Profiting from open source -- without selling out

Here are 8 business models for balancing openness with revenue

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Open source business model 3: Sell documentation
While many managers and professors would personally kick the programmer who turns in code without comments, some open source companies manage to bring in revenue by selling books and manuals that explain how the code works.

This model may become very limited as paper documentation is replaced by digital instructions. For example, the iText package, a collection of Java routines for manipulating PDF files, used to be distributed under the Lesser GPL (LPGPL) and every message on the mailing list came with a reminder, "Buy the iText book." The books are still available, but version 5.0 of the software was released under the Affero General Public License (AGPL): People who wanted to upgrade needed to either release the source code to their entire application or buy a commercial license.

Open source business model 4: Sell support
Opinions vary on whether anyone can make much money selling hand-holding and deeper insights into the code, but it's the approach that most "commercial open source" vendors took in the early 2000s.

Bob Bickel, an advisor to and board member of several software companies, says there are no good examples of support companies that offer both profitability and growth. The names that first come to mind, such as Red Hat and Swing, rely heavily on proprietary enhancements such as the Red Hat Network and tcServer to entice customers to pay for the enhanced version, he says -- "it's not the support."

Support is a difficult sell because the costs seem outrageously high: $200 for a phone call sounds steep until you realize that a basic engineer needs to field two to three per day to cover the costs of salary and overhead.

Then there's the problem of competition. Red Hat's stock plunged in 2008 after Oracle started offering support at half the price. Companies may hate this competition, but customers love it. And at the end of the day, it's better to be in a competitive field where there are customers than to have a lock on an expensive product without any customers.

Knowing the poor economic history of support-funded open source, Monty Widenius' new company MariaDB won't handle support at all, instead concentrating on what he calls "custom engineering." This is a form of support with lots of extra code writing mixed in -- in other words, big-ticket contracts to enterprises that want specially tuned versions.

But others point out that support is a perfectly viable small, sustainable business. It may never offer explosive growth, but it can still pay the rent. "Support and professional services can be great businesses," says Luke Kanies, CEO of Puppet Labs. "They're just difficult businesses to get funding for, which means they're slower to build and harder to exit."

The problem, he notes, is that they can't grow without hiring more people, and these people cost money. They may be sustainable, but they won't return much -- if anything -- to the investors. "In an ideal world, we'd have thousands of small and medium open source businesses doing a healthy $10 million to $50 million in revenue and we'd consider that a huge success," Kanies says. "It's the venture capital world that doesn't consider support to be a good enough model, but that's a question of scale and exit potential, not viability."

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