Open Source Business Models: a Taxonomy of Open Source Firms’ business models

Within the context of the FLOSSMETRICS project we are performing a study on the business models adopted by companies that are leveraging FLOSS source code, and how the model changes with respect of licenses and commercialization approaches.In this post I present a draft of the result of 80 FLOSS-based companies and business models, conducted using only publicly available data. Feedbacks and suggestions are welcome!

taxonomyPractical taxonomy by ellen’s attic

Methodology

An initial list of 120 companies was prepared during the first two month of 2007 using some popular open source news websites as source like FreshMeat, Slashdot.org, OSNews, LinuxToday, NewsForge and some blog sites devoted to FLOSS business models like those of Matt Asay, Fabrizio Capobianco, Roberto Galoppini. Additional information was retrieved from Google searches. this list was further refined by eliminating companies that were not really adopting FLOSS, even using a very relaxed definition. In the specific, any company that allowed source code access only to non-commercial users, or that did not allowed for redistribution was dropped from the list; also, companies for which no information was available, or for which no clear product or service was identifiable was equally eliminated. One of the companies included (Sourceforge, from the OSTG group) is not open source in itself, but represents an example of an “ancillary” model, as the site itself hosts more than 100000 open source projects and provides supporting services like mailing lists, source code versioning systems and file distribution. Also, companies that have a significant OSS contribution, but for which FLOSS is not the core business model were not included (this for example includes IBM, HP and Sun; all of which are important FLOSS contributors, but for which open source software is just one of the overall revenue streams).

Results

The final result is summarized in a table (pdf), the 6 main clusters identified are:

Twin licensing: the same software code distributed under the GPL and a commercial license. This model is mainly used by producers of developer-oriented tools and software, and works thanks to the strong coupling clause of the GPL, that requires derivative works or software directly linked to be covered under the same license. Companies not willing to release their own software under the GPL can buy a commercial license that is in a sense an exception to the binding clause; by those that value the “free as in speech” idea of free/libre software this is seen as a good compromise between helping those that abide to the GPL and receive the software for free (and make their software available as FLOSS) and benefiting through the commercial license for those that want to maintain the code proprietary. The downside of twin licensing is that external contributors must accept the same licensing regime, and this has been shown to reduce the volume of external contributions (that becomes mainly limited to bug fixes and small additions).

Split OSS/commercial products: this model distinguish between a basic FLOSS software and a commercial version, based on the libre one but with the addition of proprietary plugins. Most companies adopt as license the Mozilla Public License, as it allows explicitly this form of intermixing, and allows for much greater participation from external contributions, as no acceptance of double licensing is required. The model has the intrinsic downside that the FLOSS product must be valuable to be attractive for the users, but must also be not complete enough to prevent competition with the commercial one. This balance is difficult to achieve and maintain over time; also, if the software is of large interest, developers may try to complete the missing functionality in a purely open source way, thus reducing the attractiveness of the commercial version.

Badgeware: a recent reinvention/extension of a previous license constraint, that is usually based on the Mozilla Public License with the addition of a “visibility constraint”, the non-removability of visible trademarks or elements from a user interface. This allows the company to leverage trademark protection, and allows the original developers to receive recognition even if the software is resold through independent resellers.

Product specialists: companies that created, or maintain a specific software project, and use a pure FLOSS license to distribute it. The main revenues are provided from services like training and consulting (the “ITSC” class) and follow the original “best code here” and “best knowledge here” of the original EUWG classification. It leverages the assumption, commonly held, that the most knowledgeable experts on a software are those that have developed it, and this way can provide services with a limited marketing effort, by leveraging the free redistribution of the code. The downside of the model is that there is a limited barrier of entry for potential competitors, as the only investment that is needed is in the acquisition of specific skills and expertise on the software itself.

Platform providers: companies that provide selection, support, integration and services on a set of projects, collectively forming a tested and verified platform. In this sense, even linux distributions were classified as platforms; the interesting observation is that those distributions are licensed for a significant part under pure FLOSS licenses to maximize external contributions, and leverage copyright protection to prevent outright copying but not “cloning” (the removal of copyrighted material like logos and trademark to create a new product). The main value proposition comes in the form of guaranteed quality, stability and reliability, and the certainty of support for business critical applications.

Selection/consulting companies: companies in this class are not strictly developers, but provide consulting and selection/evaluation services on a wide range of project, in a way that is close to the analyst role. These companies tend to have very limited impact on the FLOSS communities, as the evaluation results and the evaluation process are usually a proprietary asset.

The remaining companies are in too limited number to allow for any extrapolation, but do show that non-trivial business model may be found on ancillary markets. For example, the Mozilla foundation obtains a non trivial amount of money from a search engine partnership with Google (an estimated 72M$ in 2006), while SourceForge/OSTG receives the majority of revenues from ecommerce sales of the affiliate ThinkGeek site.

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9 thoughts on “Open Source Business Models: a Taxonomy of Open Source Firms’ business models

  1. Roberto,

    Looking at http://www.robertogaloppini.net/documents/businessmodels.pdf

    - I believe that EnterpriseDB does not provide ANY OSS. They sell only closed-source extensions to PostgreSQL.

    - Given that you have SugarCRM, why not also list CentricCRM, which provides a good contrast?

    - And given Pentaho & JasperSoft, how about SpagoBI or all of Spago?

    - If your going to list Red Hat, then you should list Novell rather than SuSE Linux.

    - I’d suggest that “dual licensing” is a better term than “twin licensing.”

    Ciao,

    Seth

  2. Seth: many thanks for your comments. On EnterpriseDB, the reason for inclusion is related to how we evaluate “open source” companies; that is, if the company sponsors in a direct or indirect way an open source project that is the basis of his work, then we consider the company to be a “marginal” open source one. The inclusion of EnterpriseDB is related to the direct funding of most of postgresql developers, through employing. In this sense, while not directly “selling” an open source version of postgresql, they are creating a market model that is similar to the split oss/commercial ones.
    On Novell/Suse you are right; the longer title was “novell Suse linux” to distinguish from the other novell activities, and simply got cropped.
    CentricCRM is simply not open source at all; the license explicitly states that “You may not redistribute the code, and you may not sublicense copies or
    derivatives of the code, either as software or as a service.” and as such it clearly is not meeting the definition of open source software.
    As for SpagoBI, Engineering seems at the moment mainly touching the waters with his OSS offer; I will wait a little bit to see if I can obtain balance sheet data on how much is obtained through OSS offers.

  3. Hi Martin,

    I also enjoyed the metaphor, really amusing.
    Quoting your comment about your attention:

    But one observation really got my attention. In POSS projects (or even FLOSS projects), the end user (/customer) is engaged at a much earlier stage in the process, thereby ensuring that design defects and unexpected use cases are brought to surface before it is too late.

    I don’t believe that is typical of FLOSS listening to users, Microsoft and many other proprietary vendors do listen too, sometimes even more than some OS firms (just have a look at many OS products’ forums, you’ll sort it out by yourself!).

    OS applications’ ecosystems? May be, but they can be effective only under certain circumstances, definitely not an easy game to play, though.

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