11 open source business models

11 open source business models

Summary: The great thing about open source is you don't have to use just one business model. You can mix-and-match as you see fit.

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Critics are always claiming open source lacks a business model.

(Let's Make a Deal is back on TV, on CBS, starring Wayne Brady as Monty Hall. Cross-promotion is a great old business model, don't you think?)

In fact it's proprietary software that is lacking in imagination.  They have only one business model:

  1. EULA Ware -- Give me money. Now go away. It doesn't work? Go away. You want your money back? Read your EULA, and go away. You want to see the software? Go away.

This has the virtue of simplicity. People pay and you really aren't required to give them anything. But it lacks a certain je ne sais quoi. Don't know what that is? You must work for a proprietary software company. (Go away.)

Telling people to pay you and go away worked for an amazingly long time. It sounds like it shouldn't. It sounds a bit like theft. But software is a miracle, and for decades EULA Ware was the only model there was.

Open source companies, on the other hand, they have to use their imagination. They can't feed people EULA Ware, so they must make money in other ways:

  1. Support Ware -- Pay us money and we'll support the software. We'll answer your questions. Or we'll try to. Over the phone, on the Web, whatever. Pay us enough and we'll come over. Red Hat likes this business model.
  2. Product Ware -- The software is free, you just buy the box it runs in. Android phones use this. So do some network routers. It's number two, but with a bullet.
  3. Cloud Ware -- Our software is in the clouds now. Pay us for what it does. The money goes into the cloud. Later it will rain on us. SugarCRM likes this business model.
  4. Project Ware -- Need something done? We'll do it with open source. Pay us for our work, and pay us for the project. IBM makes a ton on this business model.
  5. SaaS Ware -- Our software is SaaSy. You can rent it, by the hour, by the month, by the user. This is wildly popular. Zoho uses it. So do many other companies.
  6. Ad Ware -- This is a free version of SaaS Ware. You don't pay anything, the advertiser pays instead. Heard of The Google? This is their primary business model. ZDNet also uses this business model.
  7. Sugar Daddy Ware -- Our software has a sugar daddy. Firefox has Google. Eclipse has IBM. Open Office has Sun, or it did. So just use the stuff. Daddy will provide. We believe in daddy.
  8. Foundation Ware -- Our software has a foundation. It has lots of sugar daddies. Want to be one? Linux runs this way. So does Apache. Not to mention Wikipedia.
  9. Beg Ware -- Please give us money. We know you don't have to. But give us money anyway. Lots of little projects use this business model. Or pretend to.
  10. Tchotchke Ware -- Wanna buy a t-shirt? How about a bumper sticker? A pen?
  11. Let's Make a Deal Ware -- The programmers who wrote the software support it out of their own pockets until they can figure out something. Wordpress started this way. So did Drupal. Go by Sourceforge and you'll find tons of folks still using this business model.

The great thing about open source is you don't have to use just one business model. You can mix-and-match as you see fit. You can change. You can go to a more profitable model and buy a suit, or fork the code and go down the stack.

Or maybe you don't see your business model here. Maybe you have one of your own. Care to tell us about it in the talkbacks? Whisper it in our ear. It will just be between us.

This is what freedom is about. It's about having choices. You don't have to go to Sand Hill Road to get into the software business. If they tell you to go away, go open source and in time maybe they'll call you.

Then you can tell them to go away.

Topics: Open Source, CXO, Software

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36 comments
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  • You are looking at it sideways.

    It's never as simple as you make it seem. Things usually can't be broken into neat little lists which are really just stereo types.

    From Wikipedia: Business Model:

    "A business model describes the rationale of how an [b]organization[/b] creates, delivers, and captures value[1] - economic, social, or other forms of value."

    So, software, weather it be open source or proprietary can't have a business model. It is software companies that have business models.

    Further, the described business models have little to nothing to do with weather the product in question is open source or proprietary.

    For example there is no reason why a vendor of proprietary software couldn't choose to use a support/produce/or cloud ware model. Weather they actually do or not is up to the company in question but the the chosen business model is independent of proprietary vs open source. Those terms govern licensing and weather or not you get to see the code - not (at least not directly) how the company is going to make money from the product.

    And there are plenty of companies that use combinations of the models as well. For example provide a Eulaware product at a relatively low cost and then use a combination of the productware and supportware models to make their real/long term money. This happens all the time.

    So don't assume that the entire proprietary software industry is made up of Microsoft and Oracle. It isn't. And the dividing lines are not so clear as you seem to think.
    cornpie
    • Cornpie is right

      There's a reason I used the satire tag on this.
      DanaBlankenhorn
    • Right in one.

      "Further, the described business models have little to nothing to do with weather the product in question is open source or proprietary."

      Many of these models are in use with proprietary software. I've personally experienced closed source apps from companies using 1, 2, 3, 6, and 9. Heck, MS is offering versions of Office via the web. (What's the difference between 'Cloud ware' and 'Software as a service'?)

      The way an enterprise raises money has no connection to the openness of its code. The assertion that proprietary software has only the EULA business model is as false as the assertion that open source lacks a model.
      CharlieSpencer
    • weather

      I want to know what the weather has to do with this. Is it raining on EULA's or sleeting on Open source? Or is this still more satire?

      LRF
      Louis Ross Focke
      • It has to do

        with 'weather' you let a grammatical error prevent you from recognizing the validity of his content, or whether you want to nit-pick.
        CharlieSpencer
    • RE: 11 open source business models

      You dont have to go to Sand Hill Road to get into the software business. If they tell you to go away, go open source and in time maybe theyll call you.<a href="http://ipadbagblog.com/"><font color="LightGrey"> k</font></a>
      zakkiromi
  • You forgot at least one.

    You left off the O'reily model.

    Make money selling books that document open source. Free Software Foundation uses this too, via GNU Press.
    wkulecz
    • You're right

      I was thinking software, not publishing. But you're right. There are actually two business models being described in your note:

      Book Ware -- Wanna buy a book to tell you how to use that software you just downloaded? It's got a nice animal on the cover.

      Conference Ware -- Let's get together over "free" coffee. We charge you, we charge the vendor, and we squeeze the host city for everything we can. But you don't see that. All you see are our smiling faces.
      DanaBlankenhorn
      • Don't forget . . .

        The training scam: Even EULA and SAAS stuff nowadays is so poorly documented it's nearly (if not entirely) useless 'till you cough up the dough for a training class on how to use the stuff.
        CodeCurmudgeon
  • You Finally Did It

    I've thought of unsubscribing from the RSS feed for a while now, as this blog has mostly been mindless cheerleading for OSS. But when I read "EULA Ware ? Give me money. Now go away." you finally did it. That line shows you either have no f'ing clue or you're just writing stupid sh!t for the sake of writing stupid sh!t.

    Buh-bye...
    SwashbucklingCowboy
    • Re: Buh-bye

      Don't let the door hit you in the butt on the way out!

      Software is the only knowingly defective product that can be sold without fear of customer lawsuits.
      wkulecz
      • It had to be that way

        It is impossible to make software perfect, as it grows more complex. It just is. That's why the EULA standard developed in the 1960s. IT was a way to limit IBM's liability, and it was necessary, because without the EULA contract IBM would have gone out of business and this industry would not have developed.
        DanaBlankenhorn
        • Pre-Ralph Nader

          Before Ralph Nader, GM didn't get sued when some one died in a car crash.

          Too much software is released with fatal bugs than can't perform its intended function, leaving the hapless customer no option but to buy the next version (or something else) and hope.

          Open source is my first choice now because of this. I don't mind paying, but I hate being played for a sucker by software the promises way more than it delivers

          IBM had a limited customer base in the 60s and they grew not because of the EULA but because they generally successfully addressed problems that arose to keep the customers happy and on-board.
          wkulecz
        • Emphasis: had

          It may have had to be that way in the past, but it only has to be that way
          now insofar as we accept the notion that it has to be that way. I do not
          think a sea change is that unlikely, particularly with people getting more
          tired of things on a computer not working as they should. At some point
          people are going to demand, en masse, that a particular quality be
          provided.
          Third of Five
    • buh-bye

      You didn't notice the satire tag, did you? Oh, well. Have a nice day. Or have a bad day if that is your choice.
      DanaBlankenhorn
      • Poor defense, Dana

        You cannot hide behind "but it is satire". Satire
        only works when it is so thick that it cannot be
        misunderstood. Otherwise it is just a lame excuse.

        And this one is far too close to your agenda so it
        is hard to tell. I too took it as a serious post.

        If this is what satire look when you do it, please
        don't.
        honeymonster
      • If you're going to use a 'satire' tag,

        then it should apply to the entire article. Does this mean your suggested models for open source are also satirical suggestions?

        Just because a speaker tells an opening joke doesn't mean it's open mike night at the comedy club.
        CharlieSpencer
  • Some other observations:

    Here is another business model: The "lite" version. A big example of this would be AVG anti-vius where you can get the basic version for free but they want you to pay for the more advanced versions. There are many examples of this.

    And don't forget about the good old Shareware model: Try it for free and if you like it, pay.

    And how about "I don't care ware": As in I don't care if the software that runs my phone is proprietary or open source. My support for that phone and everything about it comes from Verizon. From Verizon I can get Android, Windows Mobile or blackberry. I'm sure Verizon pays Microsoft for the use of Windows mobile but I don't know and don't care if they pay Google and Blackberry. When I compare phones, I'm comparing features etc and when I compare prices I'm looking at the total price of the phone. It makes no difference to me what percentage of that price goes to Microsoft and how much to Verizon. My deal is with Verizon. They are the ones I have the contract with and who provide my support.
    cornpie
  • Fun article, and true but...

    The difference is cash flow. Except for IBM and Google (which is only very partially open source) there really isn't that much cash flow.

    In some ways listing Google is suspect because while some of their stuff is open source the majority of it isn't. They give away what they can but not everything.
    DevGuy_z
    • Or put more accurately...

      "They give away what they can but not everything. "

      More like "they give away what they know nobody is willing to pay for, but not anything related to their core business."
      daftkey