Open Source Business Models - A More In Depth View

While we would like to come up with as short a list as possible, the truth seems to lie somewhere in between. We have ended up with a list of approximately 15-20 business models or strategies for open source, depending on the mission, goals, licensing, context, and numerous other factors or variables, e.g. geography, competition, market.

Matthew Aslett, from the consulting firm “The 451 Group.” Aslett authored a report  entitled “Open Source is not a Business Model.” One of the key conclusions of the report is that 'open source' is a business strategy or tactic, not a business model.

Quite often the number of business models, strategies, or tactics related to the development and deployment of open source software solutions depends on the profit motive driving particular individuals and organizations. For example, consider the following. There are:

  • non-profit organizations or communities that are not interested in making huge profits from their  free and open source software (FOSS) solutions, but are more interested in simply creating and distributing high quality, free software and solutions that will be of benefit to as many people as possible.
  • then there are those individual or organizations that want to profit from the development, distribution, and retail sales associated with various open source products and commercial add-on modules they have created and released using somewhat restrictive licenses; and
  • there are also numerous individuals or organizations that want to make a living and generate profits by offering a wide range of services in support of the open source solutions, e.g. installation, training, maintenance.

Over the past decade, numerous entrepreneurial individuals and organizations have tackled the idea of how to make money out of open source software. The idea that the only way of generating revenue from open source software is by providing support services - has become outdated.

There are now a wide variety of business strategies, tactics, or business models being employed by to generate revenue from open source software. For example:

  • Many non-profit organizations obtain funding to support the development and distribution of their free and open source software (FOSS) solution from membership dues, subscription fees, donations, and/or grants.
  • Many for profit organizations are paid for producing enhanced professional or enterprise versions of an open source product governed by very restrictive licenses. They may also offer add-on modules or bundle the open source software within other hardware and software products they offer.
  • Other for profit organizations charge for a wide range of services, e.g. consulting, installation, documentation, training, system enhancements, software maintenance & patches.

Many other innovative companies are emerging and learning how to profit from the open source marketplace, e.g. news organizations, marketing firms, hosting, software-as-a-service (SAAS), open hardware, etc.

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Other Examples of Alternative 'Open Source' Business Models

The following is a list of some of the more common alternative forms of open source business models repeatedly described in numerous published articles:

Software Support Business Model
• In this model, companies sell certified distributions of open source software along with a range of after-sale professional technical support services. Some companies provide immediate access to the latest patched and certified version of the software to their paying customers only.

Software Services Business Model
• In this model, a company may sell installation, maintenance, documentation, and training services for the open source software.

Software as a Service (SaaS) Model
• In a SaaS model, customers pay for the hosting, streaming, and delivery of the open source software solution on a managed set of servers offering cloud-based services.

Ad Ware Business Model
• This is a variation on the SaaS model.  The user doesn't pay anything for use of the open source solution; the advertiser pays instead, e.g. Google, ZDNet.

Consulting Services
• Under this model, a variety of consulting services are offered by a company. For example, a company may provide a range of management consulting, implementation, and  training services related to the use of open source solutions by specific domains, e.g. healthcare, finance, manufacturing.

Proprietary Software Model
• In this model, a company offers a more closed, proprietary licensed version of a similar open source software solution. This protects them against some of the risks associated with developing products that use open source GPL licensed software.

CAUTION: Under an open source GPL licensing, if the open source software is linked to your company's proprietary software, the proprietary software also becomes open source. Consumers buy commercial friendly open source licensed software to avoid this potential problem.

Premium Software Model
• In this model, a company sells premium commercial software add-on modules or applications in conjunction with the open source software product, often packaging both together, e.g. Jaspersoft.

Dual Licensing Model
• This is a variation of the proprietary software business models just described. A company may release the code they own under both a standard commercial license, as well as an Open Source License. Using this approach, customers can be attracted to a no-cost and open-source edition, then later agree to acquire a more robust, multi-user commercial enterprise edition. 

Hybrid Model
• There is a related, hybrid model in which a vendor forks a non-copyleft software project then adds closed-source additions to it and sells the resulting software. After a fixed time period, the company may release the patches or enhancements back upstream under the same open source license as the rest of the codebase.

Platform Integration Services
• With the introduction of service-oriented architecture, many companies no longer buy software from one particular vendor. They build software using components from different vendors and integrate them to best meet their unique business needs. There are numerous risks and issues that need to be considered when mixing and matching open source with proprietary products.

Hardware Integration Model
• In this model, hardware companies may bundle open source software into their product. The software is free, you just buy the box it runs in., e.g.  Android smartphones. This may allow the hardware company to significantly lower the cost of their products. 

Indirect Services & Accessories
• Companies may choose to provide indirect services and accessories for open source systems. This may include providing news and information, selling books, marketing, training materials, hardware accessories, t-shirts, e.g. O'Reilly Associates, Open Health News.

Non-Profit Business Models
• Many non-profit organizations are not interested in making huge profits from their  free and open source software (FOSS) solutions, but are interested in simply creating and distributing high quality, free software and solutions that will be of benefit to as many people as possible. However, they often need some level of funding to support their efforts. Many open source software projects are supported by a "sugar daddy", e.g. Firefox has Google; Eclipse has IBM; and VistA has the VA. Some establish foundations that require membership fees. Some pursue charitable grants or simply ask for donations to support their work. Sometimes the user community may come together and pool their resources to help develop a desired feature or functionality.

Independent Contractors/Developers
• A growing number of programmers in the open source software community offer their services as independent contractors to develop, install, maintain, or enhance open source software for others.  You'll run across many of them on SourceForge, GitHub, or particular community web sites, e.g. Drupal, Wordpress. 

Public Domain Model
• Governments or other non-governmental organizations may develop software internally or hire a contractor for custom in-house modifications to software, then release that code under an open-source license.

Defensive Business Model/Strategy
• Some companies may choose to pursue an open source business strategy or model to gain access to innovative new ideas, software code, or to reduce software development costs and timeframes. It also allows them to take a portion of market share for services and support for popular open source solutions. It may also allow them to join a community and beak a monopolistic hold a company may have on a particular area, e.g. web browsers, server software, etc.

In putting together this feature article, we ran across over 80 other open source business models or strategies related to forming partnerships with other companies; creating franchised services and solutions, and much more. Many are simply a variation on the models described above. If you have found a truly new and unique business model that you're willing to share with us, please send us a short write up or description of the model.

Remember, a company doesn't have to use just one business model. They can mix-and-match models as they see fit, moving to a more profitable model as needed.

Finally, take a look at the growing list of high quality open source organizations, software products, videos, publications, services, and many other 'Open Health' Resources posted on Open Health News.

Author:  Peter Groen, senior editor at Open Health News (OHN). He worked for the U.S. Department of Veterans Affairs (VA) for over 30 years. During his federal career, he occupied a number of senior health Information Technology (IT) management positions within VA Headquarters and in the field.


Selected References:

Open Source Business Models
Open Source Business Models, Revisited
Open Source Case for Business
11 open source business models
Open Technology & Open Source Business Models
Business Models for Open Source
Business Models for Open Source Software