The Three Open Source Business Models – Open Source as a Tool (OST) as a Platform (OSP) and as a Business (OSB)


(B) FreeBSD, Java, Linux, Apache, MySQL, Python, Wikipedia, WordPress, Hadoop…the list goes on-and-on of projects that have been open sourced. In the 80s, software was about standards. Customers wanted standards so that they could deploy products from various vendors and ensure interoperability of those products in their networks. In the 90s, software became free. Netscape and Microsoft started to give their browsers away for free but charging for their server software, in the case of Netscape, or desktop operating systems, in the case of Microsoft. And from open standards to free software, Linux, Java, and Apache brought us into our new world of open source software.

There is obviously a major difference between an individual or a group of individuals that are pursuing open source software as a non-profitable project versus a business that is pursuing open source software as a profitable project. For a business, being a student of the market, I am finding out that open source can be used as a tool, a platform, or can entirely be the foundation for that business.

Open Source as a Tool (OST)
All technology companies are now both consumer and producer of open source software. By integrating open source codes into their products, tech companies do not have to reinvent the wheel and can focus on developing software that is required for their products. By releasing open source software, tech companies can leverage the open community to enhance the code that is using in their products. A good example of that model is Facebook which is both a consumer of open source software – Facebook has been using open source software MySQL and Hadoop – and a producer of open source software – Facebook has open sourced its internal database system Cassandra and its Hadoop querying and managing datasets Hive.

Open Source as a Business (OSB)
Red Hat is probably the company that has the most popularizing that opportunity around Linux. The basic idea here is to take a “free” open source project and provides “paid” bug fixes, support, and training around that project. But the recent change in the marketplace is that instead of building a business around an open source project, the open source project becomes the business itself. Start-ups are making now the software that they are designing open source instead of proprietary software. In the short-term, obviously returns on open source software are much lower than on proprietary software. But in a fast-changing or very competitive market, a start-up with no brand and no installed base might make a strategic decision to go with the Red Hat model instead of the proprietary Microsoft or Oracle model. A good example of that use case is MongoDB, a NoSQL start-up which has open sourced its software while building a business around it. When the market is a niche with not many competitors, it makes sense for a start-up to go with the proprietary software path. Otherwise, open source might be part of the strategy to build the business. And not only start-ups such as MongoDB are adopting that strategy but also established software company such as VMware which has spin-off a new cloud open source offering: Cloud Foundry.

Open Source as a Platform (OSP)
I would consider Open Source as a Platform as being an intermediate business model between OST and OSB. In that case, the investments in the open source software are being leveraged by proprietary software that is revenue generating. A good case study of that model is Android that is an open source software for smartphone and tablet manufacturers but being monetized by Google by Google Search, Google Maps and other Google applications that are the sources of advertising revenues to Google.

As open source business models are evolving, so do are their licensing terms. From the Apache license that stimulates fast adoption of the software by fundamentally enabling anyone to contribute freely to the code to the GPL license v2 or v3 that controls the changes that can be made by the contributors to the source code, we shall expect more new creative licensing models in the soon future.

Note 1: Open Source as a Tool (OST), a Platform (OSP), and as a Business (OSB) are not-standard terms but I made them (haha…) to better explain my classification.

Note 2: The picture above is from the Open Source Initiative.

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Categories: Open source