Hybrid licensing strategies for open source monetization

One of the issues that has arisen from the ongoing debate about the open core licensing strategy is the continuing confusion about open core compared to the use of open source components in a larger proprietary product – such as IBM’s use of Apache within WebSphere.

To some people there is no difference between the two (since they both result in products that make use of open source but are not open source), however it is clear to me that while the end result might be the same these are very different strategies that involve different approaches to engaging with open source communities/projects.

While open core has a clear definition there is no agreed term or definition for the latter category.

Over the years we have used a variety of terms to describe it, including “open and closed”, “embedded open source”, “open inside” and “open complement”, while Jack Repenning has referred to it as “open infrastructure”.

Our next categorization of open source-related business strategies is still a work in progress but the current thinking is as follows:

  • There are a variety of complementary strategies employed by vendors to generate revenue from open source software indirectly.
  • The simplest of these is open complement which is selling other products and services that are related to but separate from, and not reliant upon, the open source project.
  • Then there is encouraging open source development on top of proprietary products to retain develop interest in that product. This is known as open edge.
  • Then there is using open source software to create a platform for the provision of SaaS or cloud or social networking services (for example), which I am referring to as open platform.
  • Then there is using open source components as building blocks for a larger proprietary software product, which I am calling an open foundation licensing strategy.

(This categorization is a work in progress, we welcome and encourage any feedback)

Open core and open foundation have different evolutionary lineages: open core is a variation on dual licensing as practiced by the likes of MySQL and Sleepycat that also borrows heavily on the value-added subscription model as practiced by Red Hat and JBoss. Meanwhile open foundation has its roots in the commercialization of BSD, which pre-dates the concepts of open source and free software, as well as Apache.

From a practical perspective, the easiest way to think of the distinction between open core and open foundation is via an example:

PostgreSQL is an independent, community-developed open source project. EnterpriseDB offers extensions to the PostgreSQL core, such as Oracle-compatibility, in the form of Postgres Plus Advanced Server.

PostgreSQL has also been used by many other vendors to create commercial products. For example Greenplum used PostgreSQL as the foundation of its Greenplum Database (for other examples see this post). This allowed the company to build on proven database technology and avoid reinventing the wheel, but it also involved the creation of an entirely new product, rather than extensions to an open source project (the company initially actually started a new project, Bizgres, and created extensions to that but Bizgres was last seen in August 2008).

So while open core involves offering proprietary extensions targeted at a segment of the open source project user base, open foundation involves using open source software to create entirely new products, targeted at a different user base.

The example used above highlights three important points to consider when comparing open core and open foundation strategies:

1/ While open core is most readily associated with vendor-controlled projects it can also be used as a strategy to monetize community-controlled projects.

2/ Open core strategies can be used in conjunction with complementary strategies. In the Greenplum example the company’s relationship with Bizgres was open core, while the relationship with PostgreSQL was open foundation. Similarly there is an open core relationship between Actuate’s BIRT products and the Eclipse BIRT project, and an open complement relationship between Actuate 10 and the Eclipse BIRT project. Meanwhile there is an open core relationship between Day Software’s CRX content repository and the Apache Jackrabbit and Sling projects, and a open foundation relationship between CQ5 and Jackrabbit, Felix and Sling – as well as the numerous other Apache projects that Day contributes to.

3/ Open core and open foundation are licensing strategies used as part of a larger business strategy for engaging with and commercializing open source software, which highlights the futility in trying to pigeon-hole companies as “open core vendors” or “open source vendors”.

Finally it is worth thinking about the different tensions that the open core and open foundation strategies create with their respective communities.

As Jorg Janke notes, “looking for an income stream as an open source vendor always results in some sort of conflict with the community. So, you have to pick the community you want to ‘offend’.”

With a vendor-controlled open core strategy the community is a user community, and as we have previously discussed the conflict is in deciding what features belong in the core and what features don’t.

With an open foundation strategy the community is the open source project developer community, and the conflict lies in deciding what features and resources to contribute to that project.

A community-controlled open core strategy arguable results in conflict with both the user and developer communities, although since the vendor does not own or control the project the relationship is much more comparable to the open foundation strategy.

We will be writing more about other strategies for generating revenue from open source software, in a follow-up to our Open Source is Not a Business Model report, which is due to be published latter this year. It will provide more context for the economic motivators and issues involved in the various models, as well as updated research on which vendors are following which strategies, and why, as well as a survey to uncover what software users make of it all. The report will be freely available to CAOS subscribers. For more details of the CAOS research practice, and to apply for trial access, click here.

Tags: , , , , , , , , , , , , , , , , ,

3 comments ↓

#1 Fred Holahan on 07.28.10 at 9:38 am

Useful taxonomy. I’d add that, with open core in particular, the decisions about which features do/not go into the core are ongoing, and are among the most difficult for a vendor to get right. Too little functionality in the core renders the core uninteresting (or non-competitive with other open source projects); too much functionality in the core creates disincentive for commercial cross-over. Open core vendors need to continually examine these trade-offs and adjust as needed. One caveat – you can’t put the toothpaste back in the tube … once functionality transitions to the core, it stays forever.

#2 Speaking at ProActum OpenMeetup in Helsinki, next Tuesday (about Open Core) | OpenLife.cc on 09.24.10 at 4:05 pm

[…] And as usual, please refer to the 451 Group if you want to know the definitions of the various business models above. (another good post here.) […]

#3 451 CAOS Theory » What is open core licensing (and what isn’t) UPDATED on 10.20.10 at 7:36 am

[…] software packages and hardware products. There is a fine line between the two, but as I previously explained while open core involves offering proprietary extensions targeted at a segment of the open source […]