Monetizing open-source software
I had an interesting discussion with a very promising early-stage startup from Central Europe recently. They have developed an AI assistant that enables real-time teaching for coding and are now in the stage where they need to design their go-to-market strategy. An important question for them was whether to keep their product proprietary or make it available as open-source.
Generally, Open Source software is software that can be freely accessed, used, changed, and shared by anyone, either modified or unmodified. For a few decades now, open source has become the de-facto standard for software development. Today, being an Open Source company is the order of the day.
There are many reasons why developers choose Open Source software over proprietary software, with community input being one of the most important ones. This option allows programmers around the world to collaborate on a software and contribute to its improvement, fixing of errors, enhancement of security and creating new features. This way, the end users have a product where security issues are detected and fixed more quickly and new features are updated and created more often. Other benefits are numerous and range from the ability to work with international organizations who favour open-source software such as the United Nations, the development of a community around the product, the securing of financing from private investors and many others.
“Technology thrives in the open, where people are free to share their ideas and build on the work of others.” Red Hat
But while more and more companies understand ready to leverage the open source as part of their business strategy, the question remains whether this is a viable business model.
There are various business models that a company can explore, in order to create revenue streams with open source technology. Here are the main ones below.
Open-core
Open-core has quickly emerged as the most popular way for open-source companies to make money. It is a business strategy where a company offers a “core” version of a product with limited features as free and open source (FOSS) software at the same time an add-on commercial version is released as proprietary software. The proprietary portion may be packaged into separate modules or services that interface with the open-source base, or could be distributed in a forked version of the open-source base. This profit-gaining model is suitable if your core users are large enterprises, which will likely need extra features in a software product.
Dual licensing
Similar to the open core model, some open source projects offer a dual license. This might allow a small, independent developer to use the software free, but companies using it for a profit must pay a license fee.
Open SaaS
One way to monetize open source products is by using the SaaS business model. This allows the service provider to host, support, and maintain web-based applications, similar to SaaS apps. A popular example of open SaaS is WordPress.
In addition to the above potential revenue streams, one should take into account that the strong social imapct element of open-source products could make them quite attractive for private investmen such as angel investments, venture capital funds, sponsorhips and even crowdfunding. Also, public grants could be available to finance further development and commercialization activities of such projects.
Open Source is not only one of the most important initiatives powering our current world, it is a proven viable business model as well. And even though there are challenges in implementing an open-source projects, the benefits are numerous.