Guest post by InfoWorld’s Peter Wayner discusses the difficulties of transforming an open source project into a profitable endeavor, offering 8 business models for balancing openness with revenue. ‘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,’ Wayner writes. ‘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.’ From selling support, to selling documentaiton, to selling FUD, each business model offers a unique opportunity to strike a balance between purity and profit.
Geez, in the article are quiet a few dishonest business models and the topic was “… without selling out”.
I think the point to take home is, don’t sell the software, sell a product or service which includes the software (hardware, support for the software, consulting, custom design based on the software, etc.).
Maybe the article is meaning to say,
1. If lines of codes makes you feel rich, be 100% open.
2. If money makes you feel rich, you could try(as Lennie said) and sell service/hardware or pick up one of the sort-of ‘dishonest’ business models
And is it just me or there is an “I” missing at the start? – Its fixed now.
Edited 2010-06-29 07:50 UTC
It’s really hard to make money on open source via selling software… for a very simple reason.
Let’s say the cost to build a piece of software is 1 billion dollars. If you go proprietary, you can get an investment of 1 billion, build it, and then sell it to 10 million people for $100. That $100 is small. The investors make their money back and life goes on.
Now imagine the open source sale. Once it is built, the software is freely available. So you’re not going to get $100 from 10 million users. So who is going to foot the initial 1 billion? Investors aren’t going to do it. Few parties are capable of funding that. Maybe government or large industries with a very specific need.
So it’s very hard to sell open source software directly.
Open source is great for infrastructure and plumbing. But in terms of making money… you have to sell something. You can sell solutions.
I used to use Ubuntu, and I stopped using it because updates broke my system a few times, I had to tinker to get things working… I’d pay for a solution if Windows wasn’t doing its job.
You can sell devices that use linux as a solution.
You can sell support to large organization who want to use your software.
In general though, why do you perceive it to be selling out? Life needs money. If you don’t value your work enough to charge for it… it’s free. Good for you! Then don’t worry about making money.
Running a business is hard. Making a business sustainable is even harder. If I could charge for each install of my software, I would gladly do it as it builds a sustainable business.
Two problems with your opinions. How many pieces of software does it actually cost a billion to develop? Windows? At that size, you are much better off with a community project. That way, everyone shares in the cost and the risks approach zero. Second, the problem with software is that it is inherently worthless. The only cost is man hours. And no matter how good your software is, there are people out there willing to work on something for free. Just for the hell of it. Which pushes the value or your investment towards zero, and therefore a bad investment. For example, Nero sells cd burning software. And for a while, they were at the top. But now I can get CD Burner XP for Windows and K3B for Linux, so why would I ever buy Nero?
You can only get community development if there is a community of programmers that are interested in offering their free time.
We have seen countless cases where the community wasn’t interested or didn’t provide an adequate amount of labor.
Some businesses simply target too small of a market, specializing in software that nobody is going to write for the fun of it. So what to do? Sit on your ass and wait for the magical fairies and elves to write it, or actually hire developers? Problem with morons like Stallman is that he has never actually worked in his life, nor has he actually ever produced anything. He has never actually walked the walk.
Just look at Sourceforge.net, the graveyard of thousands of interesting ideas, that basically were never completed, some never even developed, and others that died because the dev. graduated from school and got a job, or they just lost interest. A collection of poorly tested and poorly documented projects.
OSS has been, and is a great idea for educational purposes. But at some point things simply need to get done, and for that the idea of relying solely on some free open software is just childishness.
Currently we have a client that is purchasing, or expected to, an application that will cost them around $50k. It is an application written by a company that probably has no more than 100 customers…worldwide. Since Stallman hasn’t gotten his fat ass to actually writing something, I guess the client actually has to pay some adults who, quite shockingly, wish to get paid so they can have homes.
Cannot be true. Lead the production of the userland toolchain that Linus used to make his linux kernel. The userland tools thus produced were ahead of his time.
Not to say that it was saviour of the world, but it was an essential and quite important one. Despite “Userland is easy”.
“Problem with people who don’t even study their history is that they never actually ever produced anything. They have never actually walked the walk.” — heh.
Now for my 2 cents, it seems that education itself is a free software movement — not just open source — since unimpeded propagation and infinite freedom of derivation are the norm. It cannot be open source or else Lagrange will not be able to reformulate classical mechanics to create the idea of action that is so pervasive in Quantum Mechanics. If Science had been proprietary, then Einstein, who was played down by the people of his time, would never have had the ability to read Poincare’s comments and develop relativity, simply because he was denied access to the forefronts of his time by people too stupid to realise his brilliance.
And note that Stallman simply formalised the existing norm of his time, in defiance of the stupid practices the companies were doing. So there.
Software development is more than paid researchers working with existing information.
It’s also software engineering, as in engineering custom solutions for individuals and businesses. We don’t expect chemical engineering firms to publish trade secrets yet Stallman and his followers expect every developer to publish their source even if it means undercutting their own paycheck.
Exactly.
Anything that would be actually worthy of propagation of science is either
1) Done as part of the university system and thus probably open source anyways.
2) Patented and the science is shared… you just have to pay your license.
Can you have a trade secret? Possibly. But that’s generally not the case… especially with pure science. They might keep some tuning parameters proprietary though.
I’ve yet to work on something that I would consider to be worthy of science. Worked on many patented products though
I’m more on the engineering side and I like to provide solutions to people and customers. And you’re darn right, I don’t like to work for free 
More importantly though… the advancement of knowledge is not some kind of ultimate end goal that trumps all other arguments… as some people make it out to be. “oh it advances science Therefore it must be done!”
It is one of my goals. But so is having a decent job for the rest of my life… or more generally… a stable economic system.
So if I start a restaurant and I don’t give out my secret recipe then I’m selling out?????
What if it means that some big chain can just take my work and then undercut me?
The software world really needs to cleanse itself of this ridiculous notion that keeping the secret sauce is somehow unethical.
Stallman’s warped morality is the problem, not open or closed source.
I see some problems with that analogy.
You can find out what’s in a secret sauce by taste or (more extreme) through chemical analysis. If your sales as a cook are only based on the fact that your recipes are kept secret, you’re living on the edge of a knife. A restaurant’s sales are based on other factors.
There are restaurants where people will gladly explain you how things are done. The result ? You’ll try it once or twice, and then go back to the restaurant because it’s way better when you’re not the one doing the work, because their knowhow is better, because of the ambiance, because you think that such talented guys deserve their money, because they always come with new recipes ideas…
Plus, contrary to the kitchen world, the software world is protected by copyright. Until now, each known incident where a company tried to steal open-source work without contributing to it ended up badly for the stealing company, which generally had to open its source whether it likes it or not.
Edited 2010-06-29 07:50 UTC
+1
Spot on
Last Saturday I was at my local restaurant and ordered a steak. By Jerkface’s analogy, I don’t know how to cook my own steak and chips, but clearly this isn’t true as steaks are one of the easiest meals to cool.
The fact is, I went there because of their services, not their “secret recipes”
Edited 2010-06-29 09:32 UTC
Well, you didn’t give your advice about this
which I think is quite true except that I wouldn’t have written “Stallman’s warped morality”. His vision of everything software is free open software is not the most realistic thing I’ve ever heard. Close to no commercial software company would exist then and I would be without a job (which will be the case in a few days anyway) or change careers to being a carpenter for instance.
Software seems to be getting more and more complicated and requiring more and more time/workforce at a pace that’s faster than the growth of the feature set. I’m not sure the number of people with programming skills and their willingness to invest time and effort in open projects will ever allow us to reach that “promised land” of software.
I did not comment because I have no unilateral opinion on this. I partly agree and partly disagree.
It would be better if everything was open-sourced, in my opinion, but I won’t run after closed-source software authors armed with an axe and whispering “little pigs, little pigs…”. It’s their choice as a developer, and I’m forced to accept it as an user if I like the software.
Open-source does not mean that you have to distribute software for free and that it has to be exclusively developed by the community. It just means that you can ask for the software’s source when you buy/download it. Whether you choose to let your idealistic geek customers fix bugs and security flaws in your soft for free is your choice. Same for the more extreme kinds of open management (having external people work on the design) that we can see in free software.
Edited 2010-06-29 10:07 UTC
This is true, but it’s equally true in reverse.
The problem here is NT_Jerkface is very much the “anti-Stallman” (for want a better term). He believes that everything should be closed and that big businesses can do no wrong. So while he has a point with specific regards to Stallman, I can’t help but see his stance being too far in the opposite direction.
Let me explain why:
Many software developers have had to realise that it isn’t always profitable to sell the product. As software becomes infinitely more complex and integrated, many products that previously was new and consumers would happily pay for, have since become expected features which cannot be sold as stand-alone products.
So to say that closed-source model where your product sells off the back of it’s “secret ingredients” (as Jerkface did state) is the better model is just as blind sited as Stallman’s “everything should be open”.
The truth is, the real world needs a careful balance of both in order to function.
And going back to the restaurant example, the biggest IT companies are those that don’t just hold on to their secret recipes (though many do this as well) but actually offer a fully range of services that dinners / customers want or need.
This is why I get sick of open source vs closed source debates. At the end of the day there is no debate as neither is “better”. Instead, some just work better for specific scenarios (eg I very much doubt Google Android would be as big as it is if it was 100% closed, however the iPhone has had a great deal of success for being closed).
Edited 2010-06-29 10:27 UTC
If neither is better, why then are we seeing such a big portion of the software world moving towards open source solutions constantly?
That’s a lie. I have no problem with open source, I have a problem with Stallman’s your source is my right ideology. Open source should be viewed as a hobby that some companies have been able to turn into a business. It should not be viewed as some holy war.
I’ve also criticized many big businesses so try to make a factual statement next time.
Making stuff up again. I’ve stated numerous times that the Red Hat model can work but it’s unrealistic to suggest it as a model for most software types.
The biggest IT companies make their money from proprietary software. MS, Google and Apple all fund various open source projects but their profits come from proprietary products and services.
* Apple make most of their money from hardware.
* Google make their money from advertising
* Oracle make most of their money from support
…need i go on.
So like I said, while there is money to be made from software sales (as Microsoft has managed), the majority of the IT giants make their money from a multitude of services attached to the software.
@ Jerk Face
Your restaurant analogy is broken. If you don’t give away your recipes then you are not selling out. Selling out would be to sell recipe royalties on per meal basis for people to cook at home, and then patent, and then sue those who cook similar meal at their home (or their restaurant) using similar ingredients. But this analogy of mine isn’t correct either, proprietary software is even worse than that.
As for Red Hat model, it works for any kind of software that has value. It works for any kind of software which is advanced and mission-critical enough that paying money is justified. And price must be fair. It is that simple.
Basically only major vendor who makes money exclusively from closed source software is Microsoft. And they can only do that because they have (illegally gained) monopoly on desktop OS and Office productivity software. They have power over desktop hardware manufacturers and that is only thing that allows them to make money from software (Google for Joachim Kempin). If their monopoly were be broken tomorrow and HPs and Dells of the world were to stop pre-loading Windows, Microsoft would be dead and nobody else could make money from desktop OS. It is a commodity and it doesn’t make sense to pay for desktop OS.
As for your irrational hate towards Stallman, you are so hilariously ignorant that it is not even funny. I initialy meant to write where your Stallman hate disconnects with reality, but I gave up because it does not even connect. It is just irrational hate. You don’t get GPL, you don’t get Stallman and you don’t get open source or free software. For that matter, you don’t get even proprietary software and how business works. I really can’t tell if you are a Luddite or a paid astroturfer.
Edited 2010-07-01 18:22 UTC
There are limits to what chemical analysis can achieve (see fact that the Coke recipe is still a secret) but more importantly the point here is that a trade secret can give a business an advantage. That’s a fact and one that GPL advocates seem to be in strange denial of.
That isn’t the business threat from open source. The threat is in limitless cloning. Once you release your work under the GPL copyright law is not going to stop anyone one from giving out free clones of your software.
You’re massively missing the point.
Whole point of the open source model is that you’re not making money off the application itself but rather the services attached (be it hardware, support, or whatever). Thus it doesn’t make much difference if there’s free clones or not as said clones wont have the services you’re selling (at least not without them spending the same on setting up the services from scratch as you had done)
How am I missing a point that I already reiterated? I have stated numerous times that those business models can work but only for a limited range of software.
Let’s take a game like Crysis 2.
1. Can you sell support? No, people will not pay for video game support, especially when there is always plenty of free help online.
2. Can you sell hardware? No, Crytek is a software company that wants to sell games for the pc and consoles. Tying to hardware doesn’t work here.
3. Can you sell advertising? No, any GPLd version of Crysis 2 would have the ads ripped out. Even if the ads weren’t ripped you would have a huge economic problem given ad rates. Software revenue through advertising is pretty much junk unless you do it on a massive scale ala Google.
Anyone who thinks that all software can be GPLd hasn’t spent enough time analyzing the economics of software.
A stupid question : in the services area, can’t Crytek make money by having a contract with NVidia, Intel, or AMD which explicitly states “you make resource hogs, you optimize specifically for our hardware, you put our logo on the box, and we give you money” ?
But I’ve already proven that most of the IT giants earn their biggest wage from services outside of software sales.
So you charge for online play via a subscription based service.
This way you not only generate a regular monthly income, but you also reduce the impact of piracy as even cracked copies would still need a subscription.
In fact, this is a business model that’s served a number of game publishers well.
The problem is not that an open source strategy cannot make money, the problem is that people like you cannot see it doing so. It requires a little creative thinking. And oh, by ‘people like you’ I mean people working as developers in companies using the conventional model, where software is sold and source is kept closed.
So let’s answer your question there, how can a game like Crysis make by being opensource? Here’s how:
They can utilize the Qt method. They can dual-license their game engine under the GPL and a commercial license. However they still keep their IP (scripts, artwork, music, etc) copyrighted. So the commercial game can only be disturbuted and sold by them. Companies can use their game engine to create games but they must release their whole game under the GPL (namely the scripts which make the actual user experience possible as single or multiplayer levels). However if they wish to keep their game proprietary they must use the commercial license for which they have to pay Crytek (the developers of Crysis).
And that’s just one aspect, they can still make OSS developer tools/libraries which can be used freely, also have proprietary extensions which must be brought from them. And there is the commercial support which they would be best qualfied to offer. Or heck, just have closed dev tools. Open sourcing the engine would still be a great ‘gateway drug’.
So in other words, don’t think that software is the only thing to be sold there, there is IP, there is support, there is hardware (which is not feasible in this case), etc. All you need is a little bit of imagination. And look around you, a lot of the industries you take for granted would have been scoffed at by traditional businesses (for their time).
‘What? Make money by managing other’s money, i.e. banking, stock brokerage, etc….you’ve GOT to be kidding me!’
Edited 2010-07-01 16:05 UTC
This saying still holds true for many things in life. While I support open source software, I am not naive enough to expect all software to be free. There can be real benefits from opening up your software. There can also be real drawbacks to NOT opening up your software. If you are not the entrenched market leader in your area, open sourcing your software can be a good way to gain adoption. I also feel that open source tends to allow companies to make money without them becoming glutinous.