Open Source Business Models

There was a great TapInTuesday session yesterday, entitled “Open source Business Models” by Evan Prodroumou from status.net. Evan talked how he was attracted to open source in the first days of the web. His first business in Montreal was wikitravel, a popular site that features open content about travel destinations. He also did vinisimo, which lets anyone write about wines. Identi.ca also shares the same spirit: empower a community by giving them tools.

What was not so easy is turning a technology or a community into a business. It worked with wikitravel, with the site, the database, the trademarks, and other intangible goods “packaged” to the company who acquired wikitravel. For status.net, there is also lots of work and thinking that needs to be done in terms of turning into a profitable company.

The Power of Open Source

There are lots of advantages to open source, but here are the main:

  • increased SEO ranking, and faster Google crawling. Status.net has 2 PR8 pages, hundreds of PR7 pages, and thousands of PR6 pages.
  • more content generated by users, which means free marketing
  • viral usage makes it easy to have a “hockey stick” growth
  • better security, faster development etc. for your software

List of Open Source Business Models

Donationware
The most known example is perhaps wikipedia and the Wikimedia Foundation which raised up to $16 million in donations in early 2011.

Consulting (Tikiwiki model)
This is advised by Evan Prodromou. When consulting, you talk to customers, plus also you have revenues. It builds the company and gives you time to know your market, and build a product. It’s not scalable though

Support ie. Red Hat model
It boils down to “Give us money and you will have someone to shout at + we won’t shut down services”
Support is difficult to scale. Sales cycles can also be long and hurt your company, since you will be talking to large companies

Exceptional Licenses – Used by MySQL.
Licenses are given to companies who are using in production mysql. They can modify freely the source code without having to “share”.
It’s worthy to remember MySQL was sold at $1B in 2008.

Premium Add-Ons – a business model used by SugarCRM
This is hard to manage, because your enterprise version competes with your community version. How do you manage product features? How do you sell your enterprise version? Most users will download the community or free version and hope they will be ok with it.

Software As a Service – WordPress or openX, and many other startups
This is an extremely interesting business model. There are no sales team, most users are already accustomed to paying for hosting and other web services. This is also very scalable.

Evan talked also how you can put network effects in the open source version. For every wordpress download, Automattic gets a link back, more designers working on templates, and more developers working on plug-ins

OpenX model
This needs more discussion: it’s essentially making the software open source, and creating the marketplace. So the software supports the marketplace, which is your main business. So users are “lured” by the open source version, and then you offer them services on the marketplace.

This model can be developed along with with any other business model listed above.

Partnerships

This is the Mozilla foundation model. Companies like Google has an interest in having Mozilla software more popular, with Firefox having Google as its default search engine.

How to Choose a License

Choosing a license is extremely important. There were a couple of interesting questions about it, and we’d need a follow-up on this. Here is what surfaced though:

AGPL (license used for Status.net software)
Interestingly, Evan Prodromou said A-GPL is the license for saas, i.e. networked services or customer-facing software. It does not allow other companies to take your software, build upon it, and launch a competing service

Apache License
This license is the prefered license for developer tools, for instance MySQL, or any other software that would run in the back-end

I am an electrical engineer interested in disruptive ideas.. Founder of MontrealTechWatch, organizer at MTLNewTech, as well cofounder at SeedingFactory. Also likes photography in Montrea ...




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