Talk about starting a business based on open source software and the conversation will inevitably shift to Red Hat. That’s because the Linux vendor is a shining example of a company that’s making money from an open source product. But how easy is it really to establish an open source startup that makes money? It’s tempting to believe that the Red Hat business model, which is based around selling subscriptions for support to a maintained and tested version of Linux or a closely related model that offers consultancy and customization to an open source software solution as well support and maintenanceis the most viable way to make money from open source software. But Sam Myers, a principal at Balderton Capital, a technology venture capital company, says that most open source startups are unlikely to succeed using these business models. Because it is head-count driven, the model doesn’t scale, and you get low renewals. And you have competition from other consultancies. Myers admits that the subscription model can occasionally be successful, but asserts that a more promising business model is to build a product line around an open source core. This can involve developing premium software modules that add features to the core open source software or, alternatively, building supporting applications that complement the core. Another open source startup business model involves offering hardware that is suited to the software in the way that Digium sells telephony hardware to run the open source Asterisk telephony software. But Myers warns that this model can be difficult to sustain because customers typically only buy the hardware occasionally. Instead, he recommends looking for a business model that produces a recurring revenue stream. These can include offering open source software as a service or charging for API use in addition to selling premium modules or supporting applications as mentioned. What quickly became apparent from speaking open source software how does it make money Myers is that there is no «best» open source business model, and Allison Randal, president of the Open Source Initiative, says that open source startups should avoid searching for one. They should be thinking about a business model and how open source software fits into that,» she says.
Software as a Service (OpenSaaS)
More posts by this contributor Tracking the explosive growth of open-source software Dharmesh Thakker Contributor Dharmesh Thakker is a general partner at Battery Ventures and a former managing director at Intel Capital. More posts by this contributor Tracking the explosive growth of open-source software How viral open-source startups can build themselves into enterprise-IT powerhouses. Even major enterprise-IT vendors are relying on open-source for critical business functions today. Despite the growing popularity of open-source software, though, many open-source companies are not financially healthy. Source: Publicly available data. Just how challenging is it to build a big, profitable open-source business? But success, for entrepreneurs and investors alike, is possible. In contrast, our experience suggests that some of the best open-source companies had a clear idea of how they were going to make money from their early days. Companies often do this by selling enterprise versions of open-source projects with extra security and management features. These are designed to appeal to the large enterprises that are big IT spenders. Another option is to offer a premium SaaS service, essentially a pay-as-you-go model. While delivering a reliable service can be difficult — namely, packaging many open-source components together into one compelling, cloud-based offering — SaaS can be another route to revenue. Red Hat is a good example of a company that thought about monetization from the get-go. Some of the best open-source companies had a clear idea of how they were going to make money from their early days. Another forward-thinking open-source company, Cloudera, comes from the big-data world, where several companies are trying to commercialize the open-source project called Hadoop. Meanwhile, big-data competitor Hortonworks is trying to make money from paid product support, which may be a more difficult model. The Apache software foundation, whose open-source server software burst onto the tech scene in the s, led to many vendors trying a similar strategy — essentially, selling customers support as a sort of insurance policy on their deployments, which some users considered risky because they were based on open-source technology. Open-source licenses determine exactly who owns modified versions of your open-source product, and can have big implications for your business. Some licenses allow anyone to create closed-source derivative works that build on the original product, while others reserve that right only for the owners of the original product. Keep in mind that even open-source software is always owned by someone, usually either a for-profit company or a non-profit foundation kumbaya only goes so far.
Software as a Service (OpenSaaS)
In the beginning, open source software looked like a saintly gift to the commonweal. Programmers would work hard, then give away the fruits of their labor to anyone who wanted it. Everyone would benefit from this act of pure charity. Over time, however, companies realized they could make money and give away the software at the same time. They could do well by doing good. This wasn’t a shock to some of the original open source advocates — it was how some intended it to be. Richard Stallman, for one, always said that «free speech» was more important to him than «free beer. Many companies took this as a blessing to make money and serve their destiny. The smartest figured out how to use open source to strengthen their business, spread their brand, and bolster their power. Open source was not so much a charity as a different kind of marketing, a way to squeeze into the marketplace. The savviest open source devotees embrace this self-interest. Everyone along the chain, they note, must be motivated to contribute for a reason. The genius of open source, they explain, is that it helps coordinate our selfishness and turn it into something that benefits everyone. The contributors become equals, and there’s little squabbling about rights to blocks of code. The sharing lets everyone concentrate on the quality of the software, not on licensing issues. Here are nine ways companies use open source to profitable ends. While these approaches may offend the naive, most fall under the heading «Before you do good you must do well. Freedom without stability isn’t worth very much. Advertising costs money. Trade shows are expensive. Marketing budgets are never adequate. Many companies see open source as a cheaper alternative. Releasing all or part of the product as an open source package can attract users who will use the product and discover what it does. The product speaks for itself and brings in the users, then the sales force steps in when it’s time to upsell. Some open source companies such as MySQL have said it’s a mistake to focus too much on how many are getting the product for free. It’s not usual for companies to cite figures where 90 percent or more are not paying. They usually don’t cost the company very much because the open source packages cost little to distribute.
How do Open Source Companies and Programmers make money?
There is a common misconception that there is no money to be made in open source software. It is true that open source code is free to download, but you should think of this as an opportunity rather than a limitation. A sophisticated open source application like Zimbra may be free to download and install, but it is a complex piece of software. Setting it up requires expert knowledge. Maintaining the server over time can require someone with know-how. Who better to turn to for this kind of support than the people who created the software? Many open source businesses sell their own support services and contracts. Much like commercial software support, these service contracts provide varying levels of support. You can charge the highest rates for immediate phone support and offer lower rate plans for slower email-based support. Although the basic open source software may be free, you can create and sell add-ons that provide additional value. For example, the open source WordPress blogging platform includes support for themes or visual layouts. Many free themes of varying quality are available. Either the original creators or third-parties can make and sell enhancements for open source projects, making this option a great opportunity for making money. Some software projects are difficult to use without documentation. Making the source code available at no cost does not obligate you to give away the documentation. Consider the example of Shopp, an e-commerce plugin for WordPress. Shopp is an open source project, but to access the documentation you need to pay for a license that provides entry into the website. It is possible — and perfectly legal — to set up a Shopp store using the source code without documentation, but it takes longer and you won’t know all the features available. Even if you did not create the open source software, you can author a manual sharing your expertise and then sell that book either through e-publishing channels or traditional book publishers. Open source code is just that — source code. It must first be compiled into what is called a binary or machine code. Binaries are specific to each operating system. Depending on the source code and the operating system, compiling into binary ranges in difficulty from easy to difficult. Most open source licenses do not require the creator to give away free access to compiled binaries, only to the source code. While anyone can download your source code and create their own binary, many people either don’t know how or won’t want to take the time. If you have the expertise to create compiled binaries, you can legally sell access to these binaries for different operating systems, like Windows and macOS. Sell your own expertise. If you are a developer with experience installing or customizing any open source application, then you have marketable skills.
What every open-source company needs before it can consider making money
Check out our experience in building enterprise software: from custom development and digital transformation to mobility solutions and data management. Check out our approach and services for startup development. Learn about our vast expertise in marketplace development and our custom white-label solutions. Check out services we provide for ecommerce brands and marketplaces. See the services and technology solutions we offer the Fintech industry. Find out what makes us one of the top software development companies in Eastern Europe.
We believe that clear and transparent workflow is a key to success. See every step of product development with us. Most people, when they think of open source software, imagine enthusiastic and generous developers who spend their days and nights creating software for free. But today there are ways to profit from building open source software OSS.
Lately, developers have started thinking about how to monetize their OSS. We’re going to highlight a few common ways to make profits from open source software. One way to makee your open source project is by hoq the SaaS business model. This option makes sense ooen you have a fully-fledged application capable of generating demand. What makes SaaS attractive is that the software is stored in the cloud; users only need a web browser to access an application. SaaS is dors popular business model for vendors that build tools for HR, collaboration, content management, and project management.
SaaS solutions with a free codebase reduce development costs and eliminate the need to build redundant functionality. Additionally, the vibrant OSS community softwqre gladly promote quality open source products.
With an OpenSaaS model, software is purchased via subscriptions, which can offer varying levels of service.
For example, you might offer technical support, software customization, and trainings as package options. The SaaS version of WordPress can be found at wordpress.
If you choose this service, then WordPress hosts your i for you. Sharetribe, a marketplace builder, is another great example of an OpenSaaS product. It comes in two versions: a self-hosted free version which can be found on GitHub, and a cloud-based hosted version at sharetribe.
But while the SaaS version receives great support and additional offerings like custom domain and removal of Sharetribe branding, this version of Sharetribe is less customizable, only allowing you to personalize marketplace filters and change colors, images, and block position in the user interface.
With the monney source version of Sharetribe, on the other hand, the customer has to deploy Sharetribe on their own server and run updates and backups themselves. OpenSaaS is an exciting new trend that combines the best dors both worlds, open source software how does it make money people to build web experiences more easily than. Such as technical support, certifications, and trainings. In fact, most professional open source companies — sofftware Red Hat, Mlney, and MySQl — have built their entire business by providing free solutions.
They generate profits only from additional services. The most common way to get revenue from OSS is to hoa paid support. Red Hat sets the bar for this model, boasting substantial revenue. Inthe company — widely known for its enterprise operating system, Red Hat Enterprise Linux — announced a profit of 2. Red Hat does admirably by selling yearly subscriptions for user and technical support.
Customers can choose a subscription plan based on number of requests, severity of requests, support channels and hours of coverage. MySQL, the leading open source database, derives revenue from selling support subscriptions for their product. Paid support is an effective tool for making profit from open source for a few reasons. First, enterprise owners can save money on their payroll. Instead of hiring in-house specialists, enterprises can have access to certified support specialists on a less expensive basis.
Second, enterprises can have poen of mind knowing that they can call in the pros whenever a problem arises. Dual licensing can be implemented in a few ways. In the first scenario, a company releases identical products under a commercial license and under a free license like GPL. In the second scenario, the company releases different versions under different licenses. The most well-known example of successful dual licensing is MySQL. Some companies make money with open source in this way: they distribute their software for free, but charge money for additional features, functionalities, or updates.
We can’t call such approach selling open source software. As we mentioned previously, customers feel most comfortable paying for only the services they utilize. Which is why, charging money for extra functionality is attractive for a number of reasons. Second, customers can save money on deployment and troubleshooting when these services are included in paid packages. For instance, GitLab distributes their developer tools in three editions. Their hos for enterprises includes premium support, file locking and advanced solutions for remote teams, and is billed per user.
Charging money for additional functionality works well for software designed mmake blogging, HR, collaboration, customer management, dose other similar needs.
WordPress provides their Premium and Enterprise customers, for instance, with additional websites and an additional workforce to maintain their WordPress sites. If software is open source software how does it make money enough, companies can offer certification opportunities for specialists who want to mkae their knowledge and skills. Getting certified, as a developer, is quite useful for a number of reasons. Second, developers realize the importance of networking with mentors and groupmates.
Open sofwtare giants including Magento and Red Hat offer a variety of certification options. Magento sokrce certificates for skills related to Magento development and solutions. Open source software is highly regarded thanks to its security, reliability, and vibrant communities that support it. Moreover, OSS helps companies avoid reinventing the wheel, and softwsre even be used within proprietary software.
Altogether, these factors have made OSS quite popular. Today, people are willing to pay for open source software to ensure legal protection, technical support, and professional services.
With paid open source technologies, companies can offer the best of both worlds: transparent technology with the support and features of commercial software. Subscribe via email and know it all first! Software Testing. Get in touch. This website uses cookies to ensure you get the best experience on our website.
Learn. Maryna Z. Tags: Community. Paid support Many OSS companies succeed omney providing extra services. Paid extra features or functionalities Some companies make money with open source in this way: they distribute their software for free, but charge money for additional features, functionalities, or updates.
Paid certification If software is popular enough, companies can offer certification opportunities for specialists who want to validate their knowledge and skills.
Conclusion Open source software is highly dpes thanks to its security, reliability, and vibrant communities that support it. Rate this article! Share article. Comments 0 to leave a comment. Sign in with Facebook. Sign in with Linkedin. There are maake comments yet Leave comment. Subscribe on our news. Recommended Articles. Public views 5 min.
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Yes, you can make money of free software
Last week’s article on Linux for older hardware set a new record for Linux-related articles, in that I did not get even one threatening letter. I did, however, get a bunch of email asking business-related questions about Linux and open source. A reader named Hermann sent me a comment that serves as a good starting point: «I don’t see how these Linux and open source companies can afford to make good software and still make it free. Hermann has a point, but it turns out there are a lot of ways to make money from free software. Let’s start with the softaare of demand. The more specialized a type of software is, the fewer opwn there will be. Generally, the fewer users, the smaller the market opportunity. The maie the market opportunity, the fewer the number of companies that will invest in developing applications of that type.
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