(Or: Not open source business models)

A year ago this week I completed work on our Open Source is Not a Business Model report. The report and its findings have been very much in my mind this week however, as I presented some of the findings to an event organised by Intellect in London yesterday, and due to Stephen Walli’s posts presenting open source business tactics in one slide, and arguing that there is no such thing as an open source business model.

I was reminded that when we published our report its title was seen by some to be highly controversial. That was not our intention - indeed I saw it as a simple statement of fact based on our research findings - but has been interesting during the year and at yesterday’s event to see how the idea has now become widely acknowledged to be true. (I am not saying that it all down to our report, by the way, I think we were somewhat fortunate in that our timing coincided with a wider realisation that references to “the open source business model” were confusing and inaccurate).

I first noticed the tide had turned at OSBC in March when Red Hat CEO Jim Whitehurst declared “there is no open source business model”. This was significant, not just because of the status of Red Hat and Jim, but also because it directly contradicted Michael Tiemann’s earlier claim that Red Hat acquisition Cygnus had created “the open source business model.” (Believe me, contracting Michael was not something I took lightly when putting together the report, although given that Cygnus was the first open source software vendor, his statement was valid at the time).

As I noted in the tweet about Jim’s statement, I had originally wanted to call our report “there is no open source business model” - a statement that Stephen Walli repeated in his post yesterday. The title was rejected by our editors, however, on the grounds that it was improper use of the English language.

I am very glad that they took that decision, because in hindsight the statement “there is no open source business model” would have been inaccurate in the context of our report. We identified that there are multiple models used to build a business around open source: theoretically hundreds.

The way we came to this conclusion was by realising that a business model based around open source software is not a stylized single entity (”the subscription model”, the “dual licensing model”) but a combination of the open source software license for a specific project (the choice of which may or may not be the vendor’s decision) along with three factors that were more often that not at the vendor’s discretion:

1. the product development model
2. the vendor’s software licensing strategy
3. the revenue trigger

An explanation of these and the classifications that we came up with can be found here.

In arguing that “there is no such thing” as an open source business model, Stephen argued that none of the tools or strategies used by vendors to make money from open source are unique to open source.

I would agree with this. If you look at our list of revenue triggers (the things the customer actually pays money for such as commercial license, SaaS, service, custom development) none of them are specific to open source. However, when you look at the development models (vendor, community, mixed and hybrid) and licensing strategies (dual-licensing, Open-Core, assembled open source etc) these are definitely unique to open source. That is to say that open source development and licensing create unique challenges and opportunities for vendors looking to build businesses around open source software.

Stephen writes: “Open source software is a key economic driver from an engineering efficiency and software reuse perspective, but it also opens new opportunities and additional tools for product management to engage better with customers and improve both the top line and the bottom line.”

I agree, but would argue that vendors need to put strategies in place to deal with those opportunities and tools that that are different from the strategies used with traditional software development and proprietary licensing.

It could be argued that the combination of those strategies within a company that has been set up specifically to build a business around open source software would result in what could be referred to as *an* “open source business model”.

Stephen also points out that “when you get into the discussion it immediately degenerates when you try to assign certain companies to certain models”. This is indeed true, which is why we specifically avoided doing so in our report (although we did associate different companies with different strategies, which enabled us to come with statistics such as “60% of open-source-related vendors are utilizing traditional commercial licensing strategies to generate revenue from open source software”. Whether it would be practical or advisable to attempt to do this again is not clear to me right now).

It also gets difficult, as Stephen states, when you begin to look at multi-product companies which use a combination of strategies, which is why attempting to define complete models and associate them with specific companies is a bad idea. It is also difficult when you start looking at traditional vendors utilising OSS for specific projects alongside their proprietary software. However I would argue that - for example - Actuate has assembled strategies for creating a business model around BIRT.

Whether you refer to that as an “open source business model” is a matter of semantics.

What we are verging on here with attempts to define whether a business model is inherently “open source” is arguments around whether it is possible to define an “open source vendor”, something that I have previously done for the purposes of our reports, but which is increasingly futile. As Matt Asay stated recently: “We are all open-source companies now. Which also means that none of us are.”

We are planning to update “Open Source is Not a Business Model” next year and I am somewhat glad that I don’t have to face the problem yet of deciding which vendors will be included in our assessment and which won’t. What I do know is that it would be impossible and impractical to limit our assessment to “open source vendors” not least because - whatever the definition - it would provide an imbalanced view of what we are trying to ascertain, which is how vendors - all vendors - make money from free and open source software.

The trick is not to try to define and pigeon-hole vendors based on their business models, but to try to identify the strategies for creating business opportunities based on open source software that they use within those business models.

I stated above that in “Open Source is Not a Business Model” we identified that there are multiple models used to build a business around open source: theoretically hundreds. At the time I referred to those as “open source business models”. I am confident we will not be doing so this time next year.