451 CAOS Theory 
A blog for the enterprise open source community
Open source is not a business model
Matthew Aslett, October 13, 2008 @ 6:14 am ET(Or “freedom of speech won’t feed my children”)
Last month I noted that Matt Asay, one of the highest profile proponents of open source software, had changed his position on the use of proprietary extensions as a means of attracting paying customers to software based on open source code.
Having previously advocated a 100% open source approach, Matt conceded that “If adding a hint of proprietary software to a solution is done in such a way to encourage a purchase but not compel long-term lock-in, I’m no longer convinced that this is wrong. If it puts food on the table without putting anyone out, where is the harm?”
Matt is not the only open source advocate to have accepted that proprietary and open source software are not mutually exclusive, as has been proven by the findings of The 451 Group’s latest CAOS report, “Open Source is Not a Business Model“.
With this research report we were trying to answer the age old question “How do vendors generate revenue from open source software?”. In order to answer it we analyzed the business strategies of 114 open source-related vendors, including open source specialists such as Red Hat and Alfresco, and those for which open source is used more tactically, such as IBM and Oracle.*
Some of the more interesting findings are as follows:
- The majority of open source vendors utilize some form of commercial licensing to distribute, or generate revenue from, open source software.
- Half the vendors assessed are using hybrid development models — combining code developed via open source projects with software developed out-of-sight of open source project members.
- Vendors using hybrid development and licensing models are balancing higher development and marketing costs with the ability to increase revenue-generation opportunities from commercially licensed software.
- The license used for an open source project (reciprocal or permissive) has a strong influence on development, vendor licensing and revenue-generation strategies.
In order to assess the business strategies used by open source-related vendors it was necessary to categorise the business models used by open source vendors. We therefore assessed each vendor’s strategy related to license choice (reciprocal or permissive), development model, vendor licensing strategy (e.g. dual licensing, open-core licensing) and revenue generation triggers (e.g. commercial licensing, subscription, support services, other products).
While it had been previously thought that there are a handful of business models related to open source, our research indicated that this is an over-simplification. There are over 80 different combinations of development model, vendor licensing strategy and primary revenue trigger being used today by the vendors we analyzed.
The report also busted some other open source-related myths, such as the idea that open source vendors are reliant on ad hoc support services, and that open source eliminates the need for direct sales. We found that:
- Ad hoc support services are used by nearly 70% of the vendors assessed, but represent the primary revenue stream for fewer than 8% of open-source-related vendors.
- Most vendors generating revenue from open source software are reliant on direct sales staff to bring in the largest proportion of revenue.
There are plenty of other juicy statistics in the report, which examines the influence of license, development model, vendor licensing strategy, and revenue triggers on each other, as well as the strengths and weaknesses of the various strategies, and how the use of revenue generation and sales strategies will change over the next two years.
There is also room for a bit of history, examining the origins of open source-related business models, and the evolution of business models over time to accommodate hybrid development and licensing strategies.
As for the overall conclusion. I have already hinted at the findings in a couple of posts, noting that:
- “Open source is a business tactic, not a business model. Open source is not a market in and of itself, nor is it a vertical segment of the market. Open source is a software development and/or distribution model that is enabled by a licensing tactic.”
- “The cat is already out of the bag when it comes to open source related business models and there is no way it is going back in.”
- “There is very little money being made out of open source software that doesn’t involve proprietary software and services.”
The line between proprietary software and open source software is becoming increasingly blurred as open source software is embedded in broader proprietary hardware and software products and proprietary extensions are used to attract more customers.
Some open source purists will no doubt be dismayed that so much software distributed using open source licenses finds its way into commercially licensed products. More pragmatic observers will no doubt be encouraged by the widespread adoption of open source development and distribution principles.
Either way, the fact is there are few vendors generating revenue from open source software that are following a pure open source approach when it comes to developing all of their code in the open and licensing all of their software under open source licenses.
The report was released on Friday to existing subscribers and is also available for purchase. An executive summary (Pdf) is also available. Look out for future details on a live webinar where I’ll discuss the findings in more detail.
*We were aware that the inclusion of (mostly) proprietary vendors such as these might disproportionately influence the results so we also filtered the findings to include only those vendors that could be considered “open source specialists”. We found that over 40% of these specialists are developing some software out-of-sight of open source project members while more than 50% are using some form of commercial licensing strategy. Full details in the report itself.
Comments (69) Categories: Business strategies,Licensing,Software,The 451 Group
[...] Original Matthew Aslett [...]
[...] “Open source is not a business model,” the report challenges some long held beliefs about the technology business. Not everyone is happy [...]
[...] “Open source is not a business model,” the report challenges some long held beliefs about the technology business. Not everyone is happy [...]
Sorry its still wrong ethically. You might consider too also gaining experience with the free software movement, less you run into a situation where the world has passed you (and proprietary software) by.
Who said anything about ethics?
Precisely. You didn’t. However, (professional) ethics are an important part of the picture.
Sooner or later, proprietary bits will burn the client. That is mostly inevitable. If they’re useful, they’ll promote lock-in. (If they’re useless, they’re not much of a differentiator.) So, other things being equal, the client prefers not to have any proprietary bits in the system – unless, of course, the client relies on my advice in the matter, or I keep them “out of sight” where the client won’t notice.
One of the things Free Software is, is a professional ethics covenant.
[...] “Open source is not a business model,” the report challenges some long held beliefs about the technology business. Not everyone is [...]
“With this research report we were trying to answer the age old question “How do vendors generate software from open source software?””
Should it say “revenue”?
Yes it should. Thanks Roy.
[...] 451 CAOS Theory » Open source is not a business model [...]
[...] Open source is a development and distribution strategy that software developers use to get their products into the hands of users. It’s not a business model. [...]
[...] much money can you make with open source? – has come up again, thanks, I think in part at least to a recent 451 report. The report looks very interesting for sure. I haven’t read it, so I can’t really [...]
It will be interesting to see if the companies using the “open core licensing” behave like their pure proprietary counterparts, or adopt some of the open source practices for their proprietary pieces. Open source projects are community backed, while proprietary vendors are in complete control of their products. Ironic how much they spend on focus groups, etc to gather the information that open source developers get for free.
I also think the question of source code access is going to become more important. When I was at Jaspersoft I led the push to make all the commercial add-ons “visible source”, where the customer gets the source to all the commercial parts, all be it under a proprietary license. They do have the right to customize the product as needed. When you think about it, a company using an open source project often will customize it to work with their in-house systems. They will be unwilling to give up that flexibility in order in order to “upgrade” to the commercial feature. The visible source approach also had some unexpected benefits – companies that did enhance the professional version almost always contribute that back to us, so we would maintain it. This also benefited the open source version, since some of the enhancements included improvements to the open source core.
[...] zarabia na wsparciu technicznym i dodatkowych, płatnych funkcjach. Niestety, według raportu The 451 Group, taki model biznesowy się nie [...]
[...] zarabia na wsparciu technicznym i dodatkowych, płatnych funkcjach. Niestety, według raportu The 451 Group, taki model biznesowy się nie [...]
Study about open source seems to be an good economic model…
[...] zarabia na wsparciu technicznym i dodatkowych, płatnych funkcjach. Niestety, według raportu The 451 Group, taki model biznesowy się nie [...]
[...] zarabia na wsparciu technicznym i dodatkowych, płatnych funkcjach. Niestety, według raportu The 451 Group, taki model biznesowy się nie [...]
[...] zarabia na wsparciu technicznym i dodatkowych, płatnych funkcjach. Niestety, według raportu The 451 Group, taki model biznesowy się nie [...]
[...] Matt Aslett has a great “hair on fire” commentary at 451 Group that frankly demands a response. (I found this cute guy at a Shiatsu site [...]
[...] 451 CAOS Theory » Open source is not a business model – “Open source is a business tactic, not a business model. Open source is not a market in and of itself, nor is it a vertical segment of the market. Open source is a software development and/or distribution model that is enabled by a licensing tactic.” [...]
[...] zarabia na wsparciu technicznym i dodatkowych, płatnych funkcjach. Niestety, według raportu The 451 Group, taki model biznesowy się nie [...]
[...] Większość dostawców darmowego, wolnego oprogramowania zarabia na wsparciu technicznym i dodatkowych, płatnych funkcjach. Niestety, według raportu [...]
[...] zarabia na wsparciu technicznym i dodatkowych, płatnych funkcjach. Niestety, według raportu The 451 Group, taki model biznesowy się nie [...]
[...] News by Matthew Aslett [...]
not sure about this article… take look at google!!!
[...] zarabia na wsparciu technicznym i dodatkowych, płatnych funkcjach. Niestety, według raportu The 451 Group, taki model biznesowy się nie [...]
[...] Matthew Aslett’s post on the same fleshes out some of the findings: The majority of open source vendors utilize some form of commercial licensing to distribute, or generate revenue from, open source software. [...]
[...] familiarizing themselves with open source software. I recently skimmed an article entitled “Open Source is not a business model.” The article has a point, but I disagree to a certain [...]
[...] for instance, who develope the software in their free-time. And their revenue models either do not even exist, or are seriously threatened by the information [...]
[...] source and the bottom line Oct.20, 2008 in Technologie News Matt Aslett has a great “hair on fire” commentary at 451 Group that frankly demands a response. (I found this cute guy at a Shiatsu [...]
I’m not surprised about your findings (I’ve argued the same, see http://www.riehle.org/2008/05/18/open-source-is-a-business-strategy-not-a-business-model/) and mostly view this as a sign of a maturing industry.
I remain particularly interested in dual-licensing (and revenue models that come close to the hey-days of software vendors). One of my hunches here is that despite all rhetoric, the end-game of a dual-license open source vendor is proprietary extensions; there just does not seem to be a way around it.
[...] zarabia na wsparciu technicznym i dodatkowych, płatnych funkcjach. Niestety, według raportu The 451 Group, taki model biznesowy się nie [...]
[...] zarabia na wsparciu technicznym i dodatkowych, płatnych funkcjach. Niestety, według raportu The 451 Group, taki model biznesowy się nie [...]
[...] zarabia na wsparciu technicznym i dodatkowych, płatnych funkcjach. Niestety, według raportu The 451 Group, taki model biznesowy się nie [...]
Thanks for an interesting summary, I only wish we at WebAPP Perl CMS could have afford purchasing the report.
At the last WebAPP meeting in London it was agreed to keep our main corecode as pure open source, however we do intend to encourage developers to provide accessories and services for cash too, has anyone tried this business model?’
On Elpeleg
WebAPP Perl CMS
[...] mention). While the actual report costs quite a bit of money, the firm did put up a blog post discussing the research, and it’s not as inflammatory as the title might have made it out to [...]
[...] mention). While the actual report costs quite a bit of money, the firm did put up a blog post discussing the research, and it’s not as inflammatory as the title might have made it out to be. The simple fact is that [...]
[...] mention). While the actual report costs quite a bit of money, the firm did put up a blog post discussing the research, and it’s not as inflammatory as the title might have made it out to be. The simple fact is that [...]
[...] mention). While the actual report costs quite a bit of money, the firm did put up a blog post discussing the research, and it’s not as inflammatory as the title might have made it out to be. The simple fact is that [...]
[...] mention). While the actual report costs quite a bit of money, the firm did put up a blog post discussing the research, and it’s not as inflammatory as the title might have made it out to [...]
[...] The 451 Group has released a survey which says that Open Source is not a business model. [...]
[...] also a few stats in there related to our recent CAOS report Open Source is Not a Business [...]
[...] many commentators have said (and I agree), support is not a scalable business model. Other smaller, more agile, companies can [...]
[...] many commentators have said (and I agree), support is not a scalable business model. Other smaller, more agile, companies can [...]
[...] what open source is not, but the report takes 71 pages to approximate what it can be. Matt Aslett lists the highlights on The 451 CAOS blog, and sums up the larger idea by [...]
I had blogged about my worries on open source models sometime back which is similar to this.
Here is the link to that
Links added with LinkIt
[...] October 27, 2008 @ 11:32 am ET One of the criticisms I have seen out in the blogosphere of our recently released report “Open Source is Not a Business Model” is that it overlooks a group of vendors [...]
1,4 miliardi di dollari…
Stando a quanto riferisce Ben Sargent di Common Sense Advisory, l’argomento principe del recente Common Sense Advisory, l’argomento principe del recente Localization World di Madison, Wisconsin è stato l’annunciato rilascio di GlobalSight in …
Report from the 451 group: How software vendors generate revenue from free products…
Matthew Aslett’s recent blog entry, Open Source is not a Business Model, garnered some strong comments, and I had a chance to read the entire report over the weekend.
The report provides a thorough survey of open source vendors, and a number of t…
It’s Not the Tool, but How it is Used …
A research note from the 451 Group “Open source is not a business model” discussed that selling open source is a tactic rather than a business model. They then went on to discuss the various business strategies of 114 open-source……
[...] recent research report by The 451 Group indicated [...]
[...] recent research report by The 451 Group indicated [...]