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14 October 2008, 15:27

"Open source is not a business model" says 451 Group

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"Open Source Is Not a Business Model" is the title of the latest report by market researchers 451 Group about the "Commercial Adoption of Open Source" (CAOS). In the report, the market researchers analysed the strategies of more than 100 businesses in the open source field – from "Open Source only", such as Red Hat, to corporations like IBM and Oracle.

The vendors in question use many different strategies to earn money with open source projects. The classical model traditionally associated with open source, where the software is free but there is a charge for services and support, is used by two thirds of the companies, it is the main source of income for less than ten per cent of them. Most vendors use some form of commercial licensing with over half of them described as "open source specialists".

Often the model used is one where the core platform is open source but the additional functionality offered is proprietary software licensed in the traditional way – the 451 Group calls this practice "Open Core Licensing" and gives examples of JasperSoft and SugarCRM. Another approach is the MySQL-style Dual Licensing, where the software is available both under GPL and under commercial licence, allowing licensors not to have to disclose their own developments as required by the GPL.

The market researchers found that the vendors analysed used more than 80 different approaches, and classified these approaches according to four factors. Factor one is the nature of the licence: permissive like the BSD licence, that is without any commitments for users, distributors or developers, or "viral" like the GPL. The second factor describes the development model: Is the whole software development process an open one, or are there proprietary parts? Is there an open developers' community, or are all the core developers employed by the software company? Factor three is the licensing model, for example, Open Core or Dual Licensing. The fourth factor describes how the companies generate their revenue: For example, through commercial licensing, support, subscription models, individual software adaptations or services.

The 451 Group's most important conclusions from the established results are: Open source is a model for the development and distribution of software and is, therefore, a purely tactical consideration. Open source is neither a market in itself nor does it imply a specific business model. The companies who base their business on the open source concept in some form can chose between various business models – which one applies depends, ultimately, on how the software is developed and licensed.

The other conclusion reached by the researchers, was that the line between proprietary and free software is becoming more and more blurred. An increasing number of products contain open source components or are based on the open source concept without being freely available themselves. For users this means that even if commercially licensed software contains open source components this doesn't necessarily mean that the product is supplier-independent – it could be the proprietary components of the product which are crucial to its operations. Therefore, A close examination of the vendor's strategy is vital when considering commercial open source products.

The $3750 report is discussed in more detail in the 451 CAOS blog.


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