Open Source Business Models

6 minute read

Introduction

Open source business model

How to make business with open source? If open source software is distributed for free, where does the money come from for IT companies? How to succeed and grow as a software company while producing Open Source contents which are freely distributed such as software? So many tricky questions to answer!

Traditionally, IT companies make softwares, (try to) sell it and provide subscriptions for support and maintenance. This model cannot be applied as is for free software made by a community. Some projects are trying to pay some developers by crowdfunding or donations campains but, only a few could exist by that kind of incomes.

This article will only focus on software companies business models and explore some that have been applied. We could see that, sometimes they fail, sometimes they succeed!

Support and services

As said above, IT software companies make software products (often at loss) and really earn money with service contracts. These contracts often enable web or phone support, patches and security fixes. On the other side, customers need IT support. For example a company would pay for support on a GNU/LINUX distribution and get security fixes. Sometimes, they need it for complying to business standards such as PCI DSS. Most of the time, they need it for granting a warranty of service to their customers.

Some companies have been working to address on constraints. The oldest stakeholders of this market are in the GNU/LINUX support market segment. Red Hat was one of the first open source companies to choose this model. It was founded in 1993 and has been providing support for all the tools provided by his GNU/LINUX distribution through subscriptions. Nowadays Red Hat not only distributes and provides GNU/LINUX supported packages, but distributes also middleware software subscriptions, PaaS subscriptions and such like.

On this market segment, one other stakeholder is Canonical which provides Ubuntu. This company helped GNU/LINUX end users through a user friendly Debian based GNU/LINUX distribution and has also been providing support to customers. Although Ubuntu is popular for his desktop, the support is now only provided for server side usage, such as for web site hosting.
Now, Ubuntu is the most used GNU/LINUX distribution for websites hosting and Canonical earns money on personal and professional subscriptions.

Although those software companies were recognized and their softwares massively deployed, it took long time for them to really earn money. For example, it took a long time and a lot of struggles to Canonical to reach and maintain solvency. Today Canonical plans to only focus on its server and profesionnal support solutions which are the most profitable.

Besides GNU/LINUX software companies, there are other companies which are the main contributors of FOSS projects and provide professional services around them. For example, the Elastic company was created eight years ago after the elasticsearch project creation to sell support and additional features to customers.

Finally, some companies only provide support subscriptions for FOSS products. They are not editors. Most of the time, their engineers are part of the project core developers or committers. For example, despite the fact that the Apache Cassandra NoSQL database is mainly made by Datastax, there are other IT companies which provide support on this technology. You could see a few of them on the Apache Cassandra’s third party’s web page.

Besides providing support to customers, some open source companies chose another business model and often added it in their subscriptions with support. Indeed, to give an added value to their susbcriptions, some editors add additional features in a “professional package” which contains most of the time both support and features dedicated to professionals. These ones are often built in a closed source model and only available through those subscriptions. In this manner the product is distributed with two kinds of licenses (dual licensing). The first for the core is open source. The second is proprietary. For example,the MySql database is distributed both in a community and an enterprise edition. The last one offers some professional features such as monitoring, encryption, backup tools or high availability.

Another example, Sonarsource is an open source company which provides SonarQube. One of the most deployed code quality analysis tool. Through subscriptions this editor provides additional features besides community edition: branch comparison, detection of injection vulnerabilities and so on.

Delayed open source

Some companies which have chosen the former business model (eg. a subscription containing additional features) delay sometimes the availability as open source software of new features. They only provide those ones to subscription paying customers. This strategy is mostly to encourage end users to susbscribe to their profesionnal packages. Unfortunately, in this policy, the new features are provided under proprietary license and eventually converted to open source software later. For example, in 2016 the MariaDB Corporation created for business compatible “delayed open-sourcing” BSL (Business Source License) which automatically converts to open source software after three years.

These last strategies may help the open source companies to make benefits. However, it’s really tricky for them to fund the open source core software. The core software (which is FOSS) is indeed very expensive to code and maintain. All the benefits made by the additional features hardly cover all the costs generated by the development of those one.

All the previous business models described above are mostly intented for enterprise use cases. For the mass market, it’s even more difficult to make benefits with open source sofware. As a matter of fact, why pay for a software we can get freely? Yes some FOSS projects gather money from donation campaigns, but it’s not sustainable through the years (only few FOSS projects succeed in this way).

Some open source softwares companies have created partnerships to earn money. One one most relevant example is the Mozilla Project. The activity around the Mozilla project is driven by two entities: the Mozilla Fundation and the Mozilla Corporation. The first one is a non profit organization which drives the community and the development of Mozilla projects. The last one earns money essentially from partnerships with search engine providers such as Bing, Google, Yahoo, or Ebay. Most of these partnerships are based on the installation by default of their search engines inside the browser. This choice is dependent of the geographic region. For example, last year, for the release of Firefox Quantum, Google became the new default search provider in the United States, Canada, Hong Kong and Taiwan. For other regions such as Russia, the default search engine provider was Yandex. The default choice is of course which is provided by the company which pay the most.

Canonical, for his desktop offer (Ubuntu Desktop) made with Amazon this type of partnership. In 2012, Canonical added the Amazon directly on the desktop search engine. This decision was strongly criticized by some people including the FSF founder Richard Stallman who denounced the integration of “spyware” and encouraged users to opt for another GNU/LINUX distribution. Several years later, Canonical has reconsidered this decision. The editor announced that the addition of online searches to the Ubuntu dashboard would be disabled by default.

Conclusion

Through this article we covered some of the most relevant business models for open source companies. There are others such as using donation campains, or providing additional functionalities as SaaS. Maybe in the near future there will be more. This industry have to deal with the difficulties to finance the core by offering more services for less costs… just like traditional software companies.

Some of business analysts say that open source software is the future of software industry. It could be true. Companies who uses software want indeed more than software. They also want services like documentation, support, consulting, socializing with others customers, patchs and so on. This trend is confirmed over the years and can only increase. It could benefit to open source companies, who knows?


Written by

Alexandre Touret

Architect #java #api #ci #software_craftmanship