An Analysis of Open Source Business Models

Abstract

Open-source software is not for hobbyists any more. Instead, it is a business strategy with broad applicability. Businesses can be built around this idea. In this paper, I want the reader to grapple with the specifics of how to build and grow such a business. To this end, I have proposed three fundamental business models - Distributor, Software producer [GPL and non-GPL] and the Third-Party Service Provider. These are sustainable models that can lead to robust revenue streams. The business models provided here can be enhanced by the addition of further revenue streams. For instance, we now know that certification of developers on an Open-Source product can lead to strong revenues. Not all products have the same profit potential. Therefore, not all Open Source Software products have the same profit potential. I have classified Open Source Software products into four categories - Stars, High-profile nichers, Low-profile nichers and Mainstream utilities. Businesses can be built around Stars. High-profile nichers can lead to robust revenue streams if properly marketed. The other two categories may not lead to high profits. Since many Open Source Software products are freely available, managers must scan public repositories to find out which products will be suitable for their business. The future of Open Source Software is bright. Increasingly, we will find that these products will take a central role in the realm of software and will find a larger place in all our lives.

Keywords: Open Source, Business Model