Profiting from open source -- without selling out

Here are 8 business models for balancing openness with revenue

So you want to make a small fortune in open source software? It's simple, the joke goes: Just start with a large fortune. The open source revolution began at least two decades ago, but businesses and programmers are still struggling to understand the best way to share wonderful code and pay the mortgage.

There have been some notable successes: Sun paid $1 billion for MySQL, an eye-popping amount given that MySQL was celebrating raking in $50 million in revenue not too long before. Red Hat has a market cap of more than $6 billion.

Yet for all of this wealth, there's a feeling that these businesses succeeded by being hybrids. They use the open source vision to attract users, but their business success comes by pushing proprietary options. Thus, the dark secret is that their open source version are merely a form of marketing.

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Calling this a bait-and-switch may be too cynical, but all users can feel the commercial tilt. Many companies, for example, find it is cheaper to buy a full commercial license for MySQL than to hire a lawyer to see if they are in compliance with the open source license. Red Hat makes a big distinction between the free version, distributed under the name Fedora, and its enterprise products sold under the name Red Hat. Lest there be any expectation that their software is truly free, both MySQL and Red Hat offer 30-day trials, a phrase that's not usually associated with the ideals of open source. Remember Oracle CEO Larry Ellison's famous interview with the Financial Times where he said, "If an open source product gets good enough, we'll simply take it."

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Other companies that try to be pure and share their code widely discover that users are happy to share the software but not so ready to pay enough to support the programmers.

Zack Urlocker, a board member and executive for several open source companies, points out the trade-off between the degree of sharing and revenue: "Apache has a great license model that enables the wide adoption of open source software, but there have been few significant businesses -- none approaching even $100 million in revenue -- based on a permissive license model" such as Apache's.

The open source community's business debate
The debate over permissiveness is woven throughout the discussions of open source business models. Some companies stay small on purpose, while others argue that there's nothing wrong with proprietary options if they encourage all users to share the costs of development. There is no free lunch, they say.

Zak Greant, a former community organizer for MySQL and open source consultant, says that the open source model works only when there's a fair exchange of work and software: "Free software and open source exist in a market (or ecosystem) where each of the participants needs to give and receive value. To understand what business models work around open source, we need to understand what each participant in the market stands to gain, what exchange they are making and what the effect is on the market."

While this approach sounds like it was drafted by an accountant, Greant points out that the gains and the exchanges may not be obvious. A freeloader who complains vociferously may be annoying, but such demands are also a stream of free bug reports. The challenge for businesses is to find viable mechanisms for aligning the interests of the users and the programmers -- a complex task of social engineering.

What follows are eight open source business models that are successful, in roughly decreasing order of purity. Most won't ever be worth more than $1 billion, but they stand a good chance of delivering useful software that solves real problems. And isn't that what open source is really about?

Open source business model 1: Work with friends
Open source business model 2: Work with colleagues
Open source business model 3: Sell documentation
Open source business model 4: Sell support
Open source business model 5: Sell hardware
Open source business model 6: Don't sell software
Open source business model 7: Sell FUD
Open source business model 8: Cripple your product

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