How Open Source Companies Stay Profitable

While it’s true that there are many open source solutions that both companies and individuals can acquire and use at no cost, the notion that the phrase "open source" equates with the word "free" is simply not true.

Open source projects are generally developed within communities of enthusiastic programmers who often voluntarily contribute their time. Still, common sense belies the fact that there would be open source companies, like Red Hat, capable of generating more than $1 billion of revenue by offering free products. So while there are many open source solutions that can be legally obtained and utilized without opening your wallet, there are also a slew of them that cost money.

Businesses also make money off open source products in a variety of other non-traditional ways which we’ll explore later in the article. But before doing that, let’s take a look at why the confusion surrounding the costs associated with open source software exists in the first place.

It’s not "Free", It’s "Free"

According to the Open Source Initiative, "free software" and "open-source software" are interchangeable phrases. It’s just that the word "free," in this case, doesn’t mean "without cost." Instead, it has to do with being liberated from the traditional walls of proprietary solutions, as programmers are able to use open-source code as a foundation upon which to build.

That’s one of the primary allures of open source technology: rather than having to invest countless hours into building code from the ground up, programmers are able to collaborate and build it together, or at the very least, use someone else’s code as a starting point for their project that will then also be released back into the open-source community.

In these kinds of environments, code is reviewed and edited regularly so as to ensure its best iteration.

How Open Source Companies Make Money

There are certainly a wealth of examples of open source solutions that are free. However, we live in a world where money matters, so open source wouldn’t be nearly as popular if there was no money to be made in it. The fact of the matter remains that in order to continue existing, companies need to be profitable.

Let’s take a look at five ways open-source companies do make money:

1. Investments

There are many wealthy individuals out there, especially in the tech space. Call it philanthropy, call it a way of trying to buy influence, call it what you will – some open-source companies survive on serious investments.

2. Dual-licensing

You know how Angry Birds offers a free, trial version and also a version that costs money? This happens in the world of open-source too. Oftentimes, open-source companies will dual-license their software, offering free versions as well as enterprise editions.

The hope is that customers will try out the free version and like it so much that they upgrade to the enterprise edition to gain extra functionalities. An example of this can be found in Data Geekery, a Zurich-based company that recently moved dually-licensed its jOOQ database abstraction software so as to generate some revenue to provide support to its existing customers.

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3. Paid support

Any technology is going to act up at some point in time and when it’s not functioning properly, users need support. Some open-source companies have turned toward subscription-based supports models where they let customers use their software for free but they have to pay to get technicians to help ensure it’s working optimally.

4. Competition

Businesses can also decide to release software and platforms into the open-source community in order to grab a bigger slice of the market from their competitors. Perhaps the most prevalent example of this is when Google released the Android platform to the open-source community. At that time, Apple’s iOS dominated the smartphone market. By releasing Android as an open-source platform, Google was able to partner with a wide variety of phone manufacturers.

The result? Android now has a firm grasp on 52.5 percent of the smartphone market compared to Apple’s 41.4 percent. Because the Google Play store now has as many apps as the Apple App store, suffices to say that Google has made a fortune from releasing Android as an open-source platform.

5. Crowdfunding

By now you’re familiar with crowdfunding, the process by which products are supported via donations made in exchange for rewards on sites like Kickstarter, Indiegogo and Bountysource. Recently, an open-hardware laptop project raised more than $700,000 on CrowdSupply, shattering its goal of $250,000. It’s not uncommon for open source projects to pop up on these kinds of sites and gain a lot of traction.

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As you can see, the notion that open-source software won’t cost you a cent is simply not true. It very well might be free in some cases, but money makes the world go-’round, and people, for the most part, do not work for free. Above are just a few ways that open source companies generate revenue, despite the misconception that open source is equivalent to cost-free.