Questioning open-core licensing for open source software

While not perfect, open-core licensing is a sustainable model for open source vendors, their customers, and yes, their VCs

Returning from OSBC last week, Gartner analyst Brian Prentice writes a post questioning the conventional wisdom of open-core licensing. Prentice argues that open-core licensing provides significantly less value to the customer than it does to the vendor or the vendor's venture capital (VC) backers. I agree with his conclusion, but don't think that vendors or VCs should shy away from open-core licensing as a result.

Prentice writes: "The VC communities' interest in open source, as I see it, is based on the view that a project's associated community will lower development and sales costs. That allows them to build an attractive proposition when selling the company."

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Let's begin by looking at single-vendor-controlled projects. These are the most common examples of successful -- in terms of revenue potential -- open source projects. If VCs still believe that a vendor will benefit from lower development costs as a result of selecting an open source development approach, they need to wake up.

Look at virtually any single-vendor-controlled open source project and you'll note that the vendor severely limits contributions from third parties. Among other reasons, ownership of the copyright and being able to track pedigree of the code contributions are key justifications for limiting outsider contributions. These are necessary steps for offering a commercially licensed product with confidence.

Single-vendor-controlled open source projects do benefit from testing, documentation, and translations from the user community, but these expenses pale in comparison to the actual development costs. As such, I'd argue that lower development expenditures are not really a reason for VCs to invest in an open source project.

I posit that lower selling costs are possible through an open-core-based open source distribution model. However, Prentice calls into question the value of open-core distribution:

The first is that open-core is a largely a retread of tired, old [small business] packaging strategies that have almost universally failed in the market. Businesses don't blindly jump into a free open source offering and then upgrade to a full-cost, proprietary product like it was some stimulus-response behavior. From my experience, they assess these products, from Day One, based on the full version. That eliminates any sales benefit from the open source component of the overall strategy, which, in turn, makes these open-core vendors just like any other small software provider slugging it out in a crowded market space.

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