Ahead of the upcoming panel discussion ‘Building an open source business‘ at FOSS Backstage run by Jos Poortvliet and I, it’s useful to review the commercial models most commonly applied by Open Source projects. These can provide a framework of understanding and common vocabulary to facilitate effective debate. Originally published on the FOSS Backstage website.
Among the hundreds of Open Source businesses operating today a handful of commercial models are reused. Erik S. Raymond described thirteen models in his seminal 1997 publication The Cathedral and the Bazaar. While these models were largely theoretical, hist list is comprehensive and insightful.
| • Cost sharing | • Free the Future |
| • Risk spreading | • Sell the Present |
| • Loss-Leader/Market Positioner | • Free the Software |
| • Widget Frosting | • Sell the Brand |
| • Open a Restaurant | • Free the Software |
| • Give Away the Recipe | • Sell the Content |
| • Accessorising |
A more scientific approach was taken by Linus Dahlander in his 2005 paper Appropriation And Appropriability In Open Source Software. The models were reduced to five, grouped into three types of offering (‘Software as a Service’ does not appear in Linus’ original table and has been added).
| Type | Sub-category | Explanation of how it works in OSS |
|---|---|---|
| Products | Licensing | Licensing the right to use the software, i.e., adding a proprietary part to the open code or allowing the customers to use the source code as they wish |
| Black-boxing | Bunching several pieces of OSS in a hardware solution | |
| Services | Consultancy | Consultancy work based on an area of expertise, be it a product that the firm releases or a community-established project |
| Education | Education based on an area of expertise, be it a product that the firm releases or a community-established project | |
| SaaS | Software as a Service, access-based pricing to software products, providing recurring revenue | |
| Support | Support | Support based on an area of expertise, be it a product that the firm releases or a community-established project |
Because most software companies rely on controlling access to the binaries and source code of their applications, and Open Source firms necessarily give away this control voluntarily, an existential question for these firms is how they capture, or appropriate, the value of their offerings. Linus summarises the range of ways Open Source businesses extract value from the software they produce.
| Category | Sub-categories | Explanation of how it works in OSS |
|---|---|---|
| Patents (IPR) | Institutional protection in terms of temporary monopoly granted to novel, useful and non-obvious innovations. Often granted to algorithm in software, but functions is also used and heavily debated | |
| Copyright (IPR) | Institutional protection that grants creators exclusive right to reproduce, prepare derivative works, distribute, perform and display the work publicly | |
| Secrecy | Keeping secrets within the firm, primarily by closing the code | |
| First-mover advantages | Network externalities, first-mover advantages | Early entry to the market, which can create advantages by acquiring superior resources and capabilities |
| Complementary assets | Getting a large user base using complementary assets such as distribution, marketing in conjunction with the innovation |
Taken together these commercial models and means of appropriation form a convenient framework for understanding the strategies of leading Open Source firms such as these.
| Company | Offering | Model | Means of appropriation |
|---|---|---|---|
| Red Hat | Service | Support | Complementary assets; First-mover advantages |
| Jenkins | Service | SaaS | Secrecy; Complementary assets |
| phpList | Service | Saas | Complementary assets |
| NGinx | Product | Licensing | Secrecy; Copyright |
| Nextcloud | Product | Licensing | Complementary assets; First-mover advantages |
| Mautic | Service | Saas | Complementary assets |
| openNMS | Service | Support | Complementary assets |
| Collabora | Service | Consultancy | First-mover advantages; Complementary assets |
For a different take on these models, consider Mozilla’s ‘A framework For Purposeful Open Source‘ – a 40 page document published last month.
So, what do you think ?