World Library  
Flag as Inappropriate
Email this Article

Business models for open source software

Article Id: WHEBN0016982989
Reproduction Date:

Title: Business models for open source software  
Author: World Heritage Encyclopedia
Language: English
Subject: Open core, List of commercial open-source applications and services, Adware, Software industry, Open-source economics
Publisher: World Heritage Encyclopedia

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.[1] From the customer's perspective, the ability to use open-source technology under standard commercial terms and support is valuable. Customers 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 come with open source.


Unlike proprietary off-the-shelf software, which comes with restrictive copyright licenses, open source software can be given away for no charge. This means that its creators cannot require each user to pay a license fee to fund development. Instead, a number of alternative models for funding its development have emerged.

Software can be developed as a consulting project for one or more customers. The customers pay to direct the developers' efforts: to have bugs prioritized and fixed or features added. Companies or independent consultants can also charge for training, installation, technical support, or customization of the software.

Another approach to funding is to provide the software freely, but sell licenses to proprietary add-ons such as data libraries. For instance, an open-source CAD program may require parts libraries which are sold on a subscription or flat-fee basis. Open-source software can also promote the sale of specialized hardware that it interoperates with. Some example cases are the Asterisk telephony software developed by a manufacturer of PC telephony hardware Digium, or the Robot Operating System (ROS) robotics platform by Willow Garage and Stanford AI Labs.

Many open source software projects have begun as research projects within universities, as personal projects of students or professors, or as tools to aid scientific research. The influence of universities and research institutions on open source shows in the number of projects named after their host institutions, such as BSD Unix, CMU Common Lisp, or the NCSA HTTPd which evolved into Apache.

Companies may employ developers to work on open-source projects that are useful to the company's infrastructure: in this case, it is developed not as a product to be sold but as a sort of shared public utility. A local bug-fix or solution to a software problem, written by a developer either at a company's request or to make his/her own job easier, can be released as an open-source contribution without costing the company anything.[2] A larger project such as the Linux kernel may have contributors from dozens of companies which use and depend upon it, as well as hobbyist and research developers.

Also, there exists stipends to support the development of open source software like Google's Summer of Code founded 2005.[3]

A new funding approach for open source projects is Kickstarter, Indiegogo, or Bountysource.[4]


Open-source software can be sold and used in general commercially. Also, commercial open-source applications are a part of the software industry for some time.[1][5] Despite that, except for Red Hat and VA Software, no other pure open-source company has gone public on the major stock markets. While commercialization or funding of open-source software projects is possible, it is considered challenging.[6]

Since several open-source licenses stipulate that authors of derivative works must distribute them under an open-source (copyleft) license, ISVs and VARs have to develop new legal and technical mechanisms to foster their commercial goals,[7] as many traditional mechanisms are not directly applicable anymore.

Traditional business wisdom suggests that a company's methods, assets, and intellectual properties should remain concealed from market competitors as long as possible to maximize the profitable commercialization time of a new product. Open-source software development minimizes the effectiveness of this tactic; development of the product is usually performed in view of the public, allowing competing projects or clones to incorporate new features or improvements as soon as the public code repository is updated, as permitted by most open-source licenses. Also in the computer hardware domain, a hardware producer who provides free and open software drivers reveals the knowledge about hardware implementation details to competitors, who might use this knowledge to catch up.

Therefore, there is considerable debate about whether vendors can make a sustainable business from an open-source strategy. In terms of a traditional software company, this is probably the wrong question to ask. Looking at the landscape of open source applications, many of the larger ones are sponsored (and largely written) by system companies such as IBM who may not have an objective of software license revenues. Other software companies, such as Oracle and Google, have sponsored or delivered significant open-source code bases. These firms' motivation tends to be more strategic, in the sense that they are trying to change the rules of a marketplace and reduce the influence of vendors such as Microsoft. Smaller vendors doing open-source work may be less concerned with immediate revenue growth than developing a large and loyal community, which may be the basis of a corporate valuation at merger time.

A variety of open-source compatible business approaches have gained prominence in recent years; notable examples include dual licensing, software as a service, not charging for the software but for services, freemium, donation-based funding, and crowdfunding (see the Approaches section, below).

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. 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.


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.[7] 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.


Dual licensing offers the software under an open-source license but also under separate proprietary license terms. The proprietary version can be sold to finance the continued development of the free open-source version.[8] Customers can be attracted to a no-cost and open-source edition, then be part of an up-sell to a commercial enterprise edition. Further, customers will learn of open-source software in a company's portfolio and offerings but generate business in other proprietary products and solutions, including commercial technical support contracts and services. A popular example is Oracle's MySQL database which is dual-licensed under a commercial proprietary license as also under the GPLv2.[9] Another example is the Sleepycat License.

Selling professional services

The financial return of costs on open-source software can also come from selling services, such as training, technical support, or consulting, rather than the software itself.[10][11]

Another possibility is offering open-source software in source code form only, while providing executable binaries to paying customers only, offering the commercial service of compiling and packaging of the software. Also, providing goods like physical installation media (e.g., DVDs) can be a commercial service.

Open-source companies using this business model successfully are for instance RedHat and IBM;[12] a more specialized example is that of Revolution Analytics.

Selling of branded merchandise

Some open-source organizations such as the Mozilla Foundation[13] and the Wikimedia Foundation[14] sell branded merchandise articles like t-shirts and coffee mugs. This can be also seen as an additional service provided to the user community.

Selling of certificates and trademark use

Another financing approach is innovated by Moodle, an open source learning management system and community platform.[15][16] The business model revolves around a network of commercial partners[17] who are certificated and therefore authorised to use the Moodle name and logo,[18] and in turn provide a proportion of revenue to the Moodle Trust, which in turn funds core development.[19]

Selling software as a service

Selling subscriptions for online accounts and server access to customers is a way of making profit based on open-source software. Also, combining desktop software with a service, called software plus services. Providing cloud computing services or software as a service (SaaS) without the release of the open-source software itself, neither in binary nor in source form, conforms with most open-source licenses (with exception of the AGPL).

Because of its lack of software freedoms, Richard Stallman calls SaaS "inherently bad" while acknowledging its legality.[20][21] The FSF called the server-side use-case without release of the source-code the ASP loophole in the GPLv2 and encourage therefore the use of the Affero General Public License which plugged this hole in 2002.[22][23] In 2007 the FSF contemplated including the special provision of AGPLv1 into GPLv3 but ultimately decided to keep the licenses separate.[24]

Partnership with funding organizations

Other financial situations include partnerships with other companies. grants or stipends, like Google's Summer of Code initiative founded in 2005.[3]

Voluntary donations

Also, there were experiments by Independent developers to fund development of open-source software [26] Internet micro-payments systems like PayPal, flattr, and Bitcoin help this approach.

Larger donation campaigns also exist. In 2004 the Mozilla Foundation carried out a fundraising campaign to support the launch of the Firefox 1.0 web browser. It placed a two-page ad in the December 16 edition of the New York Times listing the names of the thousands who had donated.[27][28]

Bounty driven development

The users of a particular software artifact may come together and pool money into an open-source bounty for the implementation of a desired feature or functionality. Offering bounties as funding has existed for some time. For instance, Bountysource is a web platform which has offered this funding model for open source software since 2003.

Another bounty source is companies or foundations that set up bounty programs for implemented features or bugfixes in open-source software relevant to them. For instance, Mozilla has been paying and funding freelance open-source programmers for security bug hunting and fixing since 2004.[29][30][31]

Pre-order/crowdfunding/reverse-bounty model

A newer funding opportunity for open-source software projects is Kickstarter,[32] Indiegogo,[33] or Bountysource[4] (see also comparison of crowd funding services). An example is a successfully funded Indiegogo campaign of Australian programmer Timothy Arceri, who offered for $2,500 to implement in two weeks an OpenGL 4.3 extension for the Mesa library.[33] Arceri delivered the OpenGL extension code, which got merged into Mesa, and continued later his Mesa work with successive crowdfunding campaigns.[34]

Advertising-supported software

In order to commercialize FOSS, many companies (including [36] and $23 million in 2009.[37]

Selling of optional proprietary extensions

Some companies sell proprietary but optional extensions, modules, plugins or add-ons to an open-source software product. This can be a "license conform" approach with many open-source licenses if done technically sufficiently carefully. For instance, mixing proprietary code and open-source licensed code in statically linked libraries[38] or compiling all source code together in a software product might violate open-source licenses, while keeping them separated by interfaces and dynamic-link libraries might often adhere to license conform.

This approach is a variant of the freemium business model. The proprietary software may be intended to let customers get more value out of their data, infrastructure, or platform, e.g., operate their infrastructure/platform more effectively and efficiently, manage it better, or secure it better. Examples include the IBM proprietary Linux software, where IBM contributes to the Linux open-source ecosystem, but it builds and delivers (to IBM’s paying customers) database software, middleware, and other software that runs on top of the open-source core. Other examples of proprietary products built on open-source software include Red Hat Enterprise Linux and Cloudera's Apache Hadoop-based software. Some companies appear to re-invest a portion of their financial profits from the sale of proprietary software back into the open source infrastructure.[39]

Some companies, such as Digium, sell proprietary but optional digital electronics hardware controlled by an open-source software product.[40]

Selling of required proprietary parts of a software product

A variant of the approach above is the keeping of required data content (for instance a video game's audio, graphic, and other art assets) of a software product proprietary while making the software's source code open-source. While this approach is completely legitimate and compatible with most open-source licenses, customers have to buy the content to have a complete and working software product.[41] Restrictive licenses can then be applied on the content, which prevents the redistribution or re-selling of the complete software product. An example is Kot-in-Action Creative Artel video game Steel Storm, where the engine is licensed as GPLv2 while the artwork is CC-BY-NC-SA 3.0 licensed.[42] Doing so conforms with the FSF and Richard Stallman, who stated that for art or entertainment the software freedoms are not required or important.[43]

The similar product bundling of an open-source software product with a proprietary hardware part is called tivoization and legal with most open-source licenses except GPLv3, which explicitly prohibits this use-case.[44]

Re-licensing under a proprietary license

If a software product uses only own software and open-source software under a permissive free software licence, a company can re-license the resulting software product under a proprietary license and sell the product without the source code or software freedoms. For instance, Apple Inc. is an avid user of this approach by using source code and software from open-source projects. For example, the BSD Unix operating system kernel (under the BSD license) was used in Apple's Mac PCs that were sold as proprietary products.[45]

Obfuscation of source code

An approach to allow commercialization under some open-source licenses while still protecting crucial business secrets, intellectual property and technical know-how is obfuscation of source code. This approach was used in several cases, for instance by Nvidia in their open-source graphic card device drivers.[46] This practise is used to get the open-source-friendly propaganda without bearing the inconveniences. There has been debate in the free-software/open-source community on whether it is illegal to skirt copyleft software licenses by releasing source code in obfuscated form, such as in cases in which the author is less willing to make the source code available. The general consensus was that while unethical, it was not considered a violation.

The Free Software Foundation, on the other hand, is clearly against this practice.[47] The GNU General Public License since version 2 has defined "source code" as "the preferred form of the work for making modifications to it." This is intended to prevent the release of obfuscated source code.[48]

Delayed open-sourcing

Some companies provide the latest version available only to paying customers. A vendor forks a non-copyleft software project then adds closed-source additions to it and sells the resulting software. After a fixed time period the patches are released back upstream under the same license as the rest of the codebase. This business model is called version lagging or time delaying.[39][49]

An extreme variant of "time-delayed open-sourcing" is a business practice popularized by Id Software[50][51] and 3D Realms,[52][53] which released several software products under a free software license after a long proprietary commercialization time period and the return of investment was achieved. The motivation of companies following this practice of releasing the source code when a software reaches the commercial end-of-life, is to prevent that their software becomes unsupported Abandonware or even get lost due to digital obsolescence.[54] This gives the user communities the chance to continue development and support of the software product themselves as an open-source software project.[55] Many examples from the video game domain are in the list of commercial video games with later released source code.

Popular non-game software examples are the LibreOffice.

This approach works only with own source code or with software under specific open-source licenses, namely the permissive licences, as there is no copy-left license available which allows the opening of source code in a defined delayed time-window after distributing or selling of a software product.

FOSS and economy

According to Yochai Benkler, the Berkman Professor for Entrepreneurial Legal Studies at Harvard Law School, free software is the most visible part of a new economy of commons-based peer production of information, knowledge, and culture. As examples, he cites a variety of FOSS projects, including both free software and open source.[59]

This new economy is already under development. In order to commercialize FOSS, many companies, Google being the most successful, are moving towards an economic model of advertising-supported software. In such a model, the only way to increase revenue is to make the advertising more valuable. Facebook has recently come under fire for using novel user tracking methods to accomplish this.[60]

This new economy is not without alternatives. Apple's App Stores have proven very popular with both users and developers. The Free Software Foundation considers Apple's App Stores to be incompatible with its GPL and complained that Apple was infringing on the GPL with its iTunes terms of use. Rather than change those terms to comply with the GPL, Apple removed the GPL-licensed products from its App Stores.[61] The authors of VLC, one of the GPL-licensed programs at the center of those complaints, recently began the process to switch from the GPL to the LGPL.[62]


Much of the Internet runs on open-source software tools and utilities such as Linux, Apache, MySQL, and PHP, known as the LAMP stack for web servers. Using open source appeals to software developers for three main reasons: low or no cost, access to source code they can tailor themselves, and a shared community that ensures a generally robust code base, with quick fixes for new issues.

Despite doing much business in proprietary software, some companies like Oracle Corporation and IBM participated in developing free and open-source software to deter from monopolies and take a portion of market share for themselves. See Commercial open-source applications for the list of current commercial open-source offerings. Netscape's actions were an example of this, and thus Mozilla Firefox has become more popular, getting market share from Internet Explorer.[63]

See also

Further reading

  • 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)
  • FOSS Business Models in Developing countries - compilation of material and sources (2011, archived)
  • From Open Source to long-term sustainability: Review of Business Models and Case studies Chang, Victor, Mills, Hugo and Newhouse, Steven (2007)
  • The Business and Economics of Linux and Open Source (2003) by Martin Fink (ISBN 0-13-047677-3)
  • The Five Open Source Business Models on
  • collection of articles
  • platform to share and develop innovative Open Business ideas (2007, archived)
  • Open source business models, Chapter 2 in Succeeding with Open Source, Addison-Wesley, 242 pp. by Bernard Golden (2005)
  • Wikinomics: How Mass Collaboration Changes Everything by Don Tapscott and Anthony D. Williams


  1. ^ a b
  2. ^
  3. ^ a b
  4. ^ a b
  5. ^
  6. ^
  7. ^ a b
  8. ^
  9. ^
  10. ^ FOSS in the Enterprise: To Pay or Not to Pay? on By Jack M. Germain (Nov 5, 2013)
  11. ^ 6 Reasons to Pay for Open Source Software By Paul Rubens on CIO "Open source software is free to download, modify and use, but that doesn't mean it's not worth paying for sometimes. If you're using open source software in a commercial, enterprise capacity, here are six reasons why you should pay for free software." (Feb 13, 2013)
  12. ^
  13. ^ Mozilla Foundation Open Letter Orders Unofficial Mozilla Merchandise Sellers to Stop, Legal Action Hinted (March 16, 2004)
  14. ^ The Wikimedia Shop, The official online store for WorldHeritage and its sister projects.
  15. ^ Moodle will always be an open source project Posted 06 Oct 2014 by Samantha Gartner on
  16. ^ Moodle: a case study in sustainability on by Martin Dougiamas, Managing Director, Moodle Pty Ltd on 5 June 2007
  17. ^ How do the Moodle Partners work? on (accessed May 31, 2015)
  18. ^ Moodle Trademark Policy on (accessed May 31, 2015)
  19. ^ Blackboard's Open-Source Pivot on by Steve Kolowich (March 27, 2012)
  20. ^
  21. ^
  22. ^ List of free-software licences on the FSF website: “We recommend that developers consider using the GNU AGPL for any software which will commonly be run over a network”.
  23. ^
  24. ^ Why did you decide to write the GNU Affero GPLv3 as a separate license? on
  25. ^
  26. ^ Donation System on
  27. ^
  28. ^
  29. ^
  30. ^
  31. ^
  32. ^
  33. ^ a b
  34. ^ Crowd-Funding Is Back For Another Mesa Extension by Michael Larabel on Phoronix (12 November 2013)
  35. ^
  36. ^
  37. ^
  38. ^
  39. ^ a b Mike Olson (co-founder and CEO of Sleepycat Software and Cloudera), lecture to Stanford University entrepreneurship students, 2013.11.13
  40. ^ Twenty Years of Experience in Developing Software in Silicon Valley, Kim Polese lecture to Stanford University engineering entrepreneurship students, 2005.11.09
  41. ^
  42. ^
  43. ^
  44. ^
  45. ^
  46. ^ NVIDIA Drops Their Open-Source Driver, Refers Users To VESA Driver on phoronix The xf86-video-nv driver has been around that provides very basic 2D acceleration and a crippled set of features besides that (no proper RandR 1.2/1.3, KMS, power management, etc.) while the code has also been obfuscated to try to protect their intellectual property.
  47. ^ Obfuscated “source code” is not real source code and does not count as source code. -
  48. ^
  49. ^ Phoronix - Towards A Real Business Model For Open-Source Software on
  50. ^ id Software releases Doom 3 source code on (3 November 2011)
  51. ^ id Software makes iPhone Wolfenstein open source by Spanner Spencer (March 2009)
  52. ^ Shadow Warrior Source Code Released 3D Realms (1. April 2005)
  53. ^ SOURCE CODE Selected games have had their source code released by us. These games are: Duke Nukem 3D, Shadow Warrior, Rise of the Triad, Word Whiz, Beyond the Titanic, Supernova, & Kroz. You can obtain these from our downloads page.
  54. ^
  55. ^
  56. ^
  57. ^
  58. ^
  59. ^
  60. ^
  61. ^
  62. ^
  63. ^ Netscape Navigator#The fall of Netscape
This article was sourced from Creative Commons Attribution-ShareAlike License; additional terms may apply. World Heritage Encyclopedia content is assembled from numerous content providers, Open Access Publishing, and in compliance with The Fair Access to Science and Technology Research Act (FASTR), Wikimedia Foundation, Inc., Public Library of Science, The Encyclopedia of Life, Open Book Publishers (OBP), PubMed, U.S. National Library of Medicine, National Center for Biotechnology Information, U.S. National Library of Medicine, National Institutes of Health (NIH), U.S. Department of Health & Human Services, and, which sources content from all federal, state, local, tribal, and territorial government publication portals (.gov, .mil, .edu). Funding for and content contributors is made possible from the U.S. Congress, E-Government Act of 2002.
Crowd sourced content that is contributed to World Heritage Encyclopedia is peer reviewed and edited by our editorial staff to ensure quality scholarly research articles.
By using this site, you agree to the Terms of Use and Privacy Policy. World Heritage Encyclopedia™ is a registered trademark of the World Public Library Association, a non-profit organization.

Copyright © World Library Foundation. All rights reserved. eBooks from Hawaii eBook Library are sponsored by the World Library Foundation,
a 501c(4) Member's Support Non-Profit Organization, and is NOT affiliated with any governmental agency or department.