge to take the understanding of the emerging opportunities for entrepreneurs and investors in the OSS space in China to the next level.

The report will be made freely available both in English and Chinese targeting June release.

The work is quite challenging so I am grateful for all comments and advice as to what are the issues that should be addressed.

I will be in San Francisco during OSBC March 25-26th and in Beijing the week starting April 7th to discuss these issues face to face with anyone interested in the topic and possibly willing to contribute to the work all contributions included in the released work will of course be credited to the originators.

To get a better idea of the work please see the current outline below.

You are welcome to comment on this blog or e-mail me directly mikko.puhakka (at) gmail.com

Structure of the report (draft 0.1)

1. Introduction

1.1 Global trends in Open Source software deployment
1.2 Trends in Open Source software deployment in China including market size
1.3 Global Open Source communities vs. Chinese Open Source communities
1.4 Key Open Source business models with brief case examples
1.5 Fit of the key Open Source business models to Chinese market

2.0 Key Areas of Opportunity (Each topic has three aspects):
1) Technical
2) Market and business
3) Relevance and interface to China national technology programs:
• MOST 863, Torch Program, other key projects and software needs of China, and possible open source based solutions):

2.1 OSS Based Business Enablers
(Significant existing value gardens where redistribution of value is favored):

Purpose of this section is to outline some of the key areas where commonly used enabling technologies would significantly increase effectiveness while implementing solutions for future information society. It would not be a comprehensive “to-do” list, but rather a business and academic view of these key areas.

2.1.1 Protocols, tools, frameworks and engines
• Protocols, which are commonly used in IP world or on top of Internet Protocol stack (like authentication protocols, potentially peer-to-peer protocols that could be used in China etc)
• Commonly used Engines like, map engine, e-commerce engine etc.
• Product development tools or frameworks that could potentially provide additional value to Chinese market (different coding logic and understanding nuances of Chinese language etc)

2.2.2 Platforms, gateways and horizontal products
• E.g. operating systems such as Linux or products such as OpenOffice and e-commerce platforms
• Gateway (or protocol transcoding) which are commonly used

2.3.3 Security (e.g. Authentication, Transactional security like in e-commerce solutions)
2.3.4 Training and consulting
• How to create mechanisms to train efficiently people / organizations to take most out of the OSS based innovations and development
• How to link global software development and project management best practices into reality (University, public and private sector)

2.2 Software Driven Consumer and Business Services (applications)
(Opportunity spaces where new value can be developed):

Purpose of this section is to outline some of the key business areas where new value can be developed and created, in China but also globally. Especially areas in mobile communications, web business models for consumers, governmental and business-to-business are of interest.

New IPR creation will have more emphasize on this section.

As an outcome, this section will highlight not necessary detailed applications or services but rather a view of potential development directions and opportunity spaces (like wellbeing, environmental measurement solutions, social networks etc…).

2.2.1 E-services 2.0 infrastructure for governmental services (e.g. online tax services or other services for citizens, in Finland for instance Ministry of Labors’ registry of citizens and employment services)
2.2.2 Consumer 2.0 services (e.g. Amazon’s e-commerce)
2.2.3 On-demand business services (e.g. Salesforce.com service delivered as SAAS)

3.0 Some Other Key Issues

- Educational aspects through University collaboration?
- Best practices for OSS based software development, quality assurance and testing
- Knowledge transfer?
- Joint venture Company model based on Finnish/international business template?
- Consulting and training opportunities for agile companies?
- Mobile communication and related OSS areas as a separate item!

4.0 Public Sector and its Role in China

- A ‘’mind map’’ explaining the relationships and roles of various public organizations

5.0 Conclusions and Recommendations

6.0 References

Some reactions have surprised me a quite a bit. I have received questions and comments such as that ‘’we lost yet another European high-tech company to the US’’, ‘’does this destroy the promise of open source as MySQL becomes part of this big public company?’’

I would accept the first comment if the company had been sold under priced, but we did not lose MySQL, we SOLD it for 1 BILLION dollars!

This was great news for the Nordic start-up community and especially open source start-up community: a role model and a strong message to the investment community that we can both build great companies in the open source space and we know how to deliver value to the investors.

Now it is time to take the lessons learnt from that case as well as use it as a reference to build the next cases, and I believe we are well on our way.

Something that today’s young entrepreneurs should note about MySQL, it took 12 years to build the business, there are always some exceptions like YouTube where the cashing out happens very quickly, but I would suggest that the timeframe MySQL had is more realistic as a model.

I want to end this post with a quote from Mårten Mickos, CEO of MySQL, which well explains type of things an early investor needs to do and what kind of value they can bring by being insane or mad enough:

‘’Holtron played a pivotal role in the commercial growth of MySQL by being the first VC in early 2001 to present a term sheet. This contributed to
bringing other investors on board, and it also helped me make the decision to join MySQL and not take the other CEO position I was being offered at the time.’’

Secondly Spain seems to have disproportionate amount of open source developers compared to many other countries.

Disclaimer: I am on the board of Ebox & have been involved in setting the event up

Pyrin säännöllisin väliajoin kertomaan myös tämän blogin välityksellä miten edistymme ja miten eri haasteita ratkotaan.

Some key issues to consider in my view are:

1) Microsoft still has huge resources that enable them to have their way in most markets, including China if allowed
2) The power of Linux and OSS in general lies in mobilizing huge numbers of volunteers as developers, as evangelists, as testers etc that are hard to match by traditional software makers and vendors
3) So far this formation of large enough communities has not taken place in China, so the vendors of Linux and OS software have to compete on Microsoft’s terms and other software providers terms, without the benefit of an active community, and that is just too tough, hopefully this is about to change

Q1 Name some key milestones in Chinese Open Source history

The origin of the Chinese open source activities can be dated back in the beginning of 1990s, when Dr. Gong Ming was working on his PhD research topic on parallel processing in Helsinki University of Technology in Finland. He discovered Linux operating system from an educational network in 1991 and later on started deployment and development on it. The major movement related to China when:

- in 1996, Dr. Gong Min brought the Linux operating system within 20 discs back to China.
- The first Chinese Linux server was set up on 5.5.1997 in Chang Zhou, Jiang Su Province. Its domain name is cLinux.ml.org
- The first Chinese Linux user group is established in Shanghai
- China Software Association Free Software R&D Branch was established in Beijing in 17.6.1997. The biggest Chinese free source download site was built under the domain “free.cei.gov.cn”
- “Linux and Chinese Software Industry” Discussion Forum was organized by the Chinese Information Industry Ministry in July 1999. This is the first action to support Linux from the Chinese government.
- On 7.3.2000, the first Chinese Linux company - Blue Point went for IPO in US. Its stock price rise up more than 400%, counting for $0.4 billion.
- In June 2000, Beijing Red Flag Software Co. Ltd was established.
- In Feb 2002, China Software Association Co-Create Software Branch established in Beijing.
- On 24.6.2000, the Chinese government issued the first policy to promote and encourage the development of Chinese software and integrated circuits - “Some policy to encourage the development of software and IC industry”, also called “No. 18 Document”.
- In December 2002, the Ministry of Information Industry and Science and Technology together organized “Linux Software and Application Promotion Discussion Forum”. This is a signal from the Chinese government to support the Linux software development
- “Open Source Software Development Summit in China” was held by China Software Association Co-Create Software Branch together with other government offices on 23.9.2003
- On 3.4.2004, China, South Korea and Japan together held “OSS Seminar”
- on 22.7.2004, China OSS Promotion Union was eatablished. This is the first open source organization in China.
- On 28.2.2005, the “Chinese Open Source Week” was first held in Beijing. This is the first Asian-wide huge open source event held by China.
- on 5.3.2005, Mozilla China announced its settlement in China
- on 10.5.2005, China Linux Industry Strategic alliance was established in Beijing. It was initiated by CSIP (Ministry of Information Industry Software and Integrated Circuits Promotion Center)
- on 30.11.2005, “IP China 2005: Open Source Software and IPR Annual Meeting” was held in Beijing
- on 29.8.2006, MySQL and a Chinese open source company “GreatLinux” announced a strategic partnership to deliver commercial MySQL-based solutions to the burgeoning Chinese market.

Q2 What are some key efforts around Open Source right now?

The Chinese government has been putting lots of effort in encouraging open source development. Policies like “No. 18 Document” and “No. 47 Document” were issued for promoting open source. They not only contain the government good wish, but also practical support like from taxation, finance, purchase, import and export…

Linux development started since the beginning of 2000, and comprises a huge part of open source development in China. When people talk about open source nowadays, many people will right away associate the discussion to Linux. Based on CCW Research, Linux software market sales reached 570 million Yuan in 2003, and 750 million in 2004 with 32% growth. Amongst which, the server-side product sales was 623.2 million Yuan, and desktop sales – 126.8 million Yuan. Till 2005, the top three players in the market are TurboLinux[1], Red Flag Software[2], and China Standard Software[3].

Though the Linux development has been around 30% increase within the recent years, still the utilization rate is rather low. Besides the known usability issue, one of the root problems is software piracy. Microsoft got 95% of the market in the Chinese market thanks to that since the mid 1990s. And it is hard for Linux to make its entry as the market is already dominated by Microsoft. Even Bill Gates said that “It’s easier for our software to compete with Linux when there’s piracy than when there’s not”. On the other hand, the competition in the Linux market is becoming fierce. Microsoft started offering $3 Windows XP to developing countries’ governments and educations. Chinese Linux vendors are currently focusing on government and small to medium sized enterprise market. In order to gain market shares, the market research suggested industry cooperation and business acquisition to be a business strategy to carry out for the domestic Linux vendors.

After year 2004, the concept of open source got wider spread in China. This also thanks to the many successful commercializations of open source software globally. However, understanding of open source is still relatively fresh in China. in many cases, it could be incorrect, subjective or incomplete. However, as open source is a new development direction in the software industry, many open source companies received venture capital investment and started their development. Most of them are trying to copying the existing business models from the west. However revenue generation still remains a reluctant topic for them to discuss. There are a few successful example only. One is Discuz, a Chinese open source discussion platform. Currently there are over 30,000 discussion forums using its product all over the world. Otherwise companies like Hoodong, Huihoo have also been relatively successful in its development. IT people in China do realize the benefits of open source, yet the Chinese market is special and immature, finding out the right path for commercialization may take still several years.

Foreign companies have been looking into the Chinese market for new opportunities. Companies like MySQL, RedHat, Mozilla, Novell, Oracle, Ubuntu, etc have all been establishing business in China.

[1] TurboLinux is an open source software company focusing on offering enterprise software solutions, and support service based on Linux. It is founded in the US in the early 1990s and entered the Chinese market in 1999. www.turbolinux.com.cn
[2] RedFlag Software is the biggest and most well-known Chinese Linux vendor. http://www.redflag-linux.com/
[3] China Standard Software is located in Shanghai. Its main products and services includes Linux desktop, Linux server, office suits and security software. http://www.cs2c.com.cn

Q3. What are your key thoughts on the state of the China’s Open Source a) today, and b) how does the future look?

The Chinese open source is still very young nowadays, and this situation will not change rapidly. There are many reasons behind:
1) The software piracy made Microsoft Windows the dominant operating system with 95% of the whole operating system market. The user base for open source is thus really small, not mentioning the open source development.
2) The Chinese legal system for open source IPR is non-existing.
3) The understanding of open source is still very vague and incomplete. One reason is that free source was first translated into Chinese as “free of charge” software… thus also affect the understanding of open source.
4) The Chinese open source community has just been started. It is young and in great need of serious development.

Despite of the problem mentioned above, I see a very promising Chinese market for open source. According to our Chinese philosophy, in order to win or succeed, time, location and people are the 3 key factors; however the most important among these three is people. At the moment, the time has come for the open source to expand in China. The huge Chinese market is attractive; thus the location is not bad for open source. However the Chinese market is lacking huge number of open source professionals. And this situation cannot be changed easily without serious effort. In order to succeed in the Chinese market, raising up a huge open source audience by introducing the open source concepts, business models, legal issues, community management as well as technical knowledge is essential.

In addition, the Chinese market is fulled with varieties and dimensions. Open source comparing to proprietary software has the advantage on pricing. Based on the current Chinese market, there are a lot of potentials in all industries to compete with proprietary software, especially in the small, medium sized enterprise market, the education sector, regions and provinces under average development.

1. Samalla kun Sun jakoi viime tilikaudellaan huomattavan määrän ohjelmistoja ilmaiseksi, heidän OhjelmistoBISNEKSENSÄ kasvoi 13% ja viimeisen neljänneksen operatiivinen tulos oli paras sitten vuoden 2001!
2. Sun ei pysty 4000 myyntimiehensä avulla haastamaan suurimpia kilpailijoitaan, jakamalla ohjelmistot ilmaiseksi verkon yli he pystyvät.
3. Mikä on Sunin liiketoimintamalli avoimille ja ilmaisille ohjelmistoille? En tiedä (Schwartz).
4. Liikevaihto kuvaa menneisyyttä, ei tulevaisuutta.
5. Kun Sun alkoi siirtyä uuteen malliin suurin vastustus tuli myyntimiehiltä joille piti rakentaa uudet kompensaatiopaketit joihin he myös uskoivat ja sitoituvat.

Suosittelen lukemaan koko haastattelun, paljon mielenkiintoisia havaintoja ja toki hieno esimerkki siitä kuinka isokin yritys pystyy mukautumaan Open Source maailmaan.