OSBR‘s July issue is dedicated to the theme of Going to Market for open source businesses, and it contains one article which offers an overview of five open source software business models, three of which are called ‘new’ and ‘emergent’ by the author Thomas Prowse. We excerpt that part of the article dedicated to the emerging models.
1. Open Core Business Model:
“This somewhat established, but still emerging OSS business model is premised on the open source licensing of the core software offering and the proprietary licensing of certain add-ons to that core product. Good examples of this approach include SugarCRM and Word Press.
At a high level, this business model is designed to use the OSS license (and OSS economics) to drive the large scale adoption of the licensed product and then follow on or supplement that offering with proprietary add-ons. In the case of SugarCRM, this may take the form of new CRM modules or increased scalability. In the case of Word Press, which hosts my personal blog, this may take the form of premium services that it makes available as part of its hosted-service offering.
While the open core model has generated a lot of interesting debate and polarized positions, such as the scathing critique by Brian Prentice of Gartner in his ‘Open-Core: The Emperor’s New Clothes’ blog post, it does, by most accounts, represent an important evolution in OSS business models.”
2. The Hybrid Open Source Software Business Model:
“This novel OSS business model is premised on the combination of the commercial licensing of a software product with the availability of both the source code for the product and certain rights to modify and use the source code under the umbrella of the commercial license. Since QNX, which was recently acquired by Research In Motion Limited, is the pioneer in this space, I have quoted its description of this business model type from its About Page below: “The company has pioneered an innovative hybrid software model with three main components: 1) open access to product source code; 2) a commercial-friendly licensing model that lets customers modify source code and retain ownership of their modifications; and 3) a transparent development process that allows customers and community members to participate in product development – a benefit normally restricted to open source projects. Put simply, the new approach combines advantages of both commercial and open-source software models.”
While we are still in the very early days, the hybrid model represents an intriguing twist on existing OSS business models and offers an interesting blend of openness, transparency, and commercial certainly.” (www.osbr.ca/ojs/index.php/osbr/article/view/1157/1107)
“Earlier this year, I came across the term “entersource” in Eric Knorr’s post on Infoworld’s Modernizing IT blog entitled ‘Open source: Less profit, more fun’, which leads off with the provocative statement that “Open source ain’t what it used to be. It’s both more and less.” According to Eric, “a diminished percentage [of developers] work for healthy open source software vendors, where the old-fashioned business model — give away the code and make money on support — isn’t doing so hot.” Eric quotes Black Duck CEO Tim Yeaton, who sees the area of enterprise application development as the “real open source explosion”, and Eric reports that Michael Skok of North Bridge Venture Partners dubs this co-mingling of open source and enterprise software “entersource”.
Since the four other models discussed above are grounded in the fundamental business equation of how the company makes money, it may seem, at first blush, that the customer-centric approach of entersource is a poor fit as a business model. In Sesame Street lingo, “one of these things is not like the others”! In fact, I see entersource and its variants as the major emerging OSS business model.
According to Eric’s blog, Michael Skok sees entersource “chiefly as a means for collaborative development”. As I noted in my related blog post (and discussed in greater detail in my October 2008 OSBR article ‘Treasury of the iCommons: Reflections of a Commons Sourcing Lawyer’), this exploding trend of “commons sourcing” is increasing. As Eric points out, this is reflected in the fact that “enterprise developers are collaborating across company boundaries to develop components that can be shared under open licenses”. This phenomena is driving unprecedented cost savings within companies that are frequently order-of-magnitude improvements over the status quo. When interviewed by Makesh Sharma in The Australian article entitled ‘Open source enables innovation without lawyers or fees’, Roger Burkhardt, Ingress CEO, makes the point that “the open source model allows us to bring together the best minds in the world to work on a problem” and allows engineers from different companies to “collaborate without months of legal work.”
As Michael Skok notes, there is an increased focus around OSS on “real ROI and payback, which has had the effect of making open source a ‘mainstream, reliable, de facto part of the landscape’”. In addition, Michael observes that “very few of these Open Source projects will reach the critical mass required to create a company,” adding that, “a good product doesn’t make a good open source project.” In fact, he says, it is the reverse: you need a community first, and then a project to serve that community.” In this context, we can expect to see entersource and its variants as a critical addition to the OSS business model landscape.”