
Problems With Open-Source Business Models - johnmark
https://medium.com/@johnmark/open-source-business-models-considered-harmful-2e697256b1e3
======
tinyvm
I strongly disagree with the hypothesis raised in the article.

First , most open source companies these days are Ventured Back ( Elastic ,
CockroachDB, MongoDB etc..) meaning the core of the issue isn't "AWS" not
paying license fees or people creating tech on top of Open Source , it's VCs
who want their money back times ten.

Companies like MongoDB/Elastic have raised hundred of millions and yet are
still not profitable.

Who's fault is it ? Did the MongoDB community ever asked the company to go
that way ? Did MongoDB presented a roadmap to the community saying that they
would have to be "profitable by Month X" or they would change their licence to
make more money ?

Nobody has forced those founders/companies hands to make their products open
source nor to raise that much capital.

If the industry is turning that way it is essentially because those businesses
have used Open Source as a mean to reach the widest possible audience in order
to increase growth and show great metrics to VCs and investors to raise
absolutely obscene amount of cash.

Vue.js and Laravel are two very well maintain and extremely profitable open
source project.

Those projects did not asked for 150M$ in fundraising and then realized :
"Ooops we won't meet our 100% YoY Growth to satisfy VCs promises".

If some companies are switching their licensing , it's mostly because they
overestimated their technology value and can't show to investors the numbers
they promised.

This isn't due the "AWS Problem" or because of a "wrong business model" with
FOSS.

~~~
john_moscow
VCs don't care about profits anymore. Their bet is on getting hockey stick
growth using tricks good enough not to spook the uneducated retail investor
(that often involves selling dollars for cents) and then dumping the hot
potato into the public market.

It isn't long-term sustainable and it will result in a major correction one
day, but that's the game currently.

~~~
ChrisCinelli
That most of the VCs care is making attractive the company between their
investment and their exit, it is completely true.

That is also why quite often they bring in (and sometimes replace founders
with) "professional" executives before the IPO. Some of these people are not
usually the best people to maximize the long term trajectory of the company
but they bring more confidence to IPO investors.

If you want to have a successful relationship with them, you had better know
their motives and timelines and make sure your company is one in the fund that
looks is going to return enough for their game.

~~~
john_moscow
I find it funny how the ethical side of those games is always conveniently
ignored...

~~~
metildaa
Ethics reduce profit, thus they are ignored when there is no regulator or law
enforcing them.

------
niftich
This post raises a lot of good points about the futility of this new wave of
split-restriction licenses, but misses fairly obvious one. Entrepreneurs think
they want to have an "open source business model" because they have
marketshare-scaling problem: they want their software distributed to a wide
audience such that it gains usage and mindshare, but not wide enough where AWS
is selling their work as a managed service at prices they couldn't by
themselves.

And by and large, giving software away in a combination of gratis and libre
maximizes the gains of mindshare and experience from both the curious amateur
and the intrigued professional; the intellectual and societal implications may
be different, but it gets used by the bulk of users in the same manner as
shareware.

For many of these newer projects, the libre aspect isn't a heartfelt belief --
it's a sort of loss-leader strategy to enable access to a particular type of
audience, and unlock a particular type of language for marketing. Handfuls of
people may exercise their rights to fork and/or redistribute, but plenty of
intrinsic barriers exist to keep these from being a competitive threat --
until a sufficiently equipped and dedicated party like AWS or Google Cloud,
that is.

It's no surprise then, that some offerings are drifting more towards
traditional shareware, where restrictions on use are the norm. In this space,
we're seeing a conflict unfolding about the ideology and terminology used to
describe such split offerings.

~~~
zjaffee
I have to disagree with your premise. Entrepeneurs who are starting these
sorts of companies were often engineers at larger employers and were on teams
where originally built these platforms that had become open source and
relatively successful while they still worked there. Then they realized they
were able to raise funding to start their own company around the software they
previously built and then decided to do so. This applies for most of the
companies mentioned in the article, where open source software later released
by the new companies were the mistakes they had made.

~~~
niftich
I don't disagree with your post; but I think we're talking about different
things, because the article talks about multiple kinds of companies. You're
right that the companies that are now relicensing are ones that were born from
a tool they built first, before monetization was visible goal. I am addressing
companies in a more general sense, when entrepreneurs search for market
opportunities. That's where the article notes that some see "open source" as a
market strategy on its own.

And really, the dichotomy contributes to the situation.

The ones who built useful tool and years later realized it may be monetizable
are hemmed in difficult choices. Do they reneg on open source and go
proprietary from this point forward, effectively forking their own product and
leaving the gratis, libre one -- the one most people will have exposure to --
stuck on an old version? Do they split into an open core and proprietary
enhancements? Do they write a novel license and hope consumers will self-
select into tl;dr harmless amateurs and very handsomely paying corporations?
And if SaaS providers take their old version, and that fork gains ground?

Meanwhile, the ones who used 'open source' chiefly as a customer acquisition
lead will face the same set of challenges. In the end, any artifacts published
under an open source license are forever -- as long as the interest is there,
a sufficiently dedicated party can take it, use it, enhance it, try to build a
business around it, and the like. And any past version is a potential
competitor, so your business models must be tolerant of that fact. They rarely
are.

------
40acres
Software, including open source, has a high fixed cost (lots of developer time
and effort to get version 1.0 out the door) and a low marginal cost (once it's
out there you can distribute via homebrew, for example, for no additional
cost).

With most successful software products, you are paying for the exclusive value
that the software provides, with open source that value isn't exclusive at
all.. I can simply copy your version and try to integrate it myself. So how
does open source software make money?

I think freemium and consulting might be good models. Let's say I'm open
source organization that builds product X, this product is really popular, has
a great developer ecosystem, solid roadmap, lots of folks are using it, etc.
If it's good enough large corporations will try to use this product within
their systems, why not audit how your customers are building on top of your
systems and try to skate to where the puck is going and add an additional
layer of features to support those enterprise use cases?

The challenge with open source comes w/ integration, at a large scale your
open source product is going to be changed to fit the needs of the customer.
As the organization behind an open source product you are in prime position to
be the leading consultant of this product and assist with integration. To me,
this is the best model to make money on open source, however, it requires a
really strong product. Something with very high adoption, not just a plugin
that handles a very specific use case.

------
MrTonyD
I've been working in Open Source for a long time now - decades. The problem I
see is that so many rich and wealthy companies (and their billionaire owners)
are the big beneficiaries of open source. Look at Spark, Hadoop, Linux, gnu
tools and others - who uses them at a large scale? It is the wealthy companies
who avoid paying salaries for the development of those tools. So I've become
convinced that we should distinguish between small companies and large
companies, and that small companies should get to use open source, while the
big wealthy companies should be required to pay. It should be analogous to the
free software given to education - with restrictions in license. (Of course,
this won't happen. I'm just sharing my perspective.)

~~~
tdb7893
I don't understand how big companies using it is a problem. Is them using it
hurting the projects somehow?

~~~
Kalium
The idea is that big companies have money to spare and small companies don't.
Therefore big companies should be paying for the benefits they are receiving
to support the tools they rely on.

I'm not convinced personally, but I think that's the idea.

------
davidw
To have a viable business, you need to figure out what sort of scarcity you're
going to take advantage of:

[https://journal.dedasys.com/2007/02/03/in-thrall-to-
scarcity...](https://journal.dedasys.com/2007/02/03/in-thrall-to-scarcity/)

If the software is open source, the software itself is not scarce, so it makes
it a bit trickier to figure out.

~~~
finnreid19
I run a Discord bot on ~30,000 servers and my bot is completely open source.
Clones have popped up, but nothing can beat the network effect of having my
bot's messages popping up in chats and other people adding it to their
servers.

------
jcoffland
From the I'm-going-to-take-millions-in-VC-money-and-build-a-billion-dollar-
unicorn perspective Open-Source will never make sense. I propose that it is
the investment model that is flawed. Open-Source has many benefits that have
nothing to do with making investors rich.

------
aequitas
A talk worth watching about this is "Why I forked my own project and my own
company ownCloud to Nextcloud"
([https://www.youtube.com/watch?v=UTKvLSnFL6I](https://www.youtube.com/watch?v=UTKvLSnFL6I))
about how a Open core approach failed in many ways and a great inspiration on
how a Open source business model can succeed.

------
vortico
>There is no Open Source Business Model.

Careful about universal claims. [https://vcvrack.com/](https://vcvrack.com/)
is an open-source business model and it works great for me.

~~~
kuhhk
Why does this start downloading a file to my computer the moment I click on
that link? That's pretty shady...

~~~
vortico
It definitely shouldn't. What is the filename? Do you have any compromised
browser extensions or malware on your machine?

------
satvikpendem
> Once you begin with the premise of “I need an open source business model”,
> it leads you down a path of “I need to monetize my project” rather than “I
> need to build a product that delivers value”.

This is exactly how I feel as well. I am working on an open source to-do list
+ calendar ([https://getartemis.app](https://getartemis.app)), source at
([https://github.com/satvikpendem/Artemis](https://github.com/satvikpendem/Artemis)),
and I try to subscribe to the same philosophy as Sentry[1] and Ghost[2], two
popular products that are also open source but do not avoid generating revenue
because of that.

One must always strive to compete, whether it be through business model, or
more often, product. You can release a good proprietary product, or similarly,
a bad open source product; the quality of being open source does not
necessarily add nor detract from the quality of the product itself. Sure, one
can `git clone` the product, but due to the other factors in the business, the
"soft skills" such as marketing, branding, sales and general business
development, no one can reliably copy the company still generate substantial
revenue [3].

This is not to say, however, that if your company is infrastructure such as a
database, that no one will copy and monetize that better than you; they may,
even in general usage of the product, but what is missing is the lack of
vertical integration within the product. A database is just a part used in the
whole of a new product, not the whole in and of itself. That is why if I
desire to make substantial revenue from an open sourced product, I would make
it a fully integrated product, just as any proprietary one, and that is what I
am to do with Artemis.

[1] -
[https://github.com/getsentry/sentry](https://github.com/getsentry/sentry) [2]
- [https://github.com/TryGhost/Ghost](https://github.com/TryGhost/Ghost) [3] -
[https://ghost.org/about/](https://ghost.org/about/)

------
softwaredoug
> But many of these companies experience difficulties with respect to their
> business models, as can be seen from a bevy of recent licensing schemes that
> attempt to straddle the line between open source and proprietary.

It's not clear to me that Open Core has really failed. Case in point, Elastic
just IPO'd for billions and has an open core. In their case they completely
develop their project. Their community is something of a user community, and
the contributor community is heavily Elastic managed.

Sure those in the contributor community might complain about how hard it is to
contribute, but 99.9999% of the community is more in the 'user' end of the
spectrum and appreciate the stability of having a single company's vision and
backing

I'm not sure its in the spirit of open source, but that's not the question.
The question is about effective business models.

(more fundamentally 'open core' can mean so many different models it may be
becoming meaningless)

~~~
bragh
The problem with Elastic is that their security features are not in the open
core and so people tend to skip on that by not even rolling their own IP
whitelisting/authentication with a reverse proxy. This results in a huge
information leak ending up in the news every few months and you having to
explain to your sysadmins and IT that no, Elasticsearch is not insecure as a
product, it's just how those people at SoLoMo PwnMeNow Inc. used it.

------
cryptonector
The best open source business model I've seen yet is SQLite's. That business
model goes as follows:

    
    
      0. produce something very widely useful
      1. wait for it to become essential
      2. create a consortium and profit from the dependence bred by #0
    

Granted, bootstrapping that is really really difficult.

~~~
stingraycharles
The problem with this model is that quite a few of these open source companies
are funded by VCs. In this case, a “consortium” is just never going to cut it,
revenue-wise.

The most profitable way appears to be to offer a cloud-hosted solution, and
herein lies precisely the problem with AWS et al providing these services by
taking the OSS software for free.

~~~
cryptonector
I don't see the problem.

First, SQLite's developers are not an open source company funded by VCs. I
don't know what funding they had originally, but they've leveraged their
success into a well-funded consortium. Does it matter if it could or could not
work in combination with VC funding? No: what matters is that the developers
got funding, end of story.

Second, I don't see why a company (regardless of funding source) couldn't spin
off a consortium to fund further development of some open source created by
that company.

Your goal seems to be "profit", which is a fine business goal. Open source is
a fine business tool, but not so much a fine business _goal_. It can help you
profit, but it can also hinder. Open source is a business tool to be applied
on a case-by-case basis.

Open source is not easy to use as a core business value. That's because the
most important core value to any public corporation is profit, and open source
does not intrinsically lead to profit. Building a for-profit business around
open source projects with open source as a core business value is undoubtedly
difficult. Indeed, the example I gave is of a non-for-profit organization that
funds development of one project.

Open source is a tool with following costs and benefits (and risks), some of
which are:

    
    
      - cost: loss of confidentiality for "secret sauce"
        embodied in open source
      - cost: the cost of opening a code base and keeping it open
      - cost: dealing with a community
      
      - benefit: good will
      - benefit: mind share (this is the big one)
      - benefit: quality (hopefully) contributions from
                 the community
      - benefit: credit (especially for developers, which
                 functions as a form of compensation and
                 recruitment incentives)
    

If for some project open source is a tool whose costs exceed the benefits,
then don't open source that project. It's that simple.

------
kemitchell
If by "open source business model" you mean a model that entails getting paid
for production of open source software, directly, there are several.

Paid open source development happens all the time. If you pay me, I will
release open source to do such-and-such.

Despite decades of continuous doomsaying, new dual licensing companies pop up
all the time. If you use my open source to build closed, pay me for an
exception to my copyleft license's terms.

Those are just the simplest and best known. There are others, as well as all
manner of hybrids, explored and unexplored. My latest work theorizing
approaches---modelling business models, so to speak---is here:
[https://blog.licensezero.com/2018/10/17/mapping-
models.html](https://blog.licensezero.com/2018/10/17/mapping-models.html) My
outline of "purebred" models begins here:
[https://blog.licensezero.com/2018/10/17/mapping-
models.html#...](https://blog.licensezero.com/2018/10/17/mapping-
models.html#purebred-models-overview)

> Amazon and Google are not going to use your software, particularly your
> management software, “out of the box”, proprietary or no. They’re going to
> build their own management UX and UI, because they have their own particular
> requirements to serve their needs, and they’re going to build them using
> existing platform APIs.

Licenses like MongoDB's SSPL leverage exactly this fact to address their
business concerns. Mongo knows the big cloud providers are going to do their
own custom service rigging, _and that they 'll keep it closed and
proprietary_. SSPL gives permission to use Mongo to offer Mongo as a service,
but requires open release of the service rigging.

I don't think companies writing and adopting these new licenses want to sell
cloud providers proprietary licenses through their sales funnels. I think
they'd rather stop cloud providers from offering their databases as services,
full stop, or cut special deals with the cloud providers to resell their cores
(Mongo) or popular add-ons (Redis, Elastic, ...).

> You’re not going to resolve your own business mistakes by reverse-
> engineering a licensing solution to what was essentially a business model
> problem.

Business model and license do not inhabit separate domains. They always
intertwine.

------
eruci
I was pondering this very question as I just launched an open source reverse
geocoding/geolocation name service API (
[https://3geonames.org/api](https://3geonames.org/api) ) whose business model
consists upon selling a nicely packaged server AMI on AWS.

It works well both ways, in the sense that those who are capable coders may
download and configure/install the software themselves.

Some others will just skip the hassle and buy the Marketplace version.

It is a win-win situation, insofar as someone does not take the time to
repackage it and sell a competing version on the AWS Marketplace or some other
sales channel.

I have not figured out that part yet. Any suggestions?

~~~
0xdeadbeefbabe
Poor documentation is a strategy, and if it's poor enough you can run your own
university/camp. A large complicated codebase is another strategy.

Edit: Strangely enough, I don't know anyone who did this on purpose.

~~~
eruci
I don't do that on purpose, but I'm guilty on both counts.

------
EGreg
_Once you begin with the premise of “I need an open source business model”, it
leads you down a path of “I need to monetize my project” rather than “I need
to build a product that delivers value”_

And where do the resources come from to hire people and build it?

------
buboard
This is almost absolutely correct. Pity there isn't even a model to monetize
the blog post, though. Monetization is a problem across the internet that
seems to benefit the behemoths.

Perhaps we need a middle-ground between open source and proprietary? Open
source often becomes a signal to find business partners with similar potential
needs. Perhaps you could share source with only 'approved partners', so you
can together make "some money" instead of ($0 xor $1billion)

~~~
tomcam
There are many ways one could monetize blog posts. It is not obvious to me
that most blog posts are worth any money at all. Let’s take the best case
scenario: How much are you willing to pay for the blogs that you read?

~~~
buboard
$0.20 per article. That's $300 CPM

~~~
tomcam
That’s a fair number. I am ashamed to admit, however, that I suspect I would
second-guess too many blog entries and decide it wasn’t worth the money.
Weird. I am disappointed in myself. But I typically read at least dozens of
blogs a day. It could really add up.

~~~
buboard
oops $200 cpm. Still, $1-2 per day is nothing to fret about for most ppl in
the west

------
kevinAtStorj
While traditional cloud providers have certainly made it difficult for open
source companies to monetize the cloud, it seems that the marriage between
decentralized cloud protocols and open-source is opening up new opportunities
for OSS monetization.

Decentralization takes the principles of open source and applies them to the
very infrastructure on which software runs.

At Storj, for example, we have an Open Source Partner Program that attempts to
solve the ‘Amazon Problem’ by enabling any open source project to generate
revenue every time their end users store data in the cloud.

Storj tracks usage on the network and returns a significant portion of the
revenue earned when data from an open source project is stored on the
platform. Critically, this enables open source projects to derive sustainable
revenue from usage, whether by commercial customers or non-paying open source
users.

In my opinion, this can help drive and support the next wave of Open Source
monetization models.

~~~
wartakode
Hi @kevinAtStorj, I'm really interested with 'Amazon Problem', is any further
reference with this company behavior?

As I'm aware (personal experience) not only Amazon taking profit from open
source, and there are more company use open source for their core product, but
not giving any feedback to open source community.

Thanks

~~~
kevinAtStorj
Check out: [https://storj.io/blog/2018/08/enabling-economic-
empowerment-...](https://storj.io/blog/2018/08/enabling-economic-empowerment-
for-open-source-companies-via-the-storj-network/)

------
ChrisCinelli
What are some companies that had 80% or more of the code they wrote open-
sourced that ended up with profits of more than 1/2 million a year?

Are premium add-on and support/consulting the model? Any platform company that
made it?

------
xmly
If you are building a prop software/service above open source, your business
success depends on two factors: 1. the popularity of the open source and 2.
the goodness of the prod software/service.

~~~
xmly
Comparatively, the business who only builds one software is much simpler.

But for open source software itself, the success is not measured by money,but
popularity and impact. Linus is successful on Linux work. People and history
would remember him. Who cares about VCs in making history?

------
ChrisCinelli
I have been in some open source communities where making money was a recurring
problem for the main contributors. But money was never the reason why people
started contributing code to the project.

------
xte
The problem is that we must _mandate_ by law software to being open, easy to
use, modify and deploy with simple means, that's to guarantee our freedom and
democracy.

Than the business model instead of selling (cr)app and training and migration
solutions, certifications, ... we can sell time&knowledge of programmers and
operation.

Of course in this case many "administrative" & "marketers" will loose their
job, but that's have a name: natural selection that it can be pushed a bit but
sooner or later it will came by nature.

------
loktarogar
I'm sick of these "considered harmful" articles

------
studentik
Bread and butter is also 'open source', but not 'free'. There is no problem
with 'open source' that is free for non-commercial usage and paid for
commercial usage. Is this what GPL is about?

~~~
ghaff
That's not what the GPL is about at all. No (OSI-approved) open source license
has the distinction that you draw and one that did wouldn't be approved. (And
it wouldn't be an open source license in the eyes of the Free Software
Foundation either.)

~~~
studentik
Thank you! So charging for commercial usage is not considered 'open source'
even when source is actually available?

~~~
ghaff
You can absolutely charge for a product that is based on an open source
project. A simple example is you charge for support of an open source project.
However, you _cannot_ tell users that they can't use the (unsupported) open
source bits for commercial purposes without paying you. Doing so would not be
allowed under any approved open source license.

~~~
zzzcpan
> However, you cannot tell users that they can't use the (unsupported) open
> source bits for commercial purposes without paying you. Doing so would not
> be allowed under any approved open source license.

OSI approved open source that is. And you can tell users anything you want
actually. What you can't do with OSI approved open source license is choose a
license not approved by OSI, doesn't matter what it says.

But OSI approved open source is not true descriptive open source. SQLite, for
example, is universally recognized open source, but not OSI approved. You can
go this road and use a descriptive term and ignore OSI and its corporate
backing.

~~~
ghaff
The SQLite distinction is because it's public domain which the OSI doesn't
consider open source mostly because "public domain" can have a somewhat funny
legal status.
[https://opensource.org/node/878](https://opensource.org/node/878)

So, yes, you can have an open source license that isn't OSI approved. However,
leaving aside a few edge cases like public domain, there's pretty wide
acceptance of OSI licenses as the population of significant open source
licenses.

[ADDED:In practice, the FSF's list of free software licenses and the OSI
approved license list line up pretty closely--with the exception of PD+source.
If someone wants to argue that the FSF's list is the one we should go by, I'm
not really going to argue.]

I do think it is potentially appropriate to have thoughtful discussion over
whether the current open source definition is too narrow but I also think it
is useful to have a generally agreed-on definition.

