I thought this topic was beaten to death but I am still getting asked this question from time to time. Sometime people ask me how we are different with other companies in the field like GigaSpaces and Terracota, sometime they ask how we simply make money. I think in most cases people that are unfamiliar with open-source business model can't connect the dots on how it works. Here’s the basic outline of both traditional software business model and open-source one:
Traditional business model for software development:
- Software is closed and proprietary technology is your IP
- You sell upfront licenses (usually per-CPU) perpetual or subscription- based
- You sell additional support as almost a mandatory annual 20% on top of the license fees
- You sell consulting/professional services around the software (amounting to 50% of revenue on average)
- You maintain your license revenue by forcing support subscription and upgrade cycle - customer has to buy new licenses and/or support for any new major version
- You usually would have time-constrained evaluation for "try before buy"
- You have small user base but with a 100% of paying customers
Open source business mode (in contrast):
- Your software is practically and perpetually free for commercial use with minimal limitations
- You may or may not hold copyright on it
- You usually don’t hold any IP rights on the software
- Your customers and competitors can fork the software and maintain their own version of it
- Basic or community support is free and in part provided by you
- You maintain the business by selling professional support and consulting around the software usually on a subscription base (amounting to 100% of the revenue)
- You have large user base with a small percentage of paying customers
- Your software has a much higher adoption rate and larger developers community
One thing that many people still wrongly associate with open source is romanticism: getting back to community, community driven development, personal fame, all software must be free, etc. Some of that is true and relevant but there’s really nothing romantic or nostalgic about open source –
it is a cut-throat, slow-growth business and myriad of abandoned open source projects with hundreds of them dying-off on a daily basis is a clear testament to that.
Whether or not open source business model fits you – is entirely dependent on your business and how you see it. But be rest assured that you can be really successful both ways if you know what you are doing: just look at JBoss and Tangosol!
