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How Open Source World Makes Money ?


Open source has come to be synonymous with the word free. Yet there are several businesses that are adopting the open source model as a strategy to stay afloat in today’s times. If open source is free, then where is the money, especially if you decide to release our software into the open source world? The first thing we need to understand is that free relates to the word freedom. The famous quote goes, “To understand the concept, you should think of free as in free speech, not as in free beer”. Therefore, thinking of open source as free and hence “no revenue” is a misnomer. If you are an independent developer, or are considering some sort of open source strategy or are just curious how an OS strategy might work; these are some of things you should consider.

Why open source?

It is important to understand that open source is not a supernatural cure-all and neither should it be shunned from the point of view of business and revenue. The basic premise we will go from is that a company or developer engaged in the software business is in it to provide value to the customer or end user. In such a case, open source will help a product maker potentially to provide better value to customers, by leveraging the ability for your customers or third parties to improve the product through bug fixes and product enhancements. The key is also to provide better value to customers than competitors, and then ultimately turn that value into a revenue stream. Fortunately or unfortunately – which ever way you look at it – open source ensures the survival of the fittest.

The open source model differs from the traditional model in the sense that you as a software developer, will most likely provide only part of the support to end users. The large base of your support will be provided by a community of developers engaged in furthering your product. These developers are attracted to your product as opposed to your competitors’. In such a way your resources are greatly augmented. What motivates these independent developers? That is a huge subject altogether, but some of the motives are - the satisfaction of working on a product that addresses a critical functional area in their lives or other people’s lives; the fact that developers look forward to the possibility of providing allied services and creating related products, thereby gaining a revenue stream; they might also view working on your product as a learning opportunity; and finally there is the ego kick of building a reputation amongst peers. All this free resource augmentation brings down your cost of operation. It also facilitates in greater product development. As Venkatesh Hariharan, Corporate Affairs Director at Red Hat puts it, “In the next few years, we may see the pace of innovation in open source outstrip anything that proprietary vendors and their closed group of paid programmers can produce.”

The make-or-break then lies with retaining these developers who contribute to the product and the community at large, ostensibly without any tangible return. Developers will not contribute if they don’t remain interested. So a lot of what you do as a company to support these developers will determine if they take an active interest or not. Treating developers and the community fairly to a great extent is also a function of what kind of licenses you release your product under.

Licensing for the open business

Licensing is perhaps the most important component of the open source model. There are several licenses plus their variants in this domain, but all of them share some common principles, such as free distribution (no royalty), scope for derived works (modification), etc. The complete list of principles is available at www.opensource.org. In effect, licenses go beyond just access to the code. Here are some of the main licenses that are applicable.

No license (Public Domain)

In open source software, the originator of the code, although while not charging anything for distribution, still has the copyright to the original code. In this type of license, the copyright is waived. This is a no-holds-barred form of usage; users are free to do whatever they want with software that is released in this manner. This includes using it as a base for proprietary software.BSD Style license BSD stands for Berkeley Software Distribution, and this type of license is most famously used for the operating system Open BSD, and the Apache web server. This license was originally designed to release software which resulted as a by product of academic research. It gives importance to attribution and proper mentioning of credit. Commercial proprietary products are possible under this licence.


This license was created by the legendary Richard Stallman, father of the Free Software Foundation. So naturally, it lies on the complete opposite side of BSD style licenses, that leave scope for commercial exploitation of code. Thus the General Public license and its variants deter developers from modifying code and not re-distributing it back into the community

Mozilla Public license

This license is quite suited to commercial purposes as the provisions allow for augmenting the original code with proprietary code and then releasing a larger work that can be commercially licensed. Such proprietary code need not be made publicly available. The proprietary code must be distinctly separate from the original MPL code. It must interact with the original code through predefined APIs. While at the same time all modifications to the original code covered under MPL must be made publicly available.

Business models

Once you start developing with open source it allows for deep market penetration. It is generally believed that customers start paying at the point of value. A famous example is of Facebook. Facebook started with MySQL as it did not have investment to buy a paid data base subscription. The venture used open source tools such as MySQL to give motion to an idea but when patching servers and security bug fixes became unmanageable, Facebook bought a MySQL subscription and paid them to solve the problems. At that point Facebook had a lot of users and angel funding, so Facebook paid for the service at a point where they saw value in it. This in effect is a business model.

When you develop open source applications you allow people to use them, they become part of your business logic, when they start making money, then you start making money. “The logic is - when you empower customers to be able to make money, you start a revenue stream for yourself. For instance many software related enterprises run Firefox across many of their terminals. It’s a critical part of their business process, so they invest a lot of their own developers’ time, as well as money into the Mozilla Foundation.” said Abhishek Kumar who is an open source evangelist and works for with Solaris Outbound Product Marketing to promote developers in the country to work on the OpenSolaris platform.

Business models for open source are many. In fact open source businesses are free to come up with their own business model or make hybrid combinations as follows.

Support sellers

In this type of model the company backing the product distributes the software for free but makes money off things like media distribution, branding, support and training, and even customization. This is perhaps the most common type of business model. Companies strive to make their installation process simpler by giving customer friendly media, etc. Red Hat is one of the companies that follows this model.


Simply put, this means selling associated paraphernalia to generate revenue. Associated products like books, training manuals and specifically compatible hardware are the more substantial options, but this also includes products like T-shirts, coffee mugs and action figures with product branding.

Dual Licensing

In this type of model software vendors offer the same product under different licenses. One is an open source license and the other is a proprietary license which the vendor usually offers to enterprise clients. The product released under the open source license is free to distribute or modify. Some of the most notable examples are of Firefox, MySQL and OpenOffice. It is believed that the open source version serves to popularize the commercial one. Developments of the open source version are offered as add-ons.

The return on investment

The open source developer community is comprised of a large number of students. In many different ways people, specifically students and entrepreneurs, can take advantage of open source. A student’s involvement in open source and the learning derived in the process enhances his or her resume and improves employability. Contributions to open source are subjected to extensive peer review and testing, both by developer and user communities, and so for a student contributor, their contribution is testimony to their technical excellence. So, such students attract higher compensation in the industry. “This is particularly relevant in our country where thousands of students graduate every year with a technical degree and contributions to open source projects can be a big differentiator.” says Abhishek, whom I spoke to in a freewheeling conversation on open source.

Consider this scenario – say a life sciences business is running a sales force automation system developed totally in-house, exclusively on PHP and MySQL, as opposed to a commercial product. As a result of costs being brought down, they are in a position to hire a developer who handles the maintenance. If he/she finds a problem he/she emails the PHP or MySQL community and gets the application running again with their support. If you are a developer, then such companies going the open source way will be looking for you.

“When you’ve worked in open source for a certain amount of time you have a brand value to yourself. Eventually you gain a contributor status in the community and people understand that value. What you did in your free time actually gives you a day job.”

Those who take the entrepreneurial route can monetize their contribution in multiple ways, such as providing professional services on open source products and solutions and charge for customizing and extending current open source products to suit the needs of large enterprises. All this involves working with open source communities and contributing to open source projects. If you have a good understanding of how communities work, you can harness the power of community. With the multitude of communication and distribution channels available today, getting your product out in the market becomes simpler. If your product is good, your customers will find a point at which they find value in your product.

Alternatively, entrepreneurs can make a very viable business only by investing their idea and time with open source. The open source world offers almost all the development tools, such as operating systems, programming languages, databases, IDE’s and even source code management systems, free of cost, and so anyone with a product idea can use open source to develop it without making any significant capital investments. “For instance if you start a business creating and managing websites, you can use technologies like Java EE, MySQL, and Netbeans to develop a product and deploy it on OpenSolaris, which is a free platform” says Abhishek. In this scenario, when the business turns profitable or demands increase beyond what can be handled, there is always the option of going to professional support for each of the concerned technologies. In conclusion, open source creates an ecosystem for businesses and entrepreneurs to grow, where they need to invest only at the point where they see value. This way the entry barrier for anyone who wants to break into the business is at an all time low. And this holds good for everyone who uses technology in any form in their business, which is practically everyone in today’s world. Thus, harnessing open source technologies, the process of open source development, and engagement with open source communities.  This engagement marketing prove to be a great advantage for developers and bring both direct and indirect revenues to both small as well as large entrepreneurs.