Business models for open-source software
Software companies focusing on the development of open-source software employ a variety of business models to solve the challenge of making profits from software that is under an open-source license. Each of these business strategies rest on the premise that users of open-source technologies are willing to purchase additional software features under proprietary licenses, or purchase other services or elements of value that complement the open-source software that is core to the business. This additional value can be, but not limited to, enterprise-grade features and up-time guarantees to satisfy business or compliance requirements, performance and efficiency gains by features not yet available in the open source version, legal protection, or professional support/training/consulting that are typical of proprietary software applications.
Historically, these business models started in the late 1990s and early 2000s as "dual-licensing" models, and they have matured over time, giving rise to multiple variants as described in the sections below. Pure dual licensing models are not uncommon, as a more nuanced business approach to open source software businesses has developed. Many such variants are termed open-core model, where the companies develop both open source software elements and other elements of value for a combined product.
A variety of open-source compatible business approaches have gained prominence in recent years, as illustrated and tracked by the Commercial Open Source Software Index, a list of commercial open source companies that have reached at least US$100 million in revenue. Notable examples include open core, software as a service, freemium, donation-based funding, crowdfunding, and crowdsourcing.
There are several different types of business models for making profit using OSS or funding the creation and ongoing development and maintenance. The list below shows a series of current existing and legal commercial business models approaches in the context of open-source software and open-source licenses. The acceptance of these approaches has been varied; some of these approaches are recommended, others are accepted, while still others are considered controversial or even unethical by the open-source community. The underlying objective of these business models is to harness the size and international scope of the open-source community. Depending on the project the funding options and their success differs for a sustainable commercial venture. The vast majority of commercial open-source companies experience a conversion ratio well below 1%, so low-cost and highly-scalable marketing and sales functions are key to these firms' profitability.
Not selling code
Professional services
Open-source software can also be commercialized from selling services, such as training, technical support, or consulting, rather than the software.Another possibility is offering open-source software in source code form only, while providing executable binaries to paying customers only, offering the commercial service of compiling and packaging of software. Also, providing goods like physical installation media can be saleable.
Open-source companies using this business model successfully are, for instance RedHat, IBM, SUSE, Hortonworks, Chef, and Percona.
Branded merchandise
Some open-source organizations such as the Mozilla Foundation and the Wikimedia Foundation sell branded merchandise articles like t-shirts and coffee mugs. This can be also seen as an additional service provided to the user community.Software as a service
Selling subscriptions for online accounts and server access to customers is one way of adding value to open-source software. Another way is combining desktop software with a service, called software plus services. Most open core companies that use this approach also provide the software in a fashion suitable for on-premises, do-it-yourself deployment. To some customers, however, there is significant value in a "plug and play" hosted product. Open source businesses that use this model often cater to small and medium enterprises who do not have the technology resources to run the software. Providing cloud computing services or software as a service without the release of the open-source software is not an open source deployment. With a SaaS approach, businesses no longer need to write new code from scratch, but instead can use the software they need by paying a subscription. Serverless technology allows businesses to completely transfer infrastructure management to the provider, which means that teams can create scalable applications more efficiently, cheaper, easier, and more reliably.The Free Software Foundation called the server-side use-case without release of the source-code the "ASP loophole in the GPLv2" and encourage therefore the use of the GNU Affero General Public License which plugged this hole in 2002.
Voluntary donations
There were experiments by Independent developers to fund development of open-source software donation-driven directly by the users, e.g. with the Illumination Software Creator in 2012. Since 2011, SourceForge allows users to donate to hosted projects that opted to accept donations, which is enabled via PayPal.Larger donation campaigns also exist. In 2004 the Mozilla Foundation carried out a fundraising campaign to support the launch of the Firefox 1.0 web browser. It placed a two-page ad in the December 16 edition of The New York Times listing the names of the thousands who had donated.
In May 2019, GitHub, a Git-based software repository hosting, management and collaboration platform owned by Microsoft, launched a Sponsors program that allows people who support certain open source projects hosted on GitHub to donate money to developers who contribute and maintain the project.
Crowdsourcing
is a type of participative online activity in which an individual, an institution, a nonprofit organization, or company proposes to a group of individuals of varying knowledge, heterogeneity, and number, the voluntary undertaking of a task via a flexible open call. The undertaking of the task, of variable complexity and modularity, and in which the crowd should participate, bringing their work, money, knowledge and/or experience, always entails mutual benefit. The user will receive the satisfaction of a given type of need, be it economic, social recognition, self-esteem, or the development of individual skills, while the crowdsourcer will obtain and use to their advantage that which the user has brought to the venture, whose form will depend on the type of activity undertaken. Caveats in pursuing a Crowdsourcing strategy are to induce a substantial market model or incentive, and care has to be taken that the whole thing doesn't end up in an open source anarchy of adware and spyware plagiates, with a lot of broken solutions, started by people who just wanted to try it out, then gave up early, and a few winners. Popular examples for Crowdsourcing are Linux, Google Android, the Pirate Party movement, and Wikipedia.Training and certification
Offering training programs and certification courses related to the open-source software, catering to individuals or organizations, like Red Hat Certification Program or Linux Professional Institute Certification Programs.Selling users
Partnership with funding organizations
Other financial situations include partnerships with other companies. Governments, universities, companies, and non-governmental organizations may develop internally or hire a contractor for custom in-house modifications, then release that code under an open-source license. Some organizations support the development of open-source software by grants or stipends, like Google's Summer of Code initiative founded in 2005.Advertising-supported software
In order to commercialize FOSS, many companies have moved towards an economic model of advertising-supported software. For instance, the open-source application AdBlock Plus gets paid by Google for letting whitelisted Acceptable Ads bypassing the browser ad remover. As another example is SourceForge, an open-source project service provider, has the revenue model of advertising banner sales on their website. In 2006, SourceForge reported quarterly takings of $6.5 million and $23 million in 2009.Selling communities
A paid community model is one where part or all of the interaction, support, networking, or insider access around an open-source project is gated behind a subscription or membership fee. Community members pay for enhanced engagement, exclusivity, mentorship, or “members-only” features. They monetize the community and social capital rather than software features or licensing per se. It can provide recurring revenue if done well. Most popular version is usually freemium model, where you have access to basic community + paid “inner circle” features. a good example is the FSF, despite being a non-profit organization. You have free access to their IRC, but the forum requires a membership fee. It also offer perks like their XMPP server, discounts on purchases etc.Pre-selling code
Bounty driven development
The users of a particular software artifact may come together and pool money into an open-source bounty for the implementation of a desired feature or functionality. Offering bounties as funding has existed for some time. For instance, Bountysource was a web platform which has been offering this funding model for open source software since 2003.Another bounty source is companies or foundations that set up bounty programs for implemented features or bugfixes in open-source software relevant to them. For instance, Mozilla has been paying and funding freelance open-source programmers for security bug hunting and fixing since 2004.