This is one of the questions that I get asked a lot, perhaps a little too often for my comfort, to be honest.
Especially since I started running wealthbot.io (world’s first open-source wealth management framework) at the beginning of this year, it is definitely something that comes up at least once a week…
People are confused. Technology experts, curious developers, financial analysts, well you name it. Although it’s nearly the end of 2015 at the time of writing this blog post, I can’t help but be genuinely surprised at the lack of understanding about what open source software truly is; especially in this day and age, when open source pretty much rules the interwebs.
To be fair, I do not expect everyone to understand the merits and subtleties of open source, but then I came across this mess of an article, ridiculously titled “Why the open source business model is a failure”.
(More like major “CIO” failure)… and I just feel like it’s worth a blog post to say something and clear the air.
Certainly someone who is not in a technology or software industry can ponder the purpose of giving something away for “free”. Although to be clear, the concept of open source software and “giving away free stuff” aren’t even related. Well, as an analogy a garage sale might be in some sense related to an old pair of roller skates, but that’s where it ends.
So … “How do you monetize open source?”.
Asking “how to monetize open source” is the wrong kind of question.
But let’s play devil’s advocate, shall we? While at it, I will do my best to explain why it’s not something you should be asking.
Let’s look at some industry misconceptions.
Aren’t you giving away all your code if you make it open source?
Although one can “take” it, the purpose of open-sourcing a project is to share it with the world. If your business model is selling lemonade, you may open up your lemonade stand design to the world, if all of a sudden your neighbor makes the same stand using your design and starts beating you in sales… then I’ve got news for you, buddy. Your lemonade sucks.
Although in the real world a more likely scenario is that you and your neighbors will collaborate on the design and will eventually all bask in the glory.
(Examples: apache, Ubuntu, nginx, CakePHP, jQuery, node.js, PostgreSQL, Docker… it would take more than a page to write these out)
So fine, how do you make money? Can’t make money by giving something away…
How do you raise a child? How do you build a company? How do you setup a tropical oasis? (well, that last one is actually easy). It is not something that has a simple answer and the question itself requires at least one, but more likely many creative and often times innovative approaches.
As quoted from famous Good fucking design advice: “The problem contains the fucking solution”.
“Open source business model”
First, let’s clarify one simple thing… open source is NOT a business model. It’s a state of your codebase no more, no less (it can be either closed source or open source). Yes, dear experts, your codebase is not your business model, please stop misinterpreting this simple concept.
Maybe I am talking semantics, but it sounds like everyone just presumes that “open source” means “support-based” revenue model. In which case I must’ve missed the memo where it says open source projects are locked-in to a single revenue stream.
Providing support for a fee is not enough to sustain a business
I am actually going to agree with this. But why would you stop there? If you had a closed-sourced version of the software for sale, would you stop after you sold it to 100 customers? Probably not. Would you, perhaps, consider offering support for a fee? (But wait, that’s only for open source projects). What I am getting at is that if a business, which decides to keep their software close-sourced can figure out multiple ways to profit, why do experts corner the open source industry into the one “business model” to rule them all?
- Sell t-shirts with your company’s logo.
- Start a blog and serve ads.
- Build an app marketplace.
- Make your product behave like a framework.
- Establish strategic relationships and partnerships.
- Find new and creative uses for your project.
… point is, think outside the box, go for a walk in a park and look around for some inspiration, if you can’t come up with more than one revenue stream for your business, ask for advice and/or hire someone with a little bit of vision.
Still, that’s not enough revenue
If money is your main motivator you will not be successful. Your product needs to do two things… solve a problem and follow a vision. Money is a byproduct of your efforts.
[ Insert your favorite clever quote ] ← intentionally left blank
You cannot sell open source software
Yes, I can.
Microsoft Office still rules the world
And that’s great.
But everything on the internet including nearly every linux distro, web server or programming language is open sourced.
Facebook had figured out how to use PHP and many other open source tools to make money (they have also gave back to the community in many ways), many companies had figured out how to use Magento to make money, and even some banks (hard to believe) figured out how to use linux to make money.
There are plenty of examples of companies turning profit using open source software (remember the state of your code base is NOT a business model). So not only can you develop a fantastic product you can also use that very product to generate income.
This one little snippet I actually had to quote …
This could help explain why some proprietary software companies are moving their products to the cloud, or at least creating SaaS alternatives. A mature product like Microsoft’s Office suite can largely be functionally replicated by an open source alternative like LibreOffice, but Microsoft’s cloud-based Office 365 product takes the base Office functionality and adds extra services such as file storage, Active Directory integration and mobile apps on top.
Ugh.. No, just no.
The reason these big companies are moving to the cloud is because it’s so much more cost effective, not to mention simply more sane to maintain your code-base AND offer support when the application is running in the cloud, than when it’s downloaded to a million diverse workstations.
Go offer support for MS Office running on Windows 98. I didn’t fucking think so.
If someone honestly thinks that LibreOffice is competing with MS Office, they need to get their head checked.
So what happens when LibreOffice runs in the cloud? Nothing. Why should I use MS Office, if I can use google drive (docs) for free. This argument makes no sense; by that rationale MS Office 365 should be dead before it went live, since free cloud-based solutions were already available. And google already stole a decent chunk of market share from MS Office, granted this specific product is not open-sourced, but unlike “everything Microsoft” they heavily favor open source technologies and use them for a fair share of their infrastructure. Plus, consider a huge number of open source projects, which they have released including a pretty nice OS, which is apparently making them plenty of money. By embracing open source mentality you exist in an eco system that is friendly and transparent, it bolsters community participation and eventually it instills the concept of trust, which is one of the key drivers to success. Many closed-source companies suffer because of the lack of transparency and eventual customer distrust that comes with it.
Eventually closed-sourced products die out… just as well as open source products, the state of code-base doesn’t have much to do with the ability of the CEO/CIO to make the right decisions to ensure a company’s survival. Code-base and a bunch of developers alone will not make a successful company, if that company is just bunch of people with no clear goal or vision in mind.
Fact is, there are thousands of brilliant open source projects on github, many could be turned into a profitable service or software (or a part thereof).. and many already have been.
You just don’t know what you’re talking about
Perhaps I don’t, but then how can you take seriously all the industry “experts” that say open source
business model is doomed…
Here’s what we can’t argue with is. Cold hard data.
Docker — valuation $400 million
Ebay acquired Magento for over $180 million
OpenStack raised $100 million
MySQL was acquired for around $1 billion in 2008
Either all these VC’s are off their rockers or the companies, which chose not to keep their software closed-sourced, simply figured out a way to make money.
Although it seems like the onslaught of anti-open-source comments is just never ending, I will start winding down by saying that by closing the source code of your software, you might actually be doing yourself a disservice. Having a variety of talent and world-wide contribution to your codebase, or having someone other than a select group of employees scrutinize your software’s decision making is a fantastic thing.
Granted, one would have to exercise some reasonable level of organization and security. Thankfully with tools like github, travis ci, coveralls, code climate and many others it is very easy to achieve. Again by employing these publicly available tools, open source projects can gain unprecedented level of trust because there is no fooling the system, everything is out in the open.
The thing is, there is nothing proprietary about your “Add to cart” algorithm, and the quality of the end-product depends on the team that’s building it, the leader that has a vision and an unending desire to solve a problem and make things just a little better.
Even for a very sophisticated software like Adobe Photoshop open sourcing their code base would not be the end of the world. If you think that all of sudden a “more awesome adobe” will spring out of nowhere and outdo the good ol’ Adobe in every way imaginable, then you clearly don’t understand what it takes to launch a seriously competing company. I am willing to bet $20 that the reality would be far different. Adobe would lose small % of their sales, but chances are they will gain more in return. Either by selling more amazing 3rd party filters or simply refining their products faster. Web-based Photoshop is just around the corner.
Will someone get there first?
If you think some designers would rather compile a shit ton of C++ code, package it and hope that it doesn’t crash when some OS library turns out to be slightly incompatible, then wouldn’t you think they deserve to get the product for free, for such an effort?
Again the reality is that most photographers and graphic designers would rather focus on their art rather than compiling “Photoshops”.
In closing, I suggest that you should stop thinking about “open source” vs “closed source” as diverse revenue models or magical bunnies that guarantee your future success. (“You oughtta do it this way, ’cause the other way is wrong…”, OK grandpa).
It is quite simple — open source is a choice (a philosophy, if you will), I chose to keep my product open-sourced because I believe that the end result will be a much more transparent, modularized and well-designed solution. Open source is an alternative, I can offer my project to the community via kickstarter and offer them riches (while in reality creating vaporware), or I could be transparent about my efforts and give the people a right to decide which one is a good product and which one is an overhyped piece of marketing junk.
Cheers from wealthbot.io