How does one make money out of an open source project?

Well, there are many answers to this, in fact, there are probably more possible answers than there are successful projects. This article describes some of the more common business models.

Optimisation

An open source software product that is designed to be attractive to a wide number of users will, by necessity, be complex and over specified for many use cases. Individual users may want to adapt the software for optimal performance in their own environment. Since users have access to the source code they can do this themselves, however this requires a detailed knowledge of the software. In many cases it will be cheaper and easier to contract a third party to perform this optimisation.

The optimisation strategy depends on the open source software being modular and configurable. The optimisation process revolves around configuring the software in its most efficient form for a given use case. Where optimisation is not possible the consultation model is required, a discussion of customisation in open source follows.

Risk Management

Procuring or building new IT solutions brings with it a considerable amount of risk. This risk needs to be managed to ensure that when problems occur they can be addressed without causing a project failure. When you purchase closed source software this risk is largely managed by the software owner. However, open source software does not have a single vendor and the code itself comes without any form of warranty or risk management support. All is not lost though, there are many companies out there who make it their business to understand the problems of integrating open source solutions. These companies will, for a fee, manage your risk for you, even providing warranties in some cases.

Customisation

Customisation is similar to optimisation in that a client will employ a third party for their expertise in a given open source software product. Where it differs is in the type of work to be carried out and the skills required. Where optimisation is the configuration of a software system, customisation is the specification, design and building of new functionality in an open source product.

Support and Training

Where a company chooses to deploy software they may need support in the form of user support and training and technical support and training. Third parties may provide a variety of support packages such as telephone support, training sessions, manuals, rapid response units etc. these packages can be provided on a fee or a subscription basis.

Branding and Marketing

Being the owner of a successful open source product in your market can be a powerful brand tool. The software itself can be a loss leader that is designed to attract customers for other paid for services in the same market space. Obtaining a trademark is an important prerequisite for this form of business.

Market Disruption

Entering an entrenched market is a dangerous and difficult exercise for any business. Open source technologies can be used to disrupt the existing market in such a way as to provide an opportunity for your organisation. For example, some years ago Microsoft had all but squashed Apple in the home PC market. However, the continued success of FreeBSD has allowed Apple to re-enter the marketplace with a new operating system based on the FreeBSD platform.

Accreditation and Certification

If the market for your software and for services based on your software is sufficiently large to be able to support many businesses then accreditation if one possible route to a profitable business. For this model to work you must establish yourself as a recognised leader in the field and therefore own a recognisable trademark. You can allow anyone to access your software, and even to build a business on the back of that product. However, in order to take advantage of your trademark they will need to pay a fee or a subscription to you.

A good example of this in the educational marketplace is the Moodle Service Network

Dual Licensing

Under the dual license strategy, a software company offers a free and open source version of their software alongside a paid for version. The paid for version will typically have additional features, or may have a licence offering commercial distribution rights.

The dual licensing model is only possible if a single entity has the rights to license all the IPR in the product. It is also necessary to release the open source version under a licence that enforces certain conditions such as requiring any modifications that are distributed to also be made public in source code form. This prevents third parties from developing improvements that would compete with the dual licensed product.

For more information see OSS Watch's dual licensing briefing note.

Examples of Open Source Businesses

There are too many to mention here. Instead we have a page especially for them, take a look at ExamplesOfOpenSourceBusiness.

Further Reading

OSS Watch publishes a relate briefing note Open source business: differentiation and success

OSSWatchWiki: BusinessModels (last edited 2013-04-15 13:56:17 by localhost)

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