There’s No Such Thing as an Open Source Business Model

Open source technology works best when it’s adopted as a series of strategies and tactics that support a core business model—not the other way around.

With all the talk about open source business models, the title of this article might seem a bit odd—especially when is written by someone whose entire job is to support an ecosystem surrounding an open source software project. Bear with me.

We all know what comprises a business model. But when we focus a company’s products around open source technologies, we suddenly start acting like there’s something fundamentally different about the business itself. 

While I agree that open source, as both concept and movement, has made a huge impact on our economy across nearly every industry, it’s my belief that many enterprise technology companies (especially startups) are losing sight of the difference between their business and the open source projects to which they are tied.

Pressures on an Open Source Oriented Company

Venture capital-backed startups in search of an open source business model quickly find themselves in a tough situation. Investors want returns, but the open source community expects free software and a healthy community. Other pressures, such as the natural erosion of differentiating features in a commercial version of the software through the community’s own development efforts, add to the stress. 

Furthermore, the more the open source version of the software is used in the enterprise, the more likely that competition will emerge. The most challenging competition for software vendors is that hyperscale cloud providers can offer fully managed versions of the open source software. These cloud providers pride themselves on being quick to recognize the opportunity to support customer adoption of open source. This is intimidating to founders and investors alike, but attempting to create new “almost” open source licenses isn’t the answer.

When It’s Done Right

Instead of thinking of open source as a core component of your business model, define a business model that can stand on its own as a software or services company. Open source works best for a technology company when it’s adopted as a series of strategies and tactics that support an otherwise sound business model—not the other way around.

I’m not the only person in this space that thinks this way. Earlier this year at the Linux Foundation’s Open Source Leadership Summit, I had the pleasure of seeing GitLab CEO Sid Sijbrandij share details about how the company he co-founded iterated and eventually landed on a business model that takes advantage of open source technology without being completely reliant on it.

Open source is a shared approach to research and development among a community of individuals or like-minded companies working together to create an asset for anyone’s use. The entire notion of open source is predicated on the creation of a community for the purpose of developing software that can help organizations of many types and interests achieve their desired outcomes. This community—which includes your customers, end users of the open source software and even competitors—is where open source projects are able to create massive amounts of value. The trick for any company building, or helping to build, open source projects that are key to their commercial efforts is to focus on dual tracks:

1. Support the growth of the community.
2. Ensure you monetize a reasonable percent of the overall value that is being created.

GitLab has been very thoughtful about its approach. While the core of GitLab’s product is open sourced, the DevOps lifecycle tool was built with multiple components that create a more valuable experience than any open source technology can deliver on its own.

The critical challenge for GitLab—and any business, frankly—is revenue generation. Instead of selling itself as an open source vendor, GitLab has wrapped multiple proprietary features around its open core. That, in turn, allows GitLab to package proprietary features and support for that open source core as a more impactful and valuable proposition for enterprises.

The goal is to create something that is unique and unlikely to be replicated or commoditized by other vendors. GitLab focuses on selling predominantly to executives and, to a lesser extent, it sells a lower cost version of its product to departmental managers. It also offers a free version to individual developers or small developer teams to drive adoption, interest and shared development of its open source core.

GitLab made the bold decision to make a full-featured version of its Git-repository manager available for free to small teams. As with any software, once it’s adopted more broadly within an organization, new challenges will arise. That’s where a company can come in and offer enterprise-scale licenses, complete with features that solve problems that are unique to that wide adoption.

That’s a very big difference in the way GitLab thinks about its business model, and it has led to a series of clear decision points about what it should make proprietary and what should be included in open source software. This approach allows them to build a community around open source, affords them ample goodwill, a groundswell of adoption and the benefit of tremendous developer feedback. It’s a perfect example of a company that uses open source for a set of strategic goals that supports a standalone business model. 

Your Next Move

It’s critical for some aspect of your business to be proprietary or well-differentiated from open source projects that are readily available. Adding capabilities, integrations, different features and enterprise class support will extend what an open source project can accomplish on its own.

For example, if your product requires enterprises to put in a lot of work to adopt and implement it, it makes perfect sense to develop a strong services division as part of the hook to make your organization critical to the success of its customers. We should all be striving to solve difficult problems that are fairly unique to larger enterprises. 

Remember: there’s no such thing as an open source business model. The business needs to make sense on its own. Work from the outside in, rather than the inside out.