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Other than altruistic idea of giving back to community, what motivates businesses to operate as open source? What is the successful business plan before deciding to open up?

Here are some well known models:

  1. Free version to promote a "pro" paid version (i.e. RedHat)
  2. Exit by buyout by a large commercial player (i.e. Oracle <- MySQL)
  3. Selling consulting and support services
  4. Selling a hosted version (SaaS)
  5. Selling training and certification

Each of the above models can be exploited by competition:

  1. Take your free version and create derived one (Linux distros are prime example)
  2. It seems it would be cheaper for competition to buy out individual key personnel
  3. So can anybody else who has time to read the manual
  4. Cloud service companies make it easy to deploy even the most complex open source apps
  5. But who's buying?

What is it that would make Canonical into a future RedHat? What motivates SQLAlchemy developers to keep coding and tirelessly answering questions on the mailing list? Etc. etc.

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I was hoping for pointers to concrete studies of successful business plan. – Victor Olex Dec 18 at 23:39

3 Answers

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This is a great question, with some thought-provoking ideas.

One of the approaches that I have recently been investigating (and which I am seriosuly considering adopting) is a dual-licensing model, using a strict open-source license (like GPL) in conjunction with a proprietary license that is much more attractive by comparison.

This approach has two advantages:

  1. Apart from the additional functionality in the "pro" edition, paying customers also license the product on more attractive terms (for example, the freedom to distribute a licensed library with their own developed application without being forced to open-source their own work). Of course, whether this will work for your customers depends on the type of product you are offering.

  2. Because the open-source version is only licensed under a strict copy-left license, competitors who start with a fork of your code will never be able to offer the same attractive terms that your proprietary license offers. They will never have the freedom to offer licensing terms that are less strict than the original license, whereas you will always retain that freedom.

I suspect that your idea of being acquired by a bigger player is probably also more likely if your project is launched using a licensing model that retains a little "unfair advantage".

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Hey Tim: If you actually go ahead with this will you let us know if it met your expectation? – Victor Olex Dec 16 at 18:58
Hi Victor: Yes, I've decided to go ahead with this model to try monetize an existing open source project. I am currently developing the collateral to support this effort, but I am not necessarily expecting fast results. I'll post an update here at some point if it produces anything notable. – Tim Coulter Dec 21 at 16:25
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  1. They can do that and they do. Taking your Linux distro example, most big businesses I have seen will always plump for something like RedHat that has the company behind it, the service agreements, support etc. It's the safe option. A copied distro might be identical in function but the service around it is not.

  2. Could be about removing the competition or buying the brand. MySQL is a strong brand.

  3. I think there's a difference between an expert consultant and someone who has just read the manual. We got some training on an open-source Java framework a while back - we could've read the books ourself (we did) and we could've hired someone who read it too, but we flew the guy who wrote the book and the framework over from the States to train us. We paid the expert.

  4. I can't really think of any examples of this? Most SaaS are going to have a unique selling point.

  5. Businesses. It's quicker and cheaper to get the best to train your staff rather than waste extra time learning it all from scratch.

Canonical are already a RedHat, they make a tidy sum.

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Hi Steve, thanks for sharing you thoughts. How do you know that Canonical is profitable? Examples for open source supported by SaaS are more common in business geared project such as CRM, ERP tools. These are complete systems, which can be non-trivial to install, configure and maintain for non-technical person. – Victor Olex Dec 16 at 18:57
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All of the 'counter options' you describe involve risk. Most companies with a P&L are risk-averse to a greater or lesser degree.

In addition, I think you're looking at the problem somewhat as a software developer, or at least someone who's very at-home with technology. To most business folks, software is a big, scary black mass that only the guy with the long hair in the Metallica T-Shirt should be allowed near. And because you have to rely on this guy (whom the suits perceive as slightly shady / disreputable) then you want to have an insurance policy, a la Red Hat.

Finally, remember that (as Steve pointed out), an employee's time is valuable too. If an employee enters a project "cold", you essentially have to pay them full pay and benefits for teh entire time they're learning, which often takes longer when self-paced / self-taught, plus they will likely take longer on the project itself due to it being their first time on the given software, plus, you're never going to be quite sure if they didn't miss something.

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OK, these are good arguments but not necessarily distinct to open source software. Thanks for sharing. Does anyone have a sample business plan for an open source software company? – Victor Olex Dec 16 at 19:01

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