There are many open source business models. Perhaps the most notable are the following three: The services model, the product subscription model and the product dual license model. A recent article, How to make money from open source, published at the Australian web site Builderau, perpetuates the myth that the open source revenue model is only a service revenue model. Although services are fundamental to all open source business models, as they are with most proprietary software models, they are not the only source of revenue.
The Services Model
Many services business have been created around open source projects. Nagios, a well respected open source network and application monitoring application, list approximately 100 companies and several individuals offering support, implementation and other consulting services centered around their open source project. Cnet’s recent article, Open-source services field heats up lists several companies that have adopted this model.
The product subscription model
The product subscription model, simplifies delivery of the software. Companies using this model save customers time and effort by eliminating the need to download software, compile source and figure out how to install it. In this model, the open source project is packaged into a standard installable product that can be downloaded, delivered pre-installed on hardware, such as an appliance, or published on a CD. In addition to the standard packaging a set of support services are also packaged into a single SKU. An annual fee is charged for the combined package — including product and support services — along with guaranteed future deliverables, such as tested patches and updates provided during the subscription period. This is not unlike the 10%-25% annual maintenance fee charged by proprietary software vendors. Commercial Linux distributions such as Red Hat and Novell’s SUSE utilize the subscription model.
The product dual license model
This model only works when the commercial open source company owns all copyrights to their open source project. With this model there are two licenses. One is a free open source license, such as the GPL, offered with the standard product. The other, is a more restrictive fee based license which includes product guarantees, and is often associated with a more feature rich and robust product. MySQL and SugarCRM are examples of commercial open source companies that implement the dual license model.
There are several common characteristics among viable commercial open source companies that implement either the subscription or the dual license model. The most important is that their open source project is ready for commercial success and has an existing base of users and a growing demand for support and other services.
All offer supplemental services in addition to those packaged with the product as additional revenue streams. These supplemental services offered by commercial open source companies are not unlike the services offered by proprietary software companies and may include:
- Multi-level support services including 8×5 email and forum support through 24×7 service level agreements
- Education and certification training with product discounts and incentives for fully certified or trained customer teams
- Standard professional services including installation and implementation services
- Custom projects.
Other characteristics include: giving back to the community through open source code drops, hiring developers and encouraging them to spend a percentage of their time working on other community based open source projects, and a strong advocacy of open source development and business models.