FOSS - Business Models

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# CSCI-UA 480: OSSD

<br>

# Business Models and Business Use of (F)OSS.

.author[
Instructor: Joanna Klukowska <br>
]

.license[
Unless noted otherwise all content is released under [CC BY 4.0](https://creativecommons.org/licenses/by/4.0/).
]

---

## Why Companies Use OSS?

Traditionally, companies used Open Source to save money (Free as in beer).

Today, the shift is toward Strategic Agility:

- **Avoiding Vendor Lock-in** - controlling your own technical roadmap.

- **Talent Magnet** - top developers want to contribute to projects that build their public reputation.

- **Accelerated Innovation** - using industry-standard "plumbing" to focus on unique features.

- **Interoperability** - ensuring your software plays well with the rest of the ecosystem.

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## Open Source is NOT a Business Model

## but,
## there are business models that are
## built around open source projects

---

## Red Hat: The Pioneer of OSS Business

Before Red Hat, many believed you couldn't build a billion-dollar company giving away code.

- The Early Days (1993-1999): Founded by Bob Young and Marc Ewing. They realized that while the software was free, Enterprise Stability was not.

- The "Shrink-Wrap" Era: Initially sold boxed sets of Linux in bookstores. This proved there was a market for convenience and packaging.

- The Subscription Pivot: They shifted from selling "versions" to selling subscriptions.

- You don't pay for the code; you pay for the certification, security patches, and support.

- This provided the recurring revenue needed to hire full-time developers to work on the Linux kernel.

Red Hat became the first open-source company to reach $1 billion in revenue (and was later acquired by IBM for $34 billion).

---

## Classic Revenue Models
### (How to make "Free" profitable)

- **Support and Services** - selling expertise, service level agreements (SLAs), and training (e.g., Red Hat).

- **Paid Additional Features (Open Core)** -  proprietary "enterprise" add-ons on top of a free core (e.g., GitLab).

- **Software-as-a-Service (SaaS)** - charging for hosting, scaling, and managing the OSS (e.g., WordPress.com, MongoDB Atlas).

- **Dual Licensing** charging a fee to companies who want to use the code without the restrictions of the OSS license (e.g., MySQL)

- Other Notable Models

- **Donations/Foundations** - crowdsourcing funds to keep the project neutral (e.g., Wikipedia, Mozilla).

- **"Peace of Mind" (Tidelift)** - acting as an intermediary to guarantee security and maintenance updates to enterprise consumers.

- **Bounty Driven** - paying for specific features or bug fixes (e.g., GitHub Sponsors).

---

## Open core

The idea is to keep two _versions_ of the software:
- provide the core of the project as open source
- keep addons, customizations, improvements as proprietary

Form [Musings on open source software business models](https://spot.livejournal.com/327801.html)
is  an article by Tom Callaway:

>The purpose of the proprietary software is to improve the usability of the open source “core”, and the business model is structured around the belief that customers want to use the “core” but get value from the usability wrapper. In other cases, there is a proprietary fork of an open source core, which contains extra features not found in the “core”.

---

## GitLab

- [What to consider with an open source business model](https://about.gitlab.com/blog/2019/07/05/thoughts-on-open-source/)

- Discussion between GitLab CEO Sid Sijbrandij  and OSS Capital founder Joseph "JJ" Jacks:
[open core definition and how GitLab got there](https://youtu.be/jk_DNX8LGuM?t=140)

---

# Software Consulting

- provide consulting to other businesses regarding the use of open source in
their daily operations
- provide consultation for starting and running an open source project

---

# Subscription Offerings

- provide services that accompany the software that is otherwise
available to anyone who wants it
- examples of such services:
    - installation
    - maintenance
    - training
    - localization
    - day to day support

---

#  Donations

- provide the software or service and encourage donations
- sell products branded with the company name

Examples:
- [Mozilla](https://www.mozilla.org/) - collection of web-tools, 
[How Does Mozilla Make Money? Mozilla Business Model Analysis](https://fourweekmba.com/how-does-mozilla-make-money/)
- [Wikipedia](https://www.wikipedia.org) - open encyclopedia

---
# Software as a Service (SaaS)

- customers subscribe to an online service (the software running there
is open source, but it is the service that generates revenue)

- started as a result of industry frustration with _commercial off-the-shelf_ (COTS) software
that was hosted on premises and managed by local IT

- frequent overlap with open core model (i.e., companies can do both)

Examples:
- [Wordpress](https://wordpress.com/)
- [Blackboard](https://www.blackboard.com/)
- [AWS](https://aws.amazon.com/)

---

# Dual Licensing / Selling Exceptions

- software is available under the open source license,
- exceptions to that license are made (for a fee) to allow
a third party company to use it under different rules

Examples:
- [MongoDB](https://www.mongodb.com) - database
- [MySQL](https://www.mysql.com/) - database

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# Peace of Mind

- acting as a middle-men between the company consuming the open source software
and the open source project itself
  - charge the consumer in exchange for guarantees that the project will be supported
  and will continue development
  - support the open source project (financially)

---

# Bounty driven development

- third party companies using the open source software
pay to have the bugs fixed and new features implemented

Examples:
- [Caprine](https://sindresorhus.com/caprine/)

- [GitHub Sponsors](https://github.com/sponsors) 
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## The "Joint Development" Era

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## The Commodity vs. Differentiation Rule

- In many industries, companies realized they were wasting money competing on the _"plumbing"_ (commodity).

- Commodity Layer: 
    - file formats, 
    - base operating systems, 
    - network protocols.

- Differentiation Layer: 
    - user experience, 
    - creative artistry, 
    - unique algorithms.

- Strategy: collaborate on the commodity layer to share costs, then compete on the differentiation layer.

---

## Case Study: The Film Industry

[Academy Software Foundation (ASWF)](https://www.aswf.io/), and their [about page](https://www.aswf.io/about/)

- The Problem: Every studio (Disney, DreamWorks, Sony, ...) had their own formats for smoke, fire, and 3D models. Interoperability was impossible.

- The Shift: Formed the ASWF to standardize tools.

- Examples:

- [OpenVDB](https://www.openvdb.org/): Standard for volumetric data (fire/smoke), originally from DreamWorks.

- [OpenColorIO](https://opencolorio.org/): Standard for color management, originally from Sony Pictures Imageworks.

- [OpenAPV](https://github.com/academysoftwarefoundation/openapv): A new royalty-free codec (Samsung) added in late 2024 to enable high-end professional video without licensing friction. This 
    is an attempt to provide codecs that do not lose details (so AI tools can be trained on high quality, high detail data). This project 
    also promises to keep high level of metadata guaranteeing ability to track what content was human-generated, vs. AI-generated.

- Studios now compete on storytelling and AI-augmented creativity, not proprietary file formats or basic tool-sets.

[Transformation of an Industry: Open Source in Film](https://www.crowdcast.io/e/open-source-in-film)  and on [YouTube](https://www.youtube.com/watch?v=DDfD3uvsjtA)

[Disney’s ‘Moana 2’ Sets Sail with Help from Open Source Tools](https://www.aswf.io/blog/disneys-moana-2-sets-sail-with-help-from-open-source-tools/)

[ASF Open Source Forum, 2026](https://www.youtube.com/playlist?list=PL9dZxafYCWmzh0ZwMH0VCWM0JBGZXzRcI)

---
## Case Study: The Auto Industry

[Automotive Grade Linux (AGL)](https://www.automotivelinux.org/)

- The Problem: Every car brand built a custom OS for infotainment. They were often buggy and outdated.

- The Solution: Toyota, Mazda, and Mercedes-Benz contribute to a shared Linux-based core.

- Standardize the "plumbing" (Bluetooth, WiFi, Navigation) so they can focus on custom branded apps and autonomous driving logic.

- Cloud-to-Car: Collaborations (e.g., Honda, Panasonic, AWS) to standardize how vehicles talk to the cloud.

- RISC-V & Flutter: Shifting toward open hardware (RISC-V) and high-performance modern UIs (Flutter) to drive the digital cockpit.

[Automotive Grade Linux at Embedded World 2025](https://www.youtube.com/watch?v=49sRxkIkDC0)
---

## Case Study: Finance & Energy

- **[FINOS](https://www.finos.org/about-us) (Financial Services)** 
    - Banks like Goldman Sachs and JPMorgan share code for regulatory compliance and data modeling.
    - Example: [Legend](https://legend.finos.org/), a data platform open-sourced by Goldman to help the industry agree on what a "Trade" looks like.
    - [The 2025 State of Open Source in Financial Services](https://www.finos.org/state-of-open-source-in-financial-services)
    - [Measuring What Matters: Frank Nagle on the $9T Value & Real ROI of Open Source](https://youtu.be/COrtTWJ2AN8?si=YYGuD0LsqFMkjld6) - keynote for 2025 Open Source in Finance Forum, NY

- **[LF Energy](https://lfenergy.org/)** 
    - Utility companies collaborating to digitize the power grid for renewables.
    - Example: [OperatorFabric](https://lfenergy.org/projects/operatorfabric/), used by European grid operators (RTE, Alliander) to manage real-time alerts.

---

## Reasons companies may want to (or should) use open source

[The Business of Open Source Software](https://productivity-tools.cioreview.com/cxoinsight/the-business-of-open-source-software-nid-18119-cid-115.html) by Danny Windham

[8 advantages of using open source in the enterprise](https://enterprisersproject.com/article/2015/1/top-advantages-open-source-offers-over-proprietary-solutions)

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### Sources and Interesting Articles

- [Wikipedia's Business Models for Open Source](https://en.wikipedia.org/wiki/Business_models_for_open-source_software)
is a Wikipedia article on various business models used in the open source
community.

- [Explosive growth of open source software](https://techcrunch.com/2017/04/07/tracking-the-explosive-growth-of-open-source-software/)
is an article about the growth of and tracking of open source software
companies, with the [BOSS index](https://www.battery.com/powered/boss-index-tracking-explosive-growth-open-source-software/)
to rank them.

- [Musings on open source software business models](https://spot.livejournal.com/327801.html)
is  an article by Tom Callaway of RedHat (now at AWS) in which he discusses various business models
for open source software.

- [TideLift.com](https://tidelift.com/about)
is the webpage that describes TideLift, a company with a novel business plan that acts as an intermediary
between  open source software companies and the companies that use their products.

- [8 advantages of using open source in the enterprise](https://enterprisersproject.com/article/2015/1/top-advantages-open-source-offers-over-proprietary-solutions)
is an article aimed at CIOs to convince them that open source software is good for their
companies.

- [10 ways to learn more about open source software and trends](https://enterprisersproject.com/article/2018/9/10-ways-learn-more-about-open-source)
is an article aimed at CIOs with descriptions of reports, conferences, newsletters,
and other media, to educate professionals about open source
and its importance in the enterprise.

- [The Linux Foundation's 2021 Open Source Jobs Report](https://www.linuxfoundation.org/wp-content/uploads/LFResearch_OpenSourceJobsReport_ver5.pdf)
is a report on jobs in the open source world in 2018. To give you some idea, from the report:
	"Open source continues its long stretch of popularity, becoming the
	software of choice for businesses large and small."
---

### Sources and Interesting Articles

[The Business of Open Source Software](https://productivity-tools.cioreview.com/cxoinsight/the-business-of-open-source-software-nid-18119-cid-115.html) by Danny Windham

[The Digital Economy Runs on Open Source. Here’s How to Protect It](https://hbr.org/2021/09/the-digital-economy-runs-on-open-source-heres-how-to-protect-it)
by Hila Lifshitz-Assaf and Frank Nagle

[Why You Need an Open Source Software Strategy](https://www.bcg.com/publications/2021/open-source-software-strategy-benefits)
by  Pranay Ahlawat, Johannes Boyne, Dominik Herz, Florian Schmieg, and Michael Stephan

[4 successful open source business models to consider](https://opensource.com/article/17/12/open-source-business-models)

[The Business Value of Open Source ](https://wso2.com/whitepapers/the-business-value-of-open-source/)

[Open Source Within Modern Companies](https://opensource.com/business/16/5/whats-open-source-program-office)
is an explanation of why modern software companies need an office
that can exert influence on various sectors of software ecosystems,
clarify its open source messaging, maximize the clout of its projects,
or increase the efficiency of its product development.

[SaaS vs Open Core Software: An Introduction](https://gravitational.com/blog/open-core-vs-saas-intro/)

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