Chapter 1 Introduction to the Open Source Business Model

Previously, I thought the way to earn revenue from open source software platforms was obvious. But that's not the case, and despite the unparalleled success of open source software and its dominance in the global software industry, there are still too many startups repeating the same mistakes of previous startups. And there are still far too many large companies that simply don't understand what it means to participate, let alone lead an open source community.

As of early 2017, about 19 years have passed since the term "open source software" was used to replace "free software". Since then, every innovation in computing has been dominated by open source platforms. From operating systems, virtualization and containers to big data, cloud management and mobile computing, innovation is easily generated on open source platforms. The open source ecosystem is so dominant in so many ways that almost the entire world economy is inseparable from open source software. I can't imagine what would happen to the global economy if open source software suddenly became unavailable (like a financial crisis or massive social unrest).

Despite this great success, the world of open source is still missing something: successful open source companies. We're in the middle of a Tale of Two Cities right now: the best of times and the worst of times. The most "successful" open source startups of the past decade have been those acquired by large corporations. While these companies have succeeded in attracting large numbers of users and developers, they have struggled in terms of revenue. There are executives at some of the big open source software vendors who have publicly stated that it is impossible to make money by doing business in a "pure" open source way.

1. What VC investors want

Currently, many companies have adopted a business model of creating the underlying open source platform themselves and then selling proprietary software that integrates with the underlying open source platform. In this case, the platform is free or "free" and the actual product sold is proprietary. This model is called the "Open Core" model (OpenCore) (more on that below), and it's the model most VC-backed companies take.

In fact, only one company has achieved commercial success by selling only open source software: Red Hat. But is this the end of the story? Really as the saying goes "No one can create another successful pure open source software business model"? I do not think so. First, open kernel mode has never had a successful product. The reason companies have adopted this model is that they believe that doing so will increase profits and achieve profitability faster. However, the value of this model lies primarily in the platform itself, treating the platform as a worthless commodity while simultaneously attempting to build proprietary software on top of the platform, ultimately undermining the buyer's market and making a profit. However, such an approach will lead to a constant conflict between the ideas of "crippling open source platforms to enable more proprietary software sales" and "making open source platforms good enough for more users to adopt."

In the modern data center, there is no proprietary software that is widely used in this way, which means that there is no precedent for this model to be particularly successful, with the possible exception of VMware, which uses a stripped-down version of the ESX hypervisor. Linux. Even so, ESX's Linux underpinnings are only a small part of the overall platform VMware builds. From this point of view, the only successful product using open source components has the following characteristics: the proprietary part makes up the platform, the open source part is only part of the commodity, and the open source part is mainly for developers to quickly create new products.

2. Transform business models

However, pure open source systems are growing in multiple industries around the world. There are more and more successful open source platforms, how do they make money? Vendors claim they can't build successful businesses with pure open source, so what's going on? The problem isn't that software vendors can't make money selling open source products, it's that the problem itself is wrong.

On the one hand, software is no longer only developed by software vendors. Consultants, system integrators, in-house developers, cloud hosting providers and many others who create, buy, sell and use open source products can equally develop software. It's not that selling open source software doesn't make money, it's that the business model has shifted. Whereas in the old proprietary world, a larger percentage of money went to software vendors, money is now flowing across a wider range of companies and industries; many people get paid for using or developing open source software, but increasingly The people themselves do not work for the software vendor.

On the other hand, it is the current investment model that is skeptical of the open source business model. The vast majority of venture capitalists, especially those in Silicon Valley, are very risk averse and reluctant to engage with open source products. They believe that open source products will not bring a big return on investment. In order to secure the capital needed to grow the company, investors often demand that startups increase the proportion of their proprietary portion and use this as a tool to increase revenue and profits.

The combination of these two factors - revenue diversification and investor risk aversion - creates an illusion that makes it difficult for pure-play open source software vendors to secure investment.

3. Service and Support Models

Quite a few companies provide services and support on open source technologies, either as a supplement to their products or as a primary source of revenue. However, I didn't spend too much time on this pattern in this book for a few reasons:

l Difficult to expand

I wanted to limit the subject to ambitious business models that could eventually grow into global scale businesses. The service and support model is not necessarily incapable of getting bigger, but it is too difficult to get bigger. If you have money to burn, this model might work. If you don't have money to burn, it's definitely impossible to make it big.

l Investors do not like this model

In addition to the reasons mentioned above, given my love-hate relationship with the VC community, I've learned that they don't want to invest in companies with a service and support model. Investors expect companies to give them a huge return on their investment, and building a service company is a long-term process, at least longer than building a software product, and investors are usually short-term profit seekers.

l Husband and wife shop (small scale)

If you want to start a viable business with a small number of people, and you want to have some exit before turning a profit, the support and services business model is definitely for you, especially if your team has some uncommon challenges welcome skills. More than that, you need to seriously think about how to grow on this model, or whether it's a good idea. Unless, you're just using the cash flow from the services you sell to fund product development, a tactic that startups often use before their initial funding round.

4. Summary

Indeed, there are also many companies that make money using this business model alone. But for a number of reasons, I'm not interested in these companies. The focus of this book is on the product. Specifically, open source products that can be monetized, although some are still skeptical. Some people still believe that the service and support model is the only way to make money with open source software, and this book is an aggressive attempt to counter that view.

Is there a future for pure open source products? If it's what they say, how can you profit from it? In the chapters that follow, I'll investigate a number of open source business models, some good and some bad. I'll also cover some of the details of the process of productizing software from open source projects. The process is simpler and more complicated than you might think. Finally, I'll discuss the role of the software supply chain in open source, and how businesses can manage and influence supply chains to make them more beneficial to their products and businesses.

I just started writing in Open Source China recently, and some subsequent articles will be posted here, mainly in several directions: open source software legal risks, license compliance, business models, and collaboration models. I will also translate some foreign works. Based on the principle of being short and powerful, I will eat less and eat more meals. I hope everyone likes it, and you are welcome to make a brick. Thanks for the support

My email: [email protected]

T 信： DavidTung

Serialization of translation: How to make money with open source software (2)