Nothing good is free: How Linux and open source companies make money | ZDNet

How does linux make money, 5 ways open source software companies make money

Hybrid licensing 1. This model becomes limiting over the long-term for a few reasons: 1 support often requires a lot of manual work, and so reduces business margins; 2 scaling is hard because support work is often not easily repeatable; 3 it creates perverse incentives on the part of the open-source company, where making the product easier to use cannibalizes support revenue.

In fact, this model works very well when the project requires complex deployments with sprawling ecosystems, which often goes against building the best user experience.

This inefficiency should come as no surprise. Open-source software itself is free. In order to feel the need to pay for support, a company needs to rely on the project for mission critical systems.

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Yet over time, companies that do rely heavily on the project will naturally invest their own engineering efforts to understand the project, reducing the need for external support.

The support model is still where every open-source company starts today.

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Hosting Hosting means offering a fully-managed version of your project, so that when users want to try out the project, or even deploy it in production, they can spin up a remote server with the software in just a few clicks, and not have to worry about operating it in steady state i. Given the popularity of the cloud and managed services in general, it should come as no surprise that this has also become a popular model for open-source.

The hosting-only model can work well. Some companies e.

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Databricks, Acquia have been quite successful with it. Yet typically hosting is layered in with a few of the following other models. Restrictive licensing The restrictive licensing model creates a legal reason for users of open-source software to pay.

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It does this by providing an open-source license with slightly how does linux make money terms, such that anyone using the software in production is highly incentivized to strike a commercial deal with the vendor. But this approach has limitations: the GPL-based license restrictions do not restrict unmodified usage, and only apply if one makes modifications and does not want to open-source them; the Common Clause has some ambiguity in its language, and it remains to be seen how this will play out how does linux make money the courts.

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Still, the largest drawback of this approach is that these licenses hurt adoption, often turning off potential users. In particular, there are quite a few large companies who have explicit policies against using restrictive licenses. Because of the inherent friction of this approach, many rule it out, relying on other business models.

Open-core Open-core has quickly emerged as the most popular way for open-source companies to make money. The idea behind open-core is that the majority of the code base is open-source, while a smaller percentage targeted at production or enterprise users is proprietary. The proprietary portion may be packaged into separate modules or services that interface with the open-source base, or could be distributed in a forked version of the open-source base.

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One benefit here is that it allows the open-source company to license the core with a very permissive license e. It also allows open-source companies to defend against free-loading participants e. Another challenge is that cleanly separating the open-source from proprietary features in code is sometimes difficult. Even if separating them is easy, maintaining two different code bases can also be challenging from an engineering process perspective: e.

But despite all these reasons, this model is quite powerful.

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Hybrid licensing The hybrid licensing model is the newest one on this list. Initially popularized by CockroachDB Janand later adopted by Elastic Febhybrid licensing takes the open-core approach but improves on it in a few key ways.

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What hybrid licensing does is intermingle open-source and proprietary software in the same repository, and then make the code for the entire repo available.

Users can choose to use a binary with just the open-source bits available under an open-source licenseor use a binary with both the open-source and proprietary bits available under the proprietary license. The proprietary licensed binary often will have paid functionality that is off by default, but can be unlocked by purchasing a license key.

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The largest challenge is also the same as open-core: balancing the quantity and value of open-source vs. A business model layer cake We just discussed five common open-source business models, yet there is no one-size-fits-all. Some will find success with a purely managed offering model, e. Others will have such broad adoption, like SQLite reportedly billions of installsthat they will be able to support a small core development team with just support and warranties. That said, most open-source companies will make money using a combination of the five models we discussed, forming a revenue layer cake.

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For example, by combining support and licensing, or support and hosting and open-core. If you adopt open-source software in your company, these are also the various ways you can support an open-source business, and ensure that the software continues to improve and be maintained. So if you do decide to use open-source software, and if there is a company behind the project, please support it.

This post, like another that preceded itwas built on the shoulders of giants.

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We are honored to have such great peers in our industry. Want to learn more about the business of open source software? Hear from myself and my co-founder, along with other OSS business leaders on the podcast series Open Source Underdogs. Like this post and want to learn more?

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