I’m reading a lot recently about “Commercial Open Source” being the next great thing in the software industry. I’ve just read the presentation “Talk Slides: The Commercial Open Source Business Model” by SAP Labs's Dirk Riehle. It’s a great presentation that really captures the vision and strategy of some high-profile companies in the so-called “Commercial Open Source” arena.

In summary, the “commercial open source” business model is based on the 3 pillars:

1. a GPL (or GPL-like) software tagged “community”
2. a proprietary version of the GPL software with some “proprietary extensions” sold using a traditional license
3. a serious dose of communication efforts to explain how open source magically creates cheap great software for everyone (and that in fact you’re not really selling it) and generates a ton of leads allowing you to get to market faster and cheaper

Core myths of the “Commercial Open Source”

Here is how I analyse the core speech of the current "Commercial Open Source" model. I would be happy to hear about your opinion.

“Community Editions” you mean… “Free Demo”?

I don’t get the fundamental difference between offering a “low-end” open source version of your software and offering a free but proprietary one. Especially when I read that the “Community version” is for “developers, hobbyists and small deployments ‘cause it’s cool and fun tech” while the “Enterprise version” is for “enterprise deployment ‘cause it’s full of tests and stable code.”

Hmmm… how do you turn an untested, unstable software into an enterprise-grade, rock-solid software with “some extension”? Well, you don’t. Either your software is well-tested and rock-solid, or it’s not.

If you just want to create a product line with different features depending on varying customer size, that’s fine but let’s call it this way.

Open source software generates leads, right?

Wrong. Freely downloadable apps generate leads. Free trials generate leads. Smart marketing efforts generate leads. Having access to source code does not generate leads, at least not when you are offering applications (it might be different for middleware or dev tools).

Want to generate leads? Create great software and offer free trial and downloadable software.

“It’s not proprietary software, it’s giving reason to buy when people use the software”

I love this one! Seriously. Of course customers need a reason to buy. That’s why they buy.

The reason to buy is called “license fee for usage right”. It’s been around for 20 years and if you want to give people a “reason to buy” your software, just use a “license fee” for usage and maintenance. That is what it's designed for — it will save you a bunch of marketing dollars.

Open Source is good for Communities

It helps but it’s not enough. And it’s not limited to Open Source.

Openness, honesty, good software and good marketing create community. Ask Atlassian, Google, Twitter, Salesforce or even Microsoft. Not open source, but great communities and vibrant ecosystems.

“Commercial Open Source” or “Ashamed proprietary software”?

There is nothing wrong with selling “usage right to use binary software” (or more often called “license fees”…), which is what all “Commercial Open Source” vendors are doing. It doesn’t prevent you from creating great software, building a community and be nice. It just requires a bit more effort.

It's time to go public and add some clarity to all this. There is nothing wrong selling proprietary software, especially when you're contributing a lot of open source code (I’m a great fan of Atlassian and Day, in this respect). It is nothing to be ashamed of. Just be clear and focus on your software's competitive advantage rather than its open source "nature."

“Commercial Open Source” is not the business model of open source

There is no such thing as a business model of open source, by the way. There are many reason companies are producing open source software (from Microsoft to Google, from Oracle to RedHat). The only common fact: it’s a tsunami in the industry. Everybody’s using it, software vendors being the firsts. And many are producing some.

There are a lot of reasons to produce open source and a lot of ways to make money leveraging it, as some brilliant analysts and bloggers already said (two notable reading: “On open source business strategies (again)” by 451 Group’s Matthew Aslett or “Making Billions with Open Source, Revisited” by Redmonk’s Coté).

Here is how I would summarize it:

1. Proprietary software (!): Build and distribute proprietary software leveraging open source ones (be it complete apps or just extensions). Take Day Software, quietly producing tons of good open source infrastructure components, they sell a great proprietary app. Or IBM with Geronimo / Websphere. Or Oracle. SpringSource and most “Commercial Open Source” companies fall into this category too. I think it’s the easiest way to make money out of open source.
2. Support & Packaged Services: Sell support as subscription and high-value packaged services (monitoring, inventory, etc.) for open source software you’re producing. JBoss was the flagship in this business with quite a success making money with it. This is Nuxeo’s business too.
3. Proprietary distribution: assemble open source software into a proprietary stack. It’s all open source software, but the recipe to assemble the different components together and deliver a coherent and supported stack is kept secret. This can also include some “proprietary services” such as automated updates or monitoring. This is RedHat’s business. Sun seems to look toward this way too (see Solaris and the recent WebStack).
4. Proprietary tooling: sell proprietary tools that help running / operating / managing open source products. These tools are usually development tools, administration tools or deployment tools.
5. SaaS: package open source software to deliver apps as a service. This is the business of managed apps hosting (to make apps run) and packaged services (to deliver great customer support and business domain knowledge). This is also Nuxeo’s business.

So in the end, what’s the key point? Is it doing open source no matter what for the sake of hype or is it solving problems by delivering great software and/or services to customers?

I wish people of the Commercial Open Source arena would focus more on the later…; cause it does not diminish their contribution to open source overall nor does it diminish their company’s greatness and value. For the best of the open source industry. These times are about transparency and openness after all…

What do you think? I have spent 10 years in the open source software industry, building a company, living through short-term hypes and various business models. And I'm still learning. Would be really happy to discuss more about all this.

Cheers,

EB.