Business models for open-source software

Open-source software is widely used both as independent applications and as components in non-open-source applications. Many independent software vendors (ISVs), value-added resellers (VARs), and hardware vendors (OEMs or ODMs) use open-source frameworks, modules, and libraries inside their proprietary, for-profit products and services. From a customer’s perspective, the ability to use open technology under standard commercial terms and support is valuable. They are willing to pay for the legal protection (e.g., indemnification from copyright or patent infringement), “commercial-grade QA”, and professional support/training/consulting that are typical of commercial software, while also receiving the benefits of fine-grained control and lack of lock-in that comes with open-source.

A variety of open-source compatible business approaches have gained prominence in recent years. There are several different types of business models for making profit using open-source software (OSS) or funding the creation. Below are existing and legal commercial business approaches in context of open-source software and open-source licenses:

• Dual-licensing:
• Selling professional services:
• Selling of branded merchandise:
• Selling of certificates and trademark use:
• Selling software as a service:
• Partnership with funding organizations:
• Voluntary donations:
• Bounty driven development:
• Pre-order/crowdfunding/reverse-bounty model:
• Advertising-supported software:
• Selling of optional proprietary extensions:
• Selling of required proprietary parts of a software product:
• Re-licensing under a proprietary license:
• Obfuscation of source code:
• Delayed open-sourcing:

The acceptance of these approaches varies; some of these approaches are recommended (like selling services), others are accepted, while still others are considered controversial or even unethical by the open-source community. The underlying objective of these business models is to harness the size and international scope of the open-source community (typically more than an order of magnitude larger than what would be achieved with closed-source models) for a sustainable commercial venture.[citation needed] The vast majority of commercial open-source companies experience a conversion ratio (as measured by the percentage of downloaders who buy something) well below 1%, so low-cost and highly-scalable marketing and sales functions are key to these firms’ profitability

See also

Market segmentation, Business models

Material

• Open Source Business Models, Open Source Business Models at Open source best practices
• Seven Open Source Business Strategies for Commercial Advantage, John C. Koenig (2004) PDF
• Free-Libre / Open Source Software (FLOSS) is Commercial Software, David A. Wheeler
• Selling Free Software, Free Software Foundation
• The Emerging Economic Paradigm of Open Source - Bruce Perens (3 October 2005)
• Economic aspects and business models of Free Software - Free Technology Academy (2010)