Popular business models of Free and Open source software

There’s a variety of open-source compatible business approaches; notable examples include dual licensing, software as a service, not charging for the software but for services, freemium, donation-based funding, and crowdfunding.

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

Dual licensing offers not only 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. 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. Another example is the Sleepycat License. Flask developer Armin Ronacher stated that the AGPLv3 was a "terrible success" as "vehicle for dual commercial licensing" and noted that MongoDB, RethinkDB, OpenERP, SugarCRM as well as WURFL utilizing the license for this purpose.

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.

Another possibility is offering open-source software in source code form only, while providing executable binaries to paying customers only, offering the commercial service ofcompiling 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; a more specialized example is that of Revolution Analytics.

Selling of branded merchandise

Some open-source organizations such as the Mozilla Foundation and the Wikimedia Foundation 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. The business model revolves around a network of commercial partners who are certificated and therefore authorised to use the Moodle name and logo, and in turn provide a proportion of revenue to the Moodle Trust, which funds core development.

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. 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. In 2007 the FSF contemplated including the special provision of AGPLv1 into GPLv3 but ultimately decided to keep the licenses separate.

Partnership with funding organizations

Other financial situations include partnerships with other companies. Governments, universities, companies, and non-governmental organizations may develop internally or hire a contractor for custom in-house modifications, then release that code under an open-source license. Some organizations support the development of open-source software bygrants or stipends, like Google's Summer of Code initiative founded in 2005.

Voluntary donations

Also, there were experiments by Independent developers to fund development of open-source software donation-driven directly by the users, e.g., with the Illumination Software Creator in 2012. SourceForge, for example, allows users to donate money to the projects it hosts that opt to accept donations. Internet micro-payments systems likePayPal, 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. 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. 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.

Pre-order/crowdfunding/reverse-bounty model

A newer funding opportunity for open-source software projects is crowdfunding, which shares similarities with the pre-order or Praenumeration business model, as well as the reverse bounty model. It is typically organized over web platforms like Kickstarter, Indiegogo, or Bountysource (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. Arceri delivered the OpenGL extension code, which got merged into Mesa, and continued later his Mesa work with successive crowdfunding campaigns.

Advertising-supported software

In order to commercialize FOSS, many companies (including Google, Mozilla, and Canonical) have moved towards an economic model of advertising-supported software. For instance, the open-source application AdBlock Plus gets paid by Google for letting whitelisted Acceptable Ads bypassing the browser ad remover. As another example is SourceForge, an open-source project service provider, has the revenue model of advertising banner sales on their website. In 2006, SourceForge reported quarterly takings of $6.5 million and $23 million in 2009.

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 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.

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

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. 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. Other examples are Arx Fatalis (by Arkane Studios) and Catacomb 3D (by Flat Rock Software) which source code got released under GPL while their art content and binaries are sold on gog.com as Digital distribution.

Doing so conforms with the FSF and Richard Stallman, who stated that for art or entertainment the software freedoms are not required or important.

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.

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.

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 isobfuscation of source code. This approach was used in several cases, for instance by Nvidia in their open-source graphic card device drivers. 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 copyleftsoftware 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. 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.

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.

An extreme variant of "time-delayed open-sourcing" is a business practice popularized by Id Software and 3D Realms, 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. This gives the user communities the chance to continue development and support of the software product themselves as an open-source software project. 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 Netscape Communicator which was open-sourced in 1998 and Sun Microsystems's office suite, StarOffice, which was released in October 2000 at its commercial end of life. Both releases formed the basis of important open-source projects, namely the Mozilla Firefox andOpenOffice.org/LibreOffice.

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