The Business of Software

Hi, I am compounding a list of viable open source software business models. The list is adapted from Aaron Schiff "The economics of open source software" which originally is adapted from Raymond, E.S. I added the Ad-supported model. Am I missing any models? Any feedback is much appreciated. Thanks.

See the list of models here: http://lunarmedia.com/blogs/master_thesis/archive/2006/07/24/Open_Source_Business_Models.aspx

Maybe this goes under Accessorising, but some companies sell closed-source add-ins to their open source product.

Take a look at Community Server:
http://communityserver.org

Yes I would also categorize it under "Accessorising". Good suggestion, I will add "add-ons" to the model description. Thanks!

Anders Vindberg > I am compounding a list of viable open source software business models.

Good idea. OSS zealots like Stallman would have us believe that tried and true concepts like supply/demand do not apply to software, or that labor intensive activities like support can create as much wealth as just building a standard application on the web.

The MySQL model seems to be missing the from the list.  Dual license: one free, one commerical.  The free license allows free mixing of MySQL with other open source applications and the commerical licenses allows MySQL to be mixed with commerical applications (which the free license, the GPL, prevents).

Anders, this is a great service.  Thanks so much for doing the research and publishing it.

"Free the software, sell the content."  Since I'm reading at a coffee shop, I think of giving away a free cup, and charging for the coffee.  I'm at a loss to think of an open source example of this model.

I look forward to reading your results!

I'd add another to this list: restricting the distribution channel. I develop an application under the GPL, and make a "lite" version freely downloadable. The full version, also GPL'ed, is available only as a paid download. My app is non-trivial to build and is targeted at the level of user who isn't likely to be interested in building it for themselves anyway.

Open Source Pays > The full version, also GPL'ed, is available only as a paid download.

If it's GPLed, may I have the source code please?

@Fred:

The source code is shipped with the paid download of the binary, as per the GPL. The GPL doesn't obligate me to give the source code away randomly.

OSS Pays--

Why not just give your source out on the website for free download?  A single person can buy the product then give the source out on the web for you (can't they?). 

Seems like your business model is depending on a concept similar to 'security through obscurity'.

"Why not just give your source out on the website for free download?"

Because then I don't make any money.

"A single person can buy the product then give the source out on the web for you (can't they?)."

Yes. The same source code is also shipped with the freely-downloadable "lite" version, along with build instructions. I'm sure some people are building the "full" version for themselves. A lot of people (the vast majority) are making do with the "lite" version. However, the percentage of people purchasing the full version is > 1%, which (as I understand it) compares favorably with closed-source conversion figures.

My guess is that people who pay for the program (what they are paying for is the convenience of the already-built full version) don't want to give others what they had to pay for. That's simple psychology. And perhaps they (and those who build the program for themselves) also don't want to take on the burden of maintaining  a build and supporting those who download it.

For "free the software, sell the content", I'm vaguely reminded of a service like National Public Radio which allowed you to use any compatible receiver you wanted, but also encouraged you to "tip" the performer. The reason I'm fuzzy on it is that I can't remember if NPR offered basic open source clients for Linux.

I'd also like to see the "time is valuable" model added to the list where the software is open source, but is in either such poor condition or not very compatible such that a person is hired to extend the software exclusively for a company. This contrasts with the restaurant model in the sense that the company isn't necessarily interested in contributing the changes back to the original software. An example would be Microsoft's adoption of the BSD-licensed TCP/IP stack.

Open Source Pays > The source code is shipped with the paid download of the binary, as per the GPL. The GPL doesn't obligate me to give the source code away randomly.

It doesn't?

"Does the GPL require that source code of modified versions be posted to the public?

The GPL does not require you to release your modified version. You are free to make modifications and use them privately, without ever releasing them. This applies to organizations (including companies), too; an organization can make a modified version and use it internally without ever releasing it outside the organization.

But if you release the modified version to the public in some way, the GPL requires you to make the modified source code available to the program's users, under the GPL.

Thus, the GPL gives permission to release the modified program in certain ways, and not in other ways; but the decision of whether to release it is up to you."

http://www.gnu.org/licenses/gpl-faq.html

Regardless, I'd be wary of a company that purpots to support open-source but doesn't provide the source code to its application. Might as well get a regular closed-source product, that has a higher chance of still being in business in a few years because it makes money the ol' fashioned way, ie. selling licenses.

Fred,

Please see the GPL again:

"3. You may copy and distribute the Program (or a work based on it, under Section 2) in object code or executable form under the terms of Sections 1 and 2 above provided that you also do one of the following:

a) Accompany it with the complete corresponding machine-readable source code, which must be distributed under the terms of Sections 1 and 2 above on a medium customarily used for software interchange; or,
b) Accompany it with a written offer, valid for at least three years, to give any third party, for a charge no more than your cost of physically performing source distribution, a complete machine-readable copy of the corresponding source code, to be distributed under the terms of Sections 1 and 2 above on a medium customarily used for software interchange; or,
c) Accompany it with the information you received as to the offer to distribute corresponding source code. (This alternative is allowed only for noncommercial distribution and only if you received the program in object code or executable form with such an offer, in accord with Subsection b above.)"

The only way to get the binary and source code FROM ME is to pay me for it. Cough up the dough, then you get the binary + source code. I satisfy the GPL by distributing according to 3(a): source code is shipped in the same download file as the binary.

So: no need to be wary. I do provide source code. And because I get $$ from downloads of my software, I improve my chances of being in business in a few years from now.

Seems like the best of both worlds, no?

Open Source Pays:

How much does it pay? How much do you actually earn from it? You earn money, but is it actually real money or just a trivial amount?

Come on, spill the beans. Prove you can actually make a living from Open Source without getting external investment.

I'm ready to believe if someone gives real figures that work.

Open Source Pays > Seems like the best of both worlds, no?

Seems like a company I would run from :-) Like I said, I hate it when companies pretend to support open-source, but it's lip-service.

Anyhow, good for you if you can make a living this way, and a better living than doing closed-source.

"I'm ready to believe if someone gives real figures that work."

Would you believe Open Source Pays (the person)?

Personally, I do believe him but if we're being paranoid, we have to acknowledge the equally likely possibility that he'll throw out some random numbers that just look good on a ledger. Don't worry, you're not alone in this regard, Wall Street has the exact same problem.

I think you have to reconsider your question in terms of statistical distribution, in the sense that...

a) There are probably lots of people earning some "folding money" by selling open source.

b) One hundreth of that number is probably making a living wage at it.

c) One thousandth of the original number is probably making enough money to buy a Ferrari.

d) One hundred-thousandth of the original number actually runs an open source related business large enough to get reported in business magazines like Forbes, Fortune, CIO, etc etc.

The funny thing is that this "trend" is actually very representative of many industries that initially start out working from home or the back of your van, such as house cleaning services, general contracting (in the plumbing, handyman, electrician sense), deliveries, training, and so on.

And what all these businesses have in common is that someone is motivated enough, focused enough and educated enough to actually find a market and grow it.

So yes, I believe someone can make a living at it. :)

Another model is the "Ransom Model", undertaken by the authors of the http://blender3d.org 3D software.

I wrote about their strategy previously in this post:

http://discuss.joelonsoftware.com/default.asp?joel.3.342129.10#discussTopic342402

Basically, they took a commercial application (really a consultingware application that had failed as a shrink-wrap product) and they told the community that they'd open-source it if the community was willing to donate $100,000 to the original developers.

@Tired of Rhetoric:

In the five weeks since its release, my application has had 94 sales, out of around 7,000 downloads. My revenue, after the download service takes its cut, is about $5 per download. I decided to price my application at this low price point because my market segment is very price conscious (being used to getting things for free) and also because I plan to make some of that revenue back on updates--I currently offer no path for free upgrades/updates. (If someone pays $5 three times to download updates of the application, it's the same as a $15 sale with free updates.)

If you do the math, you'll see I'm not yet making big bucks. On the other hand, we all have to start somewhere, and my research (at this site and elsewhere) suggests that I'm not doing too badly relative to other developers. I've heard stories of people taking six months to make their first sale.

I probably won't be able to retire on the income from this application alone, obviously. But I'm certainly encouraged enough by my initial results to keep working at it. Furthermore, I have other apps in the pipeline; I plan  to experiment with different pricing and marketing strategies. I'm curious to know how a $20 application, with free updates for the life of that version number, will do compared to a $5 application. Will I gain enough revenue to compensate for the incremental loss of users? I don't know, but it's worth a try.

In more general terms, it's important to keep a long-term perspective. Businesses are not built overnight. My model here is Gus Mueller, a closed-source Mac developer: his blog entry at http://www.gusmueller.com/blog/archives/2005/12/25.html#1401, on how it took him 1,068 days to become a success, is instructive reading.

"Basically, they took a commercial application (really a consultingware application that had failed as a shrink-wrap product) and they told the community that they'd open-source it if the community was willing to donate $100,000 to the original developers."

Wow, you should be a spin doctor! You make them sound altruistic!

Their company went bust, and they cashed in their chips by conning a loyal fan base. That's so wrong.

At least when Star Office failed, they made OpenOffice free.

You've missed one glaring one - selling the actual OSS. The GPL, at least, does not preclude you from selling CD-ROMs and charging for your time and materials to do so. I'm not familiar enough with the other licenses to comment further.

I am overwhelmed by the amount of replies. Thanks.

@ BenjiSmith: I would consider the “Ransom Model” a one-time event. Once the “ransom” has been paid no future transactions will occur. I am looking for sustainable models that include multiple transactions. Interesting link you supplied. I have updated the Example column with a few companies.

@ Open Source Pays: From what I can tell your concept fits with the restaurant model. You charge money for a service (supplying a compiled version of your open software).

@ TheDavid: I find it difficult to add the “time is valuable” model to the list. How does it generate revenue?

It seems that open source and standards have similar effects on business. It changes the competitive environment to concentrate on new areas such as service, branding, and related products. Do you agree?

Anders,

Yes, I think you put it correctly--I'm charging for the service of a binary build.

I don't think the "Time is Valuable" model produces direct revenues per se.  Rather, the use of open source can dramatically reduce the expense of creating a product (or alternatively boost the feature set of the product), to the extent that it is a genuine competitive advantage.

In hindsight, I think a better name for the model may be "Embrace and Extend".

I should point out that in this model, open source software is generally consumed and very rarely "produced" for outsiders. So this niche is really an overlap between the restaurant, branding and widget frosting models.

In addition to Microsoft, examples include JBoss, Linksys (routers), Logitech (webcams), IBM (Lotus Notes collaboration) and Apple (Darwin, Safari vs. KHTML), all cases where the company in question decided to build upon existing open source projects and offer commercial equivalents <emphasis>in parallel</emphasis> with said open source projects.

Open Source Pays:

Sincere thanks for your honesty. That takes balls. I don't think you have a compelling argument for what you're doing... yet. But I wish you luck with it anyway.

Your name is a bit of a misnomer - it should be Open Source Generates Income, as it stands your name sounds like Open Source Makes A Profit, which it doesn't.