As a person who is running a young company that develops open source software as a primary activity, I'm frequently asked to comment on the business models that are at play in the industry.
Whether you produce open source software or just use it, an amazing thing inevitably happens. Organizations on all sides of the producer-consumer spectrum put increasing amounts of energy and money into the one thing that matters most to any business - the employees. This effect is key to understanding a successful open source business model.
In this article I'll explain how that is, and what kinds of business models lend themselves well to open source software production and consumption. I'll do my best to frame my discussion in terms of classic business concepts.
The Company Mission and Distribution of Product
The goal of any company producing software is to get the right applications into the hands of the end user as fast as possible while making some money in the process. Open source licensing is a nice vehicle to achieving those ends. As with proprietary software purchases, software is still transferred from producer to consumer and money still changes hands. But open source licensing allows that process to happen in a completely different way. With open source licensing the actual transfer of the software from producer to consumer is accelerated. This difference in product distribution means that the open source company invests differently than proprietary companies into business infrastructure.Here's why. An open source software company doesn't manufacture tangible things, really, but rather digital intellectual property. It's a pure services company. In the most basic scenarios, the company does not have to worry about protecting source code or manuals once they are released to the public. Proprietary software manufacturers on the other hand need to make money selling the intellectual property itself, which means a significant investment into developing and protecting distribution channels.
Open source licensing and the commercialization of the Internet simply eliminated the need to invest in distribution channels and business partnerships designed to protect CDs in boxes and manuals delivered to a store.
Another significant difference has to do with the software license fee. The fee paid for a software license is nothing more than nonvalue-added concession paid to a software manufacturer for the right to use its intellectual property. From the supplier's perspective one thing becomes painfully clear when we put open source licensing side-by-side with proprietary software licensing: this fee is a barrier to the act of actually transferring software from supplier to consumer because consumers can't actually get the software until they come up with the money.
When you're selling software, this barrier is necessary. But when you're not making money off the software, it's a barrier that needs to be destroyed and one that confuses the consumer.
