Open source 2.0: It’s business now

A friend of mine works for a company that sells imported equipment, inter alia. Once his boss had what he thought a bright idea –  import self-help home repair equipment kits for Sri Lankan households. My friend, knowing the Lankan culture better, objected. He pointed out here, one normally does not own all tools one needs. He borrows a few from nearby houses. Against this valuable advice, the company imported a large number of such kits. Despite a good marketing campaign, they could sell only a few. They could not beat our culture of sharing. 

Open source is about sharing. Henry Ford was said to be a pioneer to use the model in pre-digital, pre-Internet days. A two-stroke gasoline engine patent was owned by a monopolist. He could restrict others’ usage. In 1911, Henry Ford challenged it. Consequently, born a new association (which eventually became the Motor Vehicle Manufacturers Association in the US), which had cross-licensing agreements among all of the US automakers. They developed technology individually but used jointly. 

When the US entered World War II, 92 Ford patents and 515 other company patents have been shared. None earned a cent for any but they saved millions of dollars in royalty and law suits. Overall, the entire industry gained the benefit. It was a good business model.

This has been more an exception than the norm. The intricacy of the open source model is, apart from data, content and software, it will hardly work on any other commodity. Take a Uber Eats-delivered Nasi Goreng, for example. You can segregate it into parts and associate the cost component with each. Products and services. They are all paid with. Nobody provides rice or oil free of charge. Nobody sells the plastic box free. You pay for each component their market value. That makes the business model simple.  So simple that basic microeconomics can easily explain the making and distribution of Nasi Goreng. End to end. Open source is more intricate.

Software is not a public good. It is more what economists call a ‘Club Good’ excludable but non-rivalrous. Use by one does not diminish the opportunities of use by another. So once developed, while retaining the original, you can give out an infinite number of product copies only with a marginal distribution cost. No additional production costs. It has always been a lucrative model. Strangely, a few thought of deviating. 

In the beginning, it was absolutely not money the promoters of open source were interested. Then open source software movement was seen more as a philosophy, with a bit of ‘socialistic’ flavour. Its ‘enemies’ were the ‘big guys’ with lots of money, who sold ‘dirty software licences.’ 

Richard M. Stallman started promoting free software to various international audiences in mid-1990s more for what he called four essential ‘freedoms’, namely the freedom to run the programme as one wishes, for any purpose (Freedom 0), the freedom to study how the programme works and change it – that is access to Source code (Freedom 1), the freedom to redistribute copies (Freedom 2) and the freedom to distribute copies of modified versions to others, so they get an opportunity to benefit from the changes (Freedom 3). It was a question of rights, not of income. But today, open source could mean money. Seriously.

Also about 25 years down the line, the contour that separated the friends and enemies has faded away. Individuals and firms now stand shoulder to shoulder in finding the best model that fits each. Microsoft is now one of the world’s biggest open source contributors, measured by the number of employees actively contributing to open source projects on GitHub, the largest host for open source project infrastructure, the former acquired in 2018. Once, long before Microsoft bought it, most treated GitHub as an underground community. Now it is the mainstream.

In fact, legendary is the ‘U-turn’ of Microsoft, a technology company once known for its opposition to the open source software paradigm. From the inception through 2000s, under CEOs Bill Gates and Steve Ballmer, Microsoft viewed the community creation and sharing of communal code, later to be known as free and open source (FOSS) software, as a threat. Both executives spoke negatively about it. 

In the 2010s, as the industry turned towards cloud, embedded and mobile computing, all technologies powered by open source advances, CEO Satya Nadella-led Microsoft towards open source adoption although Microsoft’s traditional Windows business continued to grow.

So while the open source movement has not fully lost its ‘selfless’ steam, simultaneously it has evolved into a gamut of business models come in many different shapes and flavours. Below are few widely used ones:

Dual licensing
The dual licence mechanism is to offer the software both under a free and a (separate) proprietary licence. The proprietary version, which is typically different and more advanced than the free one, can thus be sold commercially for developers. Those who use the free version cannot sell their products. Once familiar with software, the users, if they wish, can upgrade to a paid ‘business’ version. The vendor generates revenue through proprietary products and services, including technical support services. 

A well-known example is Oracle’s MySQL database. Oracle uses a dual licensing model for MySQL to meet customer needs. Oracle provides MySQL under a proprietary licence for licensees, who do not disclose the underlying source code and wish to create and commercially distribute proprietary derivatives with MySQL and do not wish to be subject to any other restrictions or obligations under the GPL. In addition, Oracle licences MySQL under the GPL for licensees, who simply use the software or wish to integrate MySQL into a product that will later be sold under the GNU General Public Licence.

Puppet, a configuration management tool, is another example. The community version of Puppet is available under the open source General Public Licence (GPL). Then Puppet Labs, the company behind the open source Puppet project, provides a paid enterprise version of the solution along with dedicated ongoing technical support. Puppet Enterprise provides access to additional functionalities: reporting covering software packages and server infrastructures, management of nodes, management of access policies, etc.

Provision of professional services
Software comes free. Yes. Still nobody said you would not be charged for services. Return on investment by developers in terms of money and time, in open source software may come in the form of training, technical support or consulting services. 

Another possibility is to present open source software only in its source code form, while providing executables only for paying customers with a price tag for compiling and packaging the software. 

Also, the provision of physical goods attached to software such as installation media (e.g. DVD) may be recognised as a business service. One firm that exploits this business model successfully is RedHat. A more specific example is Revolution Analytics, a statistical software company focused on developing open source versions of R for enterprise, academic and analytics customers. 

Software as a service 
Now software is increasingly offered as a service. Selling customer subscriptions for online accounts and remote server access is one way of making a profit on ‘free’ open source software. There is also the combination of client software with a service, called ‘Software plus Service’. 

Providing cloud computing or software as a service (SaaS) services without releasing the open source software itself, neither in executable nor in source form, complies with most open source licences. Due to its lack of software freedoms, Stallman qualifies cloud computing offerings as “inherently bad”, while noting their legality.

Voluntary donations
Experiments were carried out by independent developers to get their open source software development funded through voluntary user-driven donations, not too different from what is technically known as ‘crowdfunding’.  This model is powered by crowdfunding platforms such as Kickstarter and IndieGoGo that let developers to find sponsors through campaigns. 

These two well-known reward-based crowd-funding platforms now occupy the bulk of the crowdfunding pie, helping start-ups, entrepreneurs and developers, among others. In May 2019, GitHub too launched a sponsors programme that allows public to financially contribute to the maintenance of the projects.

Sale of optional proprietary extensions 
Some firms sell optional proprietary extensions, modules, plug-ins or add-ons to an open source software product. This can be a ‘licence-compliant’ approach of many open source licences, if the technical operation is performed with sufficient vigilance. 

For example, mixing proprietary and open source code in statically linked libraries or compiling all code together in a software product could violate open source licences, while keeping them separated by dynamically linked interfaces and libraries is often compliant to the licence. 

Well-known examples of proprietary products created on an open source foundation include Red Hat Enterprise Linux and Cloudera software based on Apache Hadoop.

There are other models such as partnerships with funding organisations (governments, universities, businesses and NGOs can develop in-house or hire contractors to make specific modifications for internal use, before releasing the resulting code under an open source licence), advertising funding (ad supported software) and sale of proprietary updates.

Many things are common for all these models. They are neither fully proprietary nor fully open source. The two components are comfortably mixed to bring the best value for quality. All parties are fully comfortable with the match. It was not something forced on anyone. The most important fact: open source software adds commercial value to a business. (Figure) 

The moment an open source component used in production, it results in increase in revenue per customer. This can be why all software developing houses now madly go after open source in their production. 

With this, the private sector has shown no reluctance in including open source in their products. They are always ready to forget ideological differences for something that improves the top and bottom lines. If at all somebody is having issues with open source, that would be governments, who are in a unique position in almost any industry. By the nature of their immense size and influential position, their actions may have far-reaching effects. 

In the field of software, the programmes used by the state sector often have a distinct advantage compared to the ones they don’t. Software used becomes the de facto standard when dealing with that agency – if, indeed, it is not mandated. In addition to its own usage, the thousands of government contractors are also forced to adopt the government’s software platform of choice, so they are eligible to work for them. When all of these factors are considered, it becomes clear that the government plays a major role in determining the fate of the open source software, whether they wish so or not.

The Government of India has been promoting the use of open source software and has been keenly encouraging their adoption in the digital governance movement of the country. Electronics and Information Technology Department of India has formulated a ‘Policy on Adoption of Open Source Software for Government’. Following this policy, the department has published a policy framework for rapid and effective adoption of open source with an illustrative list of open source and open source stack, etc. required for various 
functional areas. 

It also lays down a set of recommendations and procedures for promoting, managing and enhancing the adoption of open source. India has also found out creative workarounds to avoid procuring antique legacy solutions in favour of more flexible and more economical at least partially open source-based agile ones. 

This is surely the beginning. Open source has a long way to go defining its own paths in business. We never know the next business models to come but one thing is sure. Business will certainly be gaining the benefits of free stuff. It will be more like socialism in the middle of a capitalist model and we all know who could be the ultimate winner. 
(Chanuka Wattegama, an information policy researcher, can be reached via [email protected]. The opinions expressed are personal)