Welcome to the DjaoDjin Blog!

A place to share experiences in building Software-as-a-Service.

Open source business models

by Sebastien Mirolo on Fri, 23 Jul 2010

There are many reasons to structure your business as an open source business. For example, your business largely relies on open source software itself and it sounds like fair practice to do such yourself. A second example is that your business is small. It does not have the resources to seek out talents and knowledge on its own. This is a real problem in a knowledge-based economy where a business competitive edge relies increasingly on who, what, as much as when you know something. An open source business can leverage contributions from diverse relevant sources around the world. In the end though, noble or practical, a business only survives through sustainable profits. It is thus important to control costs and setup channels through which revenue can stream into the business.

The Internet makes it possible to leverage existing open source projects and knowledge from people all other world. It also makes the distribution of software and other digital goods virtually free. As a result, the sooner you give up the idea of a retail strategy, the easier it will be to capitalize on the web for the business's benefit. On a side note, it is possible to use a retail strategy through digital rights management (DRM) technologies. Those are only solutions to buy time though and can only help when the product sold is time sensitive. That is the case with traffic jam updates for example. Otherwise, it is wiser to rely on a revenue strategy that economically benefit both, the business and its customers.

Dual-licensing

There are a few revenue models that emerged in recent years for open source businesses. A very popular one is the dual licensing. The company maintains two code forks of the same project, one which is distributed under a closed-source proprietary license and one that is distributed under an open source license. This model only makes sense once you understand the legal implications of different open source licenses (see the Open Source Initiative website for all approved open source licenses). A must read article on the subject is "Understanding Open Source Software" by Red Hat's Mark Webbink. Choosing a license to open source your business under is an important decision and will dictate much of the revenue channels you can develop. An esoteric license might help you create imaginative revenue channels. In any other cases, a popular and well-known license will help position your products in the marketplace.

Dual-licensing has three major issues, first pay the cost of maintaining two separate forks, second avoid open source contributors to just drive the proprietary product to irrelevance, third have users download and fund the official distribution. Dual-licensing thus does not sound like a good revenue channel unless real tangible benefit can be delivered to the community of contributors and users.

Fortylines provides a quality product to the users, opens fortylines source repository to innovative third-parties and prevents predatory middle-men that add no value through a fundamental commitment to distributed models, systems and tools. That commitment enables fortylines to carve engineering policies and a release process that introduces strictly enforced quality for official distributions and wildly risky unknowns for non-official distributions. First, fortylines does not create release branches, there is only a single branch in the official release repository and all distribution packages are made out of that main, also called head, branch. The official release repository is the one granted worldwide read-only access through fortylines website, fulfilling the open source promises. Fortylines distributes binary packages out of the release repository without advertising the commit tag used nor building any corresponding source packages. Through iteration cycles, the release repository goes from unstable to stable as contributors are allowed to push wild changes, then small enhancements and finally bug fixes. The quality of the release repository and hence the time a binary distribution package is built are strictly monitored through a set of functional and regression tests. The key component here is that fortylines does not publicly distribute those tests.

Micro payments

A second open source model that received a lot of press recently is the donation model. "Why Making Money from Free Software Matters" by Glyn Moody describes how Jill Sobule, a music artist, adopted a successful donation model. Fan pay before the music exists and can receive extras depending on their contribution level, for example a dedicated song for their answering machine. A second donation model that received a lot of media attention is Diaspora, a distributed facebook alternative. Websites like kickstarter are just perfect for small businesses that need to raise money outside conventional realms.

Small micro donations are a good way to engage customers and gain real world feedback. For example, Fortylines "Vote with your money" initiative ties up the todo tracking system, a popularity ranking system and a micro payment solution. Users have a chance to make donations for the features that matter to them. These translate into features ranking in popularity according to the donation amount and fortylines guarantees the most popular features make up the top priorities of its contributors.

Customization and configuration

A third very common open source model is to sell customization and configuration around open source products. Fortylines sells exactly that knowledge and time to generate upfront investment. Down the line, fortylines then theorize, factorize and integrate custom solutions into generic products that later feed the micro donations revenue channel.

With the advances in virtual machines and cloud computing, it is possible to sell server images pre-configured for specific use. This one time sell can be transformed into a recurring fee when IT services is bundled with the offering.

Ad sponsoring

Finally, a fourth revenue model that found its place on open source driven websites is ad sponsoring. Unless your website attracts a lot of monthly traffic, the revenue generated will be very small. None-the-less it might cover the cost of renting servers and data center infrastructure. For example, fortylines serves an unobtrusive banner on its product demo site and along its online articles.