If you think of open source software as being primarily the work of hobbyists and lone developers, your impression is sorely out of date. While independent developers are still an important part of the open-source community, today much of the work on open source projects is being done by corporate developers.

In a recent appearance at the Open Source Summit, Linux founder Linus Torvalds acknowledged this corporate influence and welcomed it. “It’s very important to have companies in open source,” he said. “It’s one thing I have been very happy about.”

This article highlights some of the leading for-profit companies that are using, sponsoring and contributing to open source projects. It includes a mix of large enterprises, small startups and everything in between.

Some of the companies exclusively offer products based on open-source software, while others sell a mix of proprietary and open-source solutions. But all of these companies play a significant role in the open-source community.

• What Does an Open Source Company do?
• Top 10 Open Source Companies
• How do Open Source Companies Make Money?
• Most Successful Open Source Projects
• What is Open Source Business Model?
• Open Source Business Ideas
• Open Source Business Model Canvas
• Open Source Business Model Meaning?
• Open Source Business Software

What Does an Open Source Company do?

An open source company as any business whose primary product is open source software.

Software that is open source distributes the source code publicly. Because maintaining software is a lot of work, many of the largest open source projects are primarily supported and owned by for-profit companies.

A well-known example is Automattic, the parent company that maintains and distributes WordPress.org. While Automattic now runs several closed source software products in addition to the open-source WordPress, they started primarily as an open-source business.

Read Also: Provide Service And Support For Open Source Software To Make Money

Red Hat, the maintainer of one of the most popular Linux distributions, is another example of a large open-source company. While they continue to build some free, open-source solutions, they offer high-touch services and remote support to maintain the business.

Top 10 Open Source Companies

If you think of open-source software as being primarily the work of hobbyists and lone developers, your impression is sorely out of date. While independent developers are still an important part of the open-source community, today much of the work on open source projects are being done by corporate open-source companies.

1. Red Hat Software

Valuation: $30 Billion

Red Hat is the biggest company that deals in open-source software for businesses. The company was founded in 1993 and is based in Raleigh, North Carolina in the US. Red Hat is widely known for its enterprise operating system Red Hat Enterprise Linux.

The company works on a business model based on open-source software, development within a community, professional quality assurance, and subscription-based customer support. Red Hat makes money on subscriptions for customer services, training, and integration services that help enterprises in utilizing their open-source software products. 

Red Hat makes, maintains, and contributes to multiple free software projects, which shows its open-source spirit. It has bought many companies with proprietary software product codebases and released the software under open source licenses.

As of March 2016, Red Hat is the second-largest corporate contributor to the Linux kernel version 4.14 after Intel. At the end of 2018, IBM announced its intent to acquire the company for $34 billion- IBM’s largest acquisition to date. 

2. Databricks

Valuation: $6 Billion

Databricks provides a unified data analytics platform, powered by Apache Spark to unify data science, engineering, and business. It is a single cloud platform for huge-scale data engineering and collaborative data science workloads. Databricks supports Python, Scala, R, Java, and SQL, as well as data science frameworks and libraries including TensorFlow, PyTorch, and Scikit-learn.

3. Cloudera

Headquarters: Palo Alto, CA

Employees: Approx. 1,600

Annual Revenue: $166.05 million

Why It Made the List: Because it offers one of the most popular supported versions of Hadoop, Cloudera has become increasingly important as the big data trend has taken off.

Its chief architect, Doug Cutting, founded Hadoop, and the company says it has contributed more code to the Hadoop ecosystem than anyone else. Its employees have started more than 20 Hadoop-related projects and are very active on Apache Foundation projects.

4. Confluent

Valuation: $ 2.5 Billion

Confluent is an American big data company which is focused on the open-source Apache Kafka, a real-time messaging technology. The company provides Stream Analytics which gives immediate access to significant business intelligence insights to users through real-time data analytics.

Kafka began for Linkedin in 2010 to handle all the data flowing through a company and to do it in near real-time. Its streaming data technology processes massive amounts of data in real-time, which is valuable in a data-intensive environment in many companies. 

The founders open-sourced technology in 2011. Today, Kafka is mostly used as a central repository of streams, where logs are stored in Kafka for an intermediate period a data cluster for further processing and analysis before the date is routed elsewhere.

While the base open-source component remains available for free download, it doesn’t include the additional tooling the company has built to make it easier for enterprises to use Kafka. Recent additions include a managed cloud version of the product and a marketplace, Confluent Hub, for sharing extensions to the platform.

5. Hashicorp

Valuation: $ 2 Billion

Founded in 2012, HashiCorp is a software company based in San Francisco, California with a freemium open source business model. HashiCorp provides solutions that help developers, operators, and security personnel to provision, secure, run, and connect cloud-computing infrastructure.

HashiCorp gives a suite of open-source tools which work to support the development and deployment of large-scale service-based software installations. Every solution aims at particular stages in the life cycle of a soft product and seeks to automate it.

Hashicorp tools’ have a plugin-oriented architecture to provide integration with third-party technologies and services. Extra proprietary features for a few of those tools are given commercially and are targeted at enterprise customers.

6. Adobe

Headquarters: San Jose, Calif.

Employees: More than 15,000

Annual Revenue: $5.854 billion

Why It Made the List: Adobe has a strong commitment to open source and has more than 250 public repositories on its GitHub site. Some of its best-known open-source projects are developer tools like the PhoneGap web development framework, the Brackets text editor, and the Topcoat CSS library. Adobe staff also contribute regularly to other open-source projects like Gecko, Blink, WebKit, Apache Cordova, Flex, Felix, and many others.

7. Oracle

Headquarters: Santa Clara, Calif.

Employees: More than 136,000

Annual Revenue: $37.04 billion

Why It Made the List: When it purchased Sun Microsystems, Oracle inherited some of the world’s most popular open-source technology, including Java, the MySQL database, the OpenOffice office productivity platform, and the Hudson continuous integration tool.

Oracle has sometimes come under criticism for its handling of these open-source projects and has handed some of them over to non-profit foundations. However, it continues to support open source development and is a supporter of The Linux Foundation, the Eclipse Foundation, and the OpenStack Foundation.

8. Canonical

Headquarters: London, UK

Employees: More than 550

Annual Revenue: $103.3 million

Why It Made the List: This is the company behind Ubuntu, one of the most popular Linux distributions on the planet. In fact, the company claims that Ubuntu is “the world’s most popular operating system across public clouds and OpenStack clouds.” Canonical’s mission is “to make open-source software available to people everywhere. We believe the best way to fuel innovation is to give the innovators the technology they need.”

9. Redis Labs

Headquarters: Mountain View, Calif.

Employees: Less than 100 (est.)

Annual Revenue: Not available

Why It Made the List: Redis Labs is the company behind the Redis in-memory database software, which ranked 12th on the list of influential open-source projects. At the time of writing, Redis was also the most popular key-value store according to the DB-Engines ranking. And a 2017 StackOverflow survey named it the “most loved” database.

10. Microsoft

Headquarters: Redmond, Wash.

Employees: Approx. 114,000

Annual Revenue: $85.32 billion

Why It Made the List: A decade or two ago, Microsoft would have belonged at the top of the list of opponents of open source software, but it has since completely reversed course. In fact, in 2016, Microsoft had more employees making contributions to GitHub projects than any other company.

It now has partnerships with other leading open-source companies, including Red Hat, and it has open-sourced some of its most popular software, including its .NET development tools, Visual Studio Code, PowerShell Core, the CNTK deep learning toolkit, TypeScript, Redis, and many others. It also supports Linux on its cloud computing service and takes a cross-platform approach to development.

DataStax

Headquarters: Santa Clara, Calif.

Employees: More than 400

Annual Revenue: Not available

Why It Made the List: DataStax offers a commercially supported version of the Apache Cassandra NoSQL database, as well as a managed cloud solution also based on Cassandra. It claims more than 500 customers in more than 50 countries. Well-known companies that use its products include Netflix, Safeway, Adobe, Intuit and eBay.

How do Open Source Companies Make Money?

From analyzing successful open-source companies today, five common business models emerge:

1. Support

The support model, also known as the “RedHat” model, goes like this: sell deployment and integration services, production-oriented “insurance policies,” certified binaries, trainings, bug fixes, etc., to businesses deploying the project in production.

This model becomes limiting over the long-term for a few reasons: (1) support often requires a lot of manual work, and so reduces business margins; (2) scaling is hard because support work is often not easily repeatable; (3) it creates perverse incentives on the part of the open-source company, where making the product easier to use cannibalizes support revenue.

In fact, this model works very well when the project requires complex deployments with sprawling ecosystems, which often goes against building the best user experience.

This model is also notoriously inefficient, typically converting less than 1% of all users into paying customers. This inefficiency should come as no surprise. Open-source software itself is free. In order to feel the need to pay for support, a company needs to rely on the project for mission critical systems.

Yet over time, companies that do rely heavily on the project will naturally invest their own engineering efforts to understand the project, reducing the need for external support. So there’s only a small usage window where this model works.

The support model is still where every open-source company starts today. Yet, with all these challenges, and the fact that RedHat is still the only company to build a multi-billion dollar revenue business in open-source in the past 25 years, it’s become clear that open-source companies need better business models than just support.

2. Hosting

Hosting means offering a fully-managed version of your project, so that when users want to try out the project, or even deploy it in production, they can spin up a remote server with the software in just a few clicks, perhaps with the help of an page like https://www.linode.com/docs/guides/connect-to-server-over-ssh-on-windows/ to help guide them on exactly how to go about this, and then not have to worry about operating it in steady state (i.e., not worry about backups, downtime, upgrades, etc.).

Given the popularity of the cloud and managed services in general, it should come as no surprise that this has also become a popular model for open-source. In particular, this has become a common way for the public cloud providers (and in particular, AWS) to monetize open-source projects without giving back to the community, which has led to some complaints and tensions.

The hosting-only model can work well. Some companies (e.g. Databricks, Acquia) have been quite successful with it. Yet typically hosting is layered in with a few of the following other models.

3. Restrictive Licensing

The restrictive licensing model creates a legal reason for users of open-source software to pay. It does this by providing an open-source license with slightly onerous terms, such that anyone using the software in production is highly incentivized to strike a commercial deal with the vendor.

The GPL and AGPL licenses, as well as the newly created Commons Clause (adopted by certain Redis modules), are examples of this model. In particular, AGPL and Commons Clause (as well as the new SSPL launched by MongoDB) are licensed also designed to defend against the public cloud providers.

But this approach has limitations: the GPL-based license restrictions do not restrict unmodified usage, and only apply if one makes modifications and does not want to open-source them; the Common Clause has some ambiguity in its language, and it remains to be seen how this will play out in the courts.

Still, the largest drawback of this approach is that these licenses hurt adoption, often turning off potential users. In particular, there are quite a few large companies that have explicit policies against using restrictive licenses. Because of the inherent friction of this approach, many rule it out, relying on other business models.

4. Open-Core

Open-core has quickly emerged as the most popular way for open-source companies to make money. The idea behind open-core is that the majority of the code base is open-source, while a smaller percentage (targeted at production or enterprise users) is proprietary. The proprietary portion may be packaged into separate modules or services that interface with the open-source base, or could be distributed in a forked version of the open-source base.

Typically the proprietary features are ones needed for production deployments and/or at scale. (As an example, for an open-source database, features like monitoring, administration, backup/restore, and clustering are often proprietary.)

One benefit here is that it allows the open-source company to license the core with a very permissive license (e.g., Apache 2), while retaining the ability to charge for proprietary features. It also allows open-source companies to defend against free-loading participants (e.g., such as public cloud providers) by keeping certain features in the proprietary codebase.

The challenge with this model is in balancing the open-source value versus the proprietary: if an open-source company gives away too much, then it gives up the opportunity to make money; but if it gives away too little, then the open-source project effectively becomes “lame-ware” (and the project will likely fail to get broad adoption).

Another challenge is that cleanly separating the open-source from proprietary features in code is sometimes difficult. Even if separating them is easy, maintaining two different code bases can also be challenging from an engineering process perspective: e.g., managing independently versioned releases that might need to interoperate and/or porting code back-and-forth to prevent code divergence over time.

And often engineers would rather work in the open-source repo than the “business” repo. But despite all these reasons, this model is quite powerful.

5. Hybrid Licensing

The hybrid licensing model is the newest one on this list. Initially popularized by CockroachDB (Jan 2017), and later adopted by Elastic (Feb 2018), hybrid licensing takes the open-core approach but improves on it in a few key ways.

What hybrid licensing does is intermingle open-source and proprietary software in the same repository, and then make the code for the entire repo available. That is, the entire repository is “open code” (or “source available”), just not all licensed under an OSI-approved open-source license.

Users can choose to use a binary with just the open-source bits (available under an open-source license), or use a binary with both the open-source and proprietary bits (available under the proprietary license). The proprietary licensed binary often will have paid functionality that is off by default but can be unlocked by purchasing a license key.

The advantages of this approach for an open-source company include all of the ones listed under open-core, plus a few more: (1) having everything in the same code base makes it easier to manage engineering process and development; (2) it enables the entire team to work on the core project; (3) it allows users to upgrade from free to paid in-place, often without downtime (and without needing to interact with a salesperson); (4) it allows external community members to comment on, file issues on, and (if they so choose) contribute to proprietary features using the same workflow they’d normally use for open-source features (e.g., via GitHub).

Most Successful Open Source Projects

If you’re a developer, open source probably plays a major role in your work. Perhaps you love it just as much as we do, and for that reason, we’ve created this post to share the seven open source projects we admire the most.

1. Apache Cassandra

Number of contributors: 287

• Top contributor: Jonathan Ellis, CTO & Co-Founder at DataStax | @spyced
• Primary language: Java 
• Number of stars: 5,700

Apache Cassandra is a distributed and decentralized database designed to manage massive amounts of structured and unstructured data across the world. It was developed at Facebook for inbox search and open sourced in July 2008. 

One of Cassandra’s most essential features is its elastic and linear scalability, which enables a consistently fast response time. Data is automatically replicated to multiple nodes for fault tolerance and easy distribution. 

Some of the open-source project’s largest production deployments include Apple, Netflix, and Chinese search engine Easou. It’s also in use at Constant Contact, CERN, Comcast, eBay, GitHub, Instagram, and more than 1,500 more companies.

2. TensorFlow

• Number of contributors: 2,383
• Top contributor: tensorflower-gardener
• Primary languages: C++ and Python
• Number of stars: 141,000

TensorFlow is an open source library for numerical computation and machine learning that was created by the Google Brain Team in 2015. TensorFlow is designed to enable the simple creation of machine learning models for desktop, mobile, web, and cloud.

One of the project’s greatest benefits is an abstraction. In other words, TensorFlow allows developers to focus on the general logic of the application while the library handles the details of implementing algorithms in the background. It also provides a direct path to production. Whether on servers, edge devices, or web, TensorFlow lets you train and deploy your model easily in any language or platform.

Some of the biggest companies using TensorFlow include airbnb, Coca-Cola, DeepMind, GE Healthcare, Google, Intel, and Twitter.

3. Renovate

• Number of contributors: 190
• Top contributor: Rhys Arkins, Director of Product Management at WhiteSource | @rarkins
• Primary languages: JavaScript & TypeScript
• Number of stars: 2,600

Renovate is the essential “keep absolutely everything up-to-date” code maintenance tool. Acquired by WhiteSource in November 2019, Renovate is designed to save developers time and reduce security risk by automating dependency updates in software projects. 

We obviously love to Renovate a lot, mostly for its open-first approach and ability to support a highly coordinated and efficient open-source security strategy. 

One of Renovate’s key benefits is its ability to support multiple languages and file types in order to detect dependencies wherever they’re in play. It runs continuously to detect the latest available versions, and provides changelogs and commit histories with every update. You can also run your existing suite of tests on every update to avoid regression errors.

4. Kubernetes

• Number of contributors: 2,441
• Top contributor: Jordan Liggitt, Staff Software Engineer at Google | @liggitt
• Primary language: Go
• Number of stars: 63,000

Over the past few years, containers have become a go-to for software development teams, helping them build, deploy, test, and deploy at scale, and keep up with the hectic speed of release cycles. Kubernetes, an OG in the container space, is an open source project that is designed to automate the deployment, scaling, and management of containerized applications.

Its main objective is to simplify the work of technical teams by automating many of the processes of applications and services deployment that were formerly completed manually.

We love Kubernetes for its automation capabilities, which ultimately saves you money through more efficient use of hardware. Kubernetes allows you orchestrate containers on multiple hosts and scale resources and applications in real-time. 

Special mention goes to K9s, the Kubernetes CLI that makes it easier to navigate, observe, and manage your Kubernetes clusters. 

Some of Kubernetes’ biggest users include China Unicom, Spotify, Nav, and AppDirect

5. Ansibl

• Number of contributors: 4,884
• Top contributor: Brian Coca, Sr. Software Engineer at Ansible | @brian_coca
• Primary language: Python 
• Number of stars: 41,700

Featured in GitHub Octoverse’s list of top open source projects by contributors since 2016, 

Ansible is an IT automation tool that “loves the repetitive work your people hate.” We love this open source project because it eliminates much of the complex, redundant tasks intrinsic to application development and delivery. 

Ansible has risen in popularity because of its simple, human-readable language and ability to automate complex, multi-tier IT application environments. Organizations that are able to eliminate some of the lamented grunt-work their developers face stand to reap the benefits of improved productivity and accelerated DevOps.

6. Geany 

• Number of contributors: 149
• Top contributor: Enrico Tröger | eht16 
• Primary languages: C & C++
• Number of stars: 1,500

Geany is a small and lightweight IDE that runs on Linux, Windows, MacOS, and every platform that is supported by GTK libraries. We love it because it fulfills the need for a flexible, powerful, cross-platform IDE that provides helpful features without congesting your workflow.

For instance, Geany offers syntax highlighting, code folding, symbol name auto-completion, call tips, a build system to compile and execute your code, and project management, among others. Another unique resource is its extensive User Manual and crowd-sourced Wiki and full Plugin API Documentation.

7. Django

• Number of contributors: 1,853
• Top contributor: Tim Graham | @timograham
• Primary language: Python
• Number of stars: 47,100 

Django is a high-level Python Web framework, and it’s very loveable. For one thing, it’s designed to help developers achieve their most important objective: rapid development.

Django is beloved by Python developers because it enables programmers to push apps from concept to completion fast, without the usual hassle of web development. Of course, we also appreciate its dedication to security. It helps developers avoid many common security errors, such as SQL injection, cross-site scripting, clickjacking, and more.

Considering Python’s increasing popularity in the open-source community, we expect Django to continue to grow. Versatile and scalable, many websites have already adopted Django, including Mozilla, Pinterest, Instagram, Open Stack, National Geographic, MacArthur Foundation, and more. 

What is Open Source Business Model?

Although most open source projects do not start as or evolve into companies, companies can grow with open source at the heart of their business model. If you’d like to build a business around open source, here are four successful models to consider.

1. Support and services

Red Hat is the most obvious proof that selling open source software can be profitable. Like Canonical, it offers its software for free and charges enterprise users for technical support services. Red Hat also sells subscriptions to its “premium” distribution, Red Hat Enterprise Linux, which appeals to enterprise users due to its rigorous testing and stability.

Finally, the company sells enterprise software certifications, which allow employers to find highly skilled IT professionals who have been certified by Red Hat and have demonstrated proficiency with Red Hat software tools.

2. Advertisement partnerships

The Mozilla Corporation is a for-profit subsidiary of the nonprofit Mozilla Foundation that generates earnings to be reinvested back into Mozilla’s open-source projects. The Mozilla Corporation earns its revenue from partnerships with companies such as Yahoo, Google, and Amazon, which pay to be included as built-in search options in the Firefox browser.

For example, in 2014 Yahoo struck a deal with the Mozilla Corporation to make Yahoo the default search engine in Firefox—in exchange for a $375 million annual payment.

Adblock Plus, the popular open-source ad-blocking extension, also has an advertisement-based business model. In exchange for a fee, the company offers advertisers the ability to not have their ads blocked by the plugin. (According to its website, it charges these whitelisting fees only to large entities, while providing this service for free in roughly 90% of cases.)

3. Paid additional features

MySQL charges for enterprise-oriented, premium features that are not included in the software’s basic version. It also sells support services. The Oracle-owned company, which describes itself as “the world’s most popular open-source database,” offers a freely downloadable version of its software, as well as three enterprise versions with annual subscriptions ranging from $2,000 to $10,000.

Each subscription tier includes certain additional features that are not present in the free and open-source version but might be useful for enterprise use (for example, external authentication modules).

4. SaaS

Companies can also make money from open-source software by selling it as cloud-based software-as-a-service (SaaS). WordPress.com is one example of this model. WordPress is an open-source content management system (CMS) that has to be hosted on a web server, whereas WordPress.com is a privately held hosting service that runs using the WordPress CMS.

This popular service makes it easier for non-technical users to use WordPress-based blogs or websites; it helps them establish websites without having to deal with the intricacies of installing the WordPress CMS or locating and configuring web hosting. Its success earned Automattic, the company behind it, a valuation of over $1 billion in 2014.

Open Source Business Ideas

While there are many models that work to support small teams, the driver for founders is often to build substantial companies that can help their open source projects continue to grow and establish themselves as the long-term leaders in their space.

Over the last few decades we’ve seen the open source world converge to four fundamental open source business models that can achieve this: open-core, professional services, hosting, and marketplace.

Professional Services (Proserv)

Early open-source models often built on professional services, with companies paying for support and consultancy. While a number of companies have got to scale with this model, it has not been without significant challenges.

Services revenue is often highly-unpredictable and requires significant scaling of head-count which can leaves companies exposed when revenues shift. The margins with professional services are also much thinner than those for product-based companies.

Red Hat’s margin on services last year was 31% compared to 93% on their subscriptions. This means to hire an additional core developer, Red Hat has to make 3x the revenue from consulting as they do from subscriptions. This huge difference in margins has meant that consulting based open-source businesses have typically been consultant-heavy with limited resources to spend on developing their core open source product.

It’s worth noting that Red Hat’s subscription business started as primarily a “support subscription” but evolved into a product offering over time as companies like IBM started to undercut Red Hat for support services (IBM has since acquired Red Hat).

While there are a few companies like Hortonworks (pre-Cloudera acquisition) that still have significant revenue via the pure-support subscription model, support is now something that’s typically bundled with additional product offerings due to the lack of defensibility.

The public market has similarly viewed services based companies negatively. Services companies typically trade at 1x-3x their revenue vs product-based companies which frequently trade at 10x+.

Hosting

In the last decade hosting has become a common offering from open source companies, especially in the data space, enabling end-users to use infrastructure components in a similar way to SaaS offerings without having to be concerned with the operational overhead of managing the infrastructure.

While public open-source companies have generally avoided disclosing margins explicitly for their hosted services, a back-of-the-envelope calculation suggests MongoDB’s cloud business operates at ~65% and Elastic’s at ~40%. This places it above services margin but lower than the typical product margin.

The economics of hosting are driven on the upside by willingness to pay, if the price is significantly higher than the cost of the underlying infrastructure then companies will choose to host for themselves, this is especially true for larger customers who already have sophisticated in-house devops teams.

In recent years cloud hosting providers, most notably AWS have started to offer managed hosting solutions for common open source packages, further squeezing the margins for open source companies. This resulted in a number of open-source products such as Redis and MongoDB changing their licences to prevent such competition from cloud vendors.

The other strategy, chosen by companies such Confluent and Elastic, has been to exclusively offer features in their hosted services that aren’t available in the open-core, creating a blended hosting/open-core model.

While we’re still early in seeing how this plays out, the later strategy is likely a natural extension for companies already building on open-core, especially where licence changes may be controversial among users.

It’s also worth noting that while hosting is often a significant ($100m+) revenue stream for these businesses, it’s often the secondary revenue generator rather than the primary.

For those open-source businesses where hosting is the primary offering, it’s normally combined with significant SaaS or infrastructure offerings that go significantly beyond the open-source core, with good examples being GitHub and WPEngine.

Marketplaces

While often overlooked, the largest commercial success story in open source is Android. While Google doesn’t breakout revenue and margin from the Play store in their annual financial reports, they’re likely to be higher than those of Red Hat which previously held the title.

Mozilla similarly generates the bulk of their $500m annual revenue by providing lead generation to search engines.

While it’s still a relatively rare model, being an intermediary between different parties that interact with your product is a model that open source startups are increasingly exploring, and we’re likely to see a number of additional open-source companies built on this model over the next decade.

Open-Core

In the late 90s and early 2000s, the open-core model was viewed with suspicion, coming in the Microsoft era of “embrace extend extinguish”, where developers worried that companies building commercial products on-top of open source cores would seek to weaken the open source product to make the commercial offering more attractive.

However, over the last decade this has changed significantly, as we’ve seen countless commercial open-source companies prove to be good stewards of their open-source projects, choosing to build products that extend their open-core without directly conflicting with them, in some case placing the open-source project governance under the auspices of non-profit foundations such as the Apache Foundation.

We’re starting to see design patterns emerge for open-core companies, where their commercial offering complement rather than conflict with the open-core. These include:

– Ease-of-use pattern: SaaS, UX, Collaboration tools
– Enterprise pattern: Scalability, Security, Management and Integrations
– Solutions pattern: Use-case specific functionality

What seems to drive these choices are two factors (1) functionality that is valuable to enterprise users and (2) that is unlikely to be contributed by the community and be on the roadmap for the open-core.

It is important for the community to not feel that essential functionality is being held back from the core product. For most successful open-core companies their customers represent only a small percentage of their overall users. Ensuring the success of the open-source product is key to the success of the commercial offering.

Open-core is now the dominant model for recent open-source success stories, including the likes of Confluent, Elastic, and Github.

Open Source Business Model Canvas

Problem

What problem are you trying to solve? Even if you have a wonderful solution to a problem, it has to address your potential users’ pain points, needs, or desires. This is the critical question that any new venture has to ask itself.

Furthermore, that you’ve made your project open source introduces additional questions beyond the actual problem your code addresses. For example, you should have good answers for why you have chosen to open source your code in the first place. Are you trying to build up a community of users? Are you trying to enrich the source code with outside contributions?

Users

Who is your target audience? What does a typical user of your solution look like?

In the open source world, you need to identify the user types who are most likely to contribute to your project and become active super-users. These are the people who will be the cornerstone of your community.

Unique value proposition

If you bump into someone in the elevator and they ask you what your project is about, you need to have a one-line answer that you can easily articulate. This is the promise of your project and it’s critical for any new venture. You need to present how the open source nature of your offering adds to its appeal.

Solution

What solution am I providing to the problem? The solution should include the top three capabilities that actually that solve the problem you have articulated.

When your solution is open source, you need to consider additional aspects. How are you going to license your open source code? The license has a lot of practical ramifications for the future of your project. Another consideration is whether you want to attach yourself to an open source foundation or be independent.

Community relationships

To build up an active community, you need to identify the strategic relationships that you need to foster. Who are the thought leaders in this space? Who can you count on to evangelize the project? In our project, for example, we found that the pre-sales engineers for our enterprise product were very enthusiastic to adopt and promote our project.

Activities

People don’t just find your project. You need to attract their attention through a series of targeted activities. What kind of activities can you carry out to engage project users? Blog posts? Social media? Attending conferences?

Cost and resources

Early in the process you should outline the main costs and resources required to get your project off the ground. In open source, most of the costs will stem from head count (engineers, community managers, etc.)

Adoption criteria

How will you measure the success of your project? What kind of metrics indicate that you are on the right track? The number of contributors? The size of the project? Overall usage?

Channels

After you’ve identified your target users, you need to figure out the channels through which you will get your message to the users. For example, in the world of open-source, you’re likely to find open source enthusiasts hanging out at relevant meetups or conferences. Integrations are also a very strong channel.

Open Source Business Model Meaning?

Open-source software is born free, with source code available for all to see, debug, and even fork. But just because open source software is freely available does not mean it cannot generate revenue. For entrepreneurs building open source companies today, there are hundreds of millions, even billions, of dollars of potential revenue at stake.

In fact, open-source companies are now commanding multibillion-dollar valuations, including MongoDB ($13.6B), Elastic ($9.3B), Confluent ($4.5B), HashiCorp ($5.3B), and Databricks ($6.2B).

How did these companies grow from free projects into billion-dollar companies? They implemented successful business models that expertly walk the fine line between keeping developers happy while also charging their companies for premium products.

The Open Core Model

The open core model makes the core software code available to anyone to use. While this open core can be built by anyone, the most effective model I’ve seen is when a commercial company controls the roadmap and decision-making on new commits for the software. Most open-source software is initially consumed in a self-managed or “on-premise” model, with developers or other users downloading the free open core code from GitHub or elsewhere.

A software company that has steered, governed, and supported an open-source project from the get-go usually attempts to monetize this work through a paid premium model. While the company typically builds many essential components into its freely available open core, it will charge for other features such as enterprise-required security, compliance, collaboration, and high availability. 

The open core revenue model is widely accepted as fair, but open-source companies must execute it with finesse to avoid alienating their user communities. The trick is to provide very valuable function in the open core so developers rally around the platform, creating a groundswell of fervent users.

If a feature is offered for free in the open core, it is a best practice for it to always remain there; anything else is a bait-and-switch that risks angering a developer community, potentially driving them to abandon a platform en masse. That’s why it’s critical, from the earliest days, to think through which features will always be free and which will be premium and then communicate that plan clearly with developers.

Once a developer end-user community is thriving around the open core, a company can begin introducing premium features that appeal to budget-holders such as the VP of engineering or VP of infrastructure. After all, managers never want to take away the open-source tools their developers love, they just want some control over the platforms.

Cloud Services

In the last five years, more and more companies have become comfortable with hosting their infrastructure in the public cloud, offloading even the most critical processes to Amazon Web Services, Google Cloud, or Microsoft Azure. Companies’ newfound comfort with pushing almost all their computing “off-premise” is driving the second part of today’s successful open source business models: cloud services.

Most open-source companies, including Confluent, DataBricks, Elastic, MongoDB, HashiCorp, GitLab, and JFrog, offer at least some of their products via cloud services and the trend is toward a wider embrace of this model. How does it work? 

Typically, an open source company hosts and manages its entire stack, including the features available in the open core and the premium features of its software, in the cloud and charges users subscription or consumption fees to access various tiers of functionality.

Many open-source companies that offer service tiers carry a most basic tier that includes only the free open core. A key decision becomes whether to offer this tier for free, hoping to drive upsells to paid tiers, or whether to charge for even this basic tier. Each successive tier typically adds additional functions or features. 

The promise of these cloud systems is both ease of use and cost-effectiveness, enabling customers to forgo spinning up and managing their own infrastructure to run the service, as well as eliminating the need to train and employ people skilled in such infrastructure.

Relative to the upsell to paid features, the cloud model imposes less friction as well. Rather than having to make the leap with a customer from free open source to a commercial license relationship, which requires navigation through legal and procurement processes, moving a customer from a free tier or free trial of a cloud service to a paid version is a simpler endeavor.

Given these advantages, many open source companies, such as MongoDB, Elastic, and JFrog, have seen strong growth in their cloud services. We’ll see even more momentum building for cloud services in the future, as we’ve seen big announcements from companies such as Confluent and Hashicorp.

Open Source Business Software

Open source business software offers unlimited, fully functioning access to business software on the condition that someone on your team must know how to install and configure the software.

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Open source business software also has the advantage of being really customizable. As long as someone on your team has the necessary know-how, you can easily customize the software to meet your unique needs. We are going to look at some of the best open-source business software you can use in your business.

1. Odoo

This is an integrated open source business software that includes modules for project management, billing, accounting, manufacturing, inventory management, purchasing and billing. All of these modules communicate with one another seamlessly to ensure easy information exchange.

Pros:

• It makes ERP simple
• The interface looks much like Google Drive which means anyone can use it
• It is a web- based tool which makes it accessible on any device

Cons:

• The download version needs to be installed via source code which can be a little bit intimidating

2. ERPNext

This program was featured on Opensource.com as one of the best open source business software of the year. It is built specifically for small and mid-sized companies and comes with multiple modules that include accounting, managing inventory, purchase sales and project management.

Pros:

• It comes with numerous modules in one
• All the available modules integrate very well together
• The whole suite is very easy to use

Cons:

• Some modules are only available when you buy a subscription

3. Dolibarr

This is an open source business software that is tailored to help small and mid-sized business keep track of invoices, contacts, invoice orders and payments. It comes with a very easy to use and clean user interface.

Pros:

• It is use and comes with a lot of great modules that work very well together
• It has an online demo to help you test-drive before installation

Cons:

• There are some modules that will only work with purchased add-ons

4. CUBRID

This is an open source business software that is optimized for use on web applications. It offers a number of different features, each designed to help with data organization on your business. It is particularly useful when you have to keep track of large amounts of data and it is very easy to use.

Pros:

• It comes with multiple granularity locking
• An online backup ensures the safety of your data
• It has GUI tools for drivers for developmental languages
• Comes with 24/7 support

Cons:

• It doesn’t work with Apple systems
• It also doesn’t have a script debugger

5. MariaDB

If you are looking for a much more advanced database management tool, this open source software is the one to choose. It is used by some of the biggest tech businesses including Google, Facebook and Wikipedia. As you probably can already guess, it is primarily designed for business that need to keep track of large databases.

Pros:

• It is highly scalable and easy to integrate with other services
• Offers real-time access

Cons:

• It is missing an optimizer trace
• It may not be easy to use especially for beginners

Bottom Line

Open source software matters to developers in building a career while allowing them to work on some of the biggest platforms around the globe.

However, it also unlocks the doors to innovators who like to contribute to open source projects.

Last but not least, it makes the lives of many individuals and businesses easier by providing them with customized solutions.