A recent Stack Overflow podcast brought up the interesting possibility of open-sourcing the Stack Overflow engine. Jeff was highly in favor of eventually open-sourcing Stack Overflow, while Joel felt that doing so would come in direct conflict with the recently announced Stack Exchange, a hosted version of Stack Overflow offered by Joel’s company, Fog Creek Software.
I’m not even going to attempt to debate the merits of open-sourcing the Stack Overflow engine, as that could take up an entire blog post by itself. Instead, I’m going to discuss whether or not open-sourcing your product will automatically destroy your business model.
The short answer: yes and no. Yes, it will likely destroy your existing business model, but it does not necessarily destroy your business; you simply have to adapt to a new business model.
There are numerous examples of commercial open-source software products that have been able to successfully adapt their business to an open-source model (Firefox, Mono and MySQL, just to name a few).
An open-source business model typically takes one of several forms:
- A dual-license model, where a code base is published under a traditional open source license and a commercial license simultaneously. Vendors typically charge a perpetual license fee for additional closed-source features, supplementary documentation, testing, and quality, as well as intellectual property indenification to protect the purchaser from legal liability.
- Functional encapsulation, where an open source framework or library is installed on a user’s computer separately from the commercial product, and the commercial product uses the open source functionality in an “arm’s length” way (under the argument that the commercial product was shipped without the open source library, even though it uses it). Vendors typically charge a perpetual license fee for the functionality that they provide under closed source, as they usually don’t provide services or other direct value for the open source elements.
- A software as a service model, under the argument that the vendor is charging for the services, not the software itself (because the software is never shipped to customers or installed on their computers). Vendors typically charge a monthly subscription fee for use of their hosted applications.
- Not charging for the software, but only for the support, training, and consulting services that assist users of the open source software. Vendors typically charge an annual fee for support, per-student fees for training, and per-project fees for consulting engagements.
Charging for support & training, as well as value-added services or features seems to be the most popular route for commercial open-source products. Popular examples utilizing this model include Red Hat Linux, WordPress and DotNetNuke.
It’s important to realize that we are dealing with two different classes of users. First are the “enterprisey” users that, for all intents and purposes, have no time and infinite money. Second are the more tech-savvy users who effectively have infinite time and no money.
The first of the two groups is much more willing to pay large amounts of money for an out-of-the-box solution that just works. They either don’t have the time or the technical expertise to setup an open-source product on their own server.
The second group has no lack of technical expertise; instead, they don’t have the money to pay for a fancy hosted solution. For these users, setting up an open-source solution on their own server is often a fun exercise in geekery.
Since the open-source version of a software product is clearly only aimed at the second group, you simply need to market a version of your product to the first group. This can be done through either some sort of support and/or training, a hosted version (such as Stack Exchange or WordPress.com), or value-added services.
It’s certainly not a given that an open-source business model will work for every software product, but I am certain that open-sourcing your product will not automatically destroy your business model – you just have to be willing to change and adapt.
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I try to do that for InDefero a clone of GoogleCode (http://www.indefero.net), you can download the software under the GPL, but also subscribe to a hosting plan. The way is long but I think the advantage, especially if your software is geared towards developers is that the communication with them is really improved by their access to the source, I even get bug fixes by users not having their own installation. But I must say I do not think you get such benefits when your users are not programmers.
Maybe the most important stuff as leader of a product is not open/closed source, but if you feel good with what you are doing, you need to feel good with your business approach because you are the one going to stick with it for a long time!
Loic, that’s a very interesting point you make about the difference in relationship with your users depending on whether or not they are fellow programmers. Most non-programmers probably don’t care much about the open-source distinction, and I’ve even seen where some view it as a bad thing.
I think you missed another model. Open-source the software and sell hardware it works with. Digium (asterisk and telephony cards) and Intel (Linux drivers, Moblin, and all kinds of chips) use this model effectively, to name two of many.