Problems With Open-Source Business Models

I strongly disagree with the hypothesis raised in the article.<p>First , most open source companies these days are Ventured Back ( Elastic , CockroachDB, MongoDB etc..) meaning the core of the issue isn&#x27;t &quot;AWS&quot; not paying license fees or people creating tech on top of Open Source , it&#x27;s VCs who want their money back times ten.<p>Companies like MongoDB&#x2F;Elastic have raised hundred of millions and yet are still not profitable.<p>Who&#x27;s fault is it ? Did the MongoDB community ever asked the company to go that way ? Did MongoDB presented a roadmap to the community saying that they would have to be &quot;profitable by Month X&quot; or they would change their licence to make more money ?<p>Nobody has forced those founders&#x2F;companies hands to make their products open source nor to raise that much capital.<p>If the industry is turning that way it is essentially because those businesses have used Open Source as a mean to reach the widest possible audience in order to increase growth and show great metrics to VCs and investors to raise absolutely obscene amount of cash.<p>Vue.js and Laravel are two very well maintain and extremely profitable open source project.<p>Those projects did not asked for 150M$ in fundraising and then realized : &quot;Ooops we won&#x27;t meet our 100% YoY Growth to satisfy VCs promises&quot;.<p>If some companies are switching their licensing , it&#x27;s mostly because they overestimated their technology value and can&#x27;t show to investors the numbers they promised.<p>This isn&#x27;t due the &quot;AWS Problem&quot; or because of a &quot;wrong business model&quot; with FOSS.

This post raises a lot of good points about the futility of this new wave of split-restriction licenses, but misses fairly obvious one. Entrepreneurs think they want to have an &quot;open source business model&quot; because they have marketshare-scaling problem: they want their software distributed to a wide audience such that it gains usage and mindshare, but not wide enough where AWS is selling their work as a managed service at prices they couldn&#x27;t by themselves.<p>And by and large, giving software away in a combination of gratis and libre maximizes the gains of mindshare and experience from both the curious amateur and the intrigued professional; the intellectual and societal implications may be different, but it gets used by the bulk of users in the same manner as shareware.<p>For many of these newer projects, the libre aspect isn&#x27;t a heartfelt belief -- it&#x27;s a sort of loss-leader strategy to enable access to a particular type of audience, and unlock a particular type of language for marketing. Handfuls of people may exercise their rights to fork and&#x2F;or redistribute, but plenty of intrinsic barriers exist to keep these from being a competitive threat -- until a sufficiently equipped and dedicated party like AWS or Google Cloud, that is.<p>It&#x27;s no surprise then, that some offerings are drifting more towards traditional shareware, where restrictions on use are the norm. In this space, we&#x27;re seeing a conflict unfolding about the ideology and terminology used to describe such split offerings.

Software, including open source, has a high fixed cost (lots of developer time and effort to get version 1.0 out the door) and a low marginal cost (once it&#x27;s out there you can distribute via homebrew, for example, for no additional cost).<p>With most successful software products, you are paying for the exclusive value that the software provides, with open source that value isn&#x27;t exclusive at all.. I can simply copy your version and try to integrate it myself. So how does open source software make money?<p>I think freemium and consulting might be good models. Let&#x27;s say I&#x27;m open source organization that builds product X, this product is really popular, has a great developer ecosystem, solid roadmap, lots of folks are using it, etc. If it&#x27;s good enough large corporations will try to use this product within their systems, why not audit how your customers are building on top of your systems and try to skate to where the puck is going and add an additional layer of features to support those enterprise use cases?<p>The challenge with open source comes w&#x2F; integration, at a large scale your open source product is going to be changed to fit the needs of the customer. As the organization behind an open source product you are in prime position to be the leading consultant of this product and assist with integration. To me, this is the best model to make money on open source, however, it requires a really strong product. Something with very high adoption, not just a plugin that handles a very specific use case.

I&#x27;ve been working in Open Source for a long time now - decades. The problem I see is that so many rich and wealthy companies (and their billionaire owners) are the big beneficiaries of open source. Look at Spark, Hadoop, Linux, gnu tools and others - who uses them at a large scale? It is the wealthy companies who avoid paying salaries for the development of those tools. So I&#x27;ve become convinced that we should distinguish between small companies and large companies, and that small companies should get to use open source, while the big wealthy companies should be required to pay. It should be analogous to the free software given to education - with restrictions in license. (Of course, this won&#x27;t happen. I&#x27;m just sharing my perspective.)

To have a viable business, you need to figure out what sort of scarcity you&#x27;re going to take advantage of:<p><a href="https:&#x2F;&#x2F;journal.dedasys.com&#x2F;2007&#x2F;02&#x2F;03&#x2F;in-thrall-to-scarcity&#x2F;" rel="nofollow">https:&#x2F;&#x2F;journal.dedasys.com&#x2F;2007&#x2F;02&#x2F;03&#x2F;in-thrall-to-scarcity...</a><p>If the software is open source, the software itself is not scarce, so it makes it a bit trickier to figure out.

From the I&#x27;m-going-to-take-millions-in-VC-money-and-build-a-billion-dollar-unicorn perspective Open-Source will never make sense. I propose that it is the investment model that is flawed. Open-Source has many benefits that have nothing to do with making investors rich.

A talk worth watching about this is &quot;Why I forked my own project and my own company ownCloud to Nextcloud&quot; (<a href="https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=UTKvLSnFL6I" rel="nofollow">https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=UTKvLSnFL6I</a>) about how a Open core approach failed in many ways and a great inspiration on how a Open source business model can succeed.

&gt;There is no Open Source Business Model.<p>Careful about universal claims. <a href="https:&#x2F;&#x2F;vcvrack.com&#x2F;" rel="nofollow">https:&#x2F;&#x2F;vcvrack.com&#x2F;</a> is an open-source business model and it works great for me.

&gt; Once you begin with the premise of “I need an open source business model”, it leads you down a path of “I need to monetize my project” rather than “I need to build a product that delivers value”.<p>This is exactly how I feel as well. I am working on an open source to-do list + calendar (<a href="https:&#x2F;&#x2F;getartemis.app" rel="nofollow">https:&#x2F;&#x2F;getartemis.app</a>), source at (<a href="https:&#x2F;&#x2F;github.com&#x2F;satvikpendem&#x2F;Artemis" rel="nofollow">https:&#x2F;&#x2F;github.com&#x2F;satvikpendem&#x2F;Artemis</a>), and I try to subscribe to the same philosophy as Sentry[1] and Ghost[2], two popular products that are also open source but do not avoid generating revenue because of that.<p>One must always strive to compete, whether it be through business model, or more often, product. You can release a good proprietary product, or similarly, a bad open source product; the quality of being open source does not necessarily add nor detract from the quality of the product itself. Sure, one can `git clone` the product, but due to the other factors in the business, the &quot;soft skills&quot; such as marketing, branding, sales and general business development, no one can reliably copy the company still generate substantial revenue [3].<p>This is not to say, however, that if your company is infrastructure such as a database, that no one will copy and monetize that better than you; they may, even in general usage of the product, but what is missing is the lack of vertical integration within the product. A database is just a part used in the whole of a new product, not the whole in and of itself. That is why if I desire to make substantial revenue from an open sourced product, I would make it a fully integrated product, just as any proprietary one, and that is what I am to do with Artemis.<p>[1] - <a href="https:&#x2F;&#x2F;github.com&#x2F;getsentry&#x2F;sentry" rel="nofollow">https:&#x2F;&#x2F;github.com&#x2F;getsentry&#x2F;sentry</a> [2] - <a href="https:&#x2F;&#x2F;github.com&#x2F;TryGhost&#x2F;Ghost" rel="nofollow">https:&#x2F;&#x2F;github.com&#x2F;TryGhost&#x2F;Ghost</a> [3] - <a href="https:&#x2F;&#x2F;ghost.org&#x2F;about&#x2F;" rel="nofollow">https:&#x2F;&#x2F;ghost.org&#x2F;about&#x2F;</a>

&gt; But many of these companies experience difficulties with respect to their business models, as can be seen from a bevy of recent licensing schemes that attempt to straddle the line between open source and proprietary.<p>It&#x27;s not clear to me that Open Core has really failed. Case in point, Elastic just IPO&#x27;d for billions and has an open core. In their case they completely develop their project. Their community is something of a user community, and the contributor community is heavily Elastic managed.<p>Sure those in the contributor community might complain about how hard it is to contribute, but 99.9999% of the community is more in the &#x27;user&#x27; end of the spectrum and appreciate the stability of having a single company&#x27;s vision and backing<p>I&#x27;m not sure its in the spirit of open source, but that&#x27;s not the question. The question is about effective business models.<p>(more fundamentally &#x27;open core&#x27; can mean so many different models it may be becoming meaningless)

The best open source business model I&#x27;ve seen yet is SQLite&#x27;s. That business model goes as follows:<p><pre><code> 0. produce something very widely useful 1. wait for it to become essential 2. create a consortium and profit from the dependence bred by #0 </code></pre> Granted, bootstrapping that is really really difficult.

If by &quot;open source business model&quot; you mean a model that entails getting paid for production of open source software, directly, there are several.<p>Paid open source development happens all the time. If you pay me, I will release open source to do such-and-such.<p>Despite decades of continuous doomsaying, new dual licensing companies pop up all the time. If you use my open source to build closed, pay me for an exception to my copyleft license&#x27;s terms.<p>Those are just the simplest and best known. There are others, as well as all manner of hybrids, explored and unexplored. My latest work theorizing approaches---modelling business models, so to speak---is here: <a href="https:&#x2F;&#x2F;blog.licensezero.com&#x2F;2018&#x2F;10&#x2F;17&#x2F;mapping-models.html" rel="nofollow">https:&#x2F;&#x2F;blog.licensezero.com&#x2F;2018&#x2F;10&#x2F;17&#x2F;mapping-models.html</a> My outline of &quot;purebred&quot; models begins here: <a href="https:&#x2F;&#x2F;blog.licensezero.com&#x2F;2018&#x2F;10&#x2F;17&#x2F;mapping-models.html#purebred-models-overview" rel="nofollow">https:&#x2F;&#x2F;blog.licensezero.com&#x2F;2018&#x2F;10&#x2F;17&#x2F;mapping-models.html#...</a><p>&gt; Amazon and Google are not going to use your software, particularly your management software, “out of the box”, proprietary or no. They’re going to build their own management UX and UI, because they have their own particular requirements to serve their needs, and they’re going to build them using existing platform APIs.<p>Licenses like MongoDB&#x27;s SSPL leverage exactly this fact to address their business concerns. Mongo knows the big cloud providers are going to do their own custom service rigging, <i>and that they&#x27;ll keep it closed and proprietary</i>. SSPL gives permission to use Mongo to offer Mongo as a service, but requires open release of the service rigging.<p>I don&#x27;t think companies writing and adopting these new licenses want to sell cloud providers proprietary licenses through their sales funnels. I think they&#x27;d rather stop cloud providers from offering their databases as services, full stop, or cut special deals with the cloud providers to resell their cores (Mongo) or popular add-ons (Redis, Elastic, ...).<p>&gt; You’re not going to resolve your own business mistakes by reverse-engineering a licensing solution to what was essentially a business model problem.<p>Business model and license do not inhabit separate domains. They always intertwine.

I was pondering this very question as I just launched an open source reverse geocoding&#x2F;geolocation name service API ( <a href="https:&#x2F;&#x2F;3geonames.org&#x2F;api" rel="nofollow">https:&#x2F;&#x2F;3geonames.org&#x2F;api</a> ) whose business model consists upon selling a nicely packaged server AMI on AWS.<p>It works well both ways, in the sense that those who are capable coders may download and configure&#x2F;install the software themselves.<p>Some others will just skip the hassle and buy the Marketplace version.<p>It is a win-win situation, insofar as someone does not take the time to repackage it and sell a competing version on the AWS Marketplace or some other sales channel.<p>I have not figured out that part yet. Any suggestions?

<i>Once you begin with the premise of “I need an open source business model”, it leads you down a path of “I need to monetize my project” rather than “I need to build a product that delivers value”</i><p>And where do the resources come from to hire people and build it?

This is almost absolutely correct. Pity there isn&#x27;t even a model to monetize the blog post, though. Monetization is a problem across the internet that seems to benefit the behemoths.<p>Perhaps we need a middle-ground between open source and proprietary? Open source often becomes a signal to find business partners with similar potential needs. Perhaps you could share source with only &#x27;approved partners&#x27;, so you can together make &quot;some money&quot; instead of ($0 xor $1billion)

While traditional cloud providers have certainly made it difficult for open source companies to monetize the cloud, it seems that the marriage between decentralized cloud protocols and open-source is opening up new opportunities for OSS monetization.<p>Decentralization takes the principles of open source and applies them to the very infrastructure on which software runs.<p>At Storj, for example, we have an Open Source Partner Program that attempts to solve the ‘Amazon Problem’ by enabling any open source project to generate revenue every time their end users store data in the cloud.<p>Storj tracks usage on the network and returns a significant portion of the revenue earned when data from an open source project is stored on the platform. Critically, this enables open source projects to derive sustainable revenue from usage, whether by commercial customers or non-paying open source users.<p>In my opinion, this can help drive and support the next wave of Open Source monetization models.

What are some companies that had 80% or more of the code they wrote open-sourced that ended up with profits of more than 1&#x2F;2 million a year?<p>Are premium add-on and support&#x2F;consulting the model? Any platform company that made it?

If you are building a prop software&#x2F;service above open source, your business success depends on two factors: 1. the popularity of the open source and 2. the goodness of the prod software&#x2F;service.

I have been in some open source communities where making money was a recurring problem for the main contributors. But money was never the reason why people started contributing code to the project.

The problem is that we must <i>mandate</i> by law software to being open, easy to use, modify and deploy with simple means, that&#x27;s to guarantee our freedom and democracy.<p>Than the business model instead of selling (cr)app and training and migration solutions, certifications, ... we can sell time&amp;knowledge of programmers and operation.<p>Of course in this case many &quot;administrative&quot; &amp; &quot;marketers&quot; will loose their job, but that&#x27;s have a name: natural selection that it can be pushed a bit but sooner or later it will came by nature.

I&#x27;m sick of these &quot;considered harmful&quot; articles

Bread and butter is also &#x27;open source&#x27;, but not &#x27;free&#x27;. There is no problem with &#x27;open source&#x27; that is free for non-commercial usage and paid for commercial usage. Is this what GPL is about?