Business models for open-source software

Companies whose business centers on the development of open-source software employ a variety of business models to solve the challenge of how to make money providing software that is by definition licensed free of charge. Each of these business strategies rests on the premise that users of open-source technologies are willing to purchase additional software features under proprietary licenses, or purchase other services or elements of value that complement the open-source software that is core to the business. This additional value can be, but not limited to, enterprise-grade features and up-time guarantees (often via a service-level agreement) to satisfy business or compliance requirements, performance and efficiency gains by features not yet available in the open source version, legal protection (e.g., indemnification from copyright or patent infringement), or professional support/training/consulting that are typical of proprietary software applications.

Historically, these business models started in the late 1990s and early 2000s as "dual-licensing" models, for example MySQL, and have matured over time to include many variations, as described in the sections below.  Pure dual licensing models are not uncommon, as a more nuanced business approach to open source software businesses has developed. Many of these variations are referred to an "open core" model, where the companies develop both open source software elements and other elements of value for a combined product.

A variety of open-source compatible business approaches have gained prominence in recent years, as illustrated and tracked by the Commercial Open Source Software Index (COSSI), a list of commercial open source companies that have reached at least US$100 million in revenue. Notable examples include open core (sometimes referred to as dual licensing or multi-licensing), software as a service (not charging for the software but for the tooling and platform to consume the software as a service often via subscription), freemium, donation-based funding, crowdfunding, and crowdsourcing.

There are several different types of business models for making profit using open-source software (OSS) or funding the creation and ongoing development and maintenance. Below are a list of current existing and legal commercial business models approaches in context of open-source software and open-source licenses. The acceptance of these approaches varies; some of these approaches are recommended (like open core and selling services), others are accepted, while still others are considered controversial or even unethical by the open-source community. The underlying objective of these business models is to harness the size and international scope of the open-source community (typically more than an order of magnitude larger than what would be achieved with closed-source software equivalents) for a sustainable commercial venture. The vast majority of commercial open-source companies experience a conversion ratio (as measured by the percentage of downloaders who buy something) well below 1%, so low-cost and highly-scalable marketing and sales functions are key to these firms' profitability.