Open-Source: Every Business Model Failed!

Ever bumped into someone who sighed and said:

“I’d love to go open-source, but it just doesn’t pay the bills”?

I’m a firm believer that if something can be open-sourced (and decentralized), sooner or later, it will be. Why? ’Cause open-source vibes are just too cool! Think about it: total openness, crystal-clear transparency, everyone being able to team up, and crafting something with the user in mind rather than just the dollar signs. That’s how we whip up awesome stuff for everyone!

But to make that dream a reality, we need a business model custom-made for open-source. One that’s in complete harmony with its values, covers expenses, treats contributors right with fair pay, and even stacks up enough cash to go toe-to-toe with those closed-source bigwigs.

So, our first question: What’s out there? What do current open-source business models look like? Do they meet our criteria to help open-source thrive?

Let’s take a peek. But, heads up: I haven’t found the golden ticket… yet.

Curious about the solutions we’re thinking of? Dive into our white paper over here. Everyone’s welcome to jump in and share their thoughts!

Limitations of the Current Business Models

Money has always been a tricky topic in the open-source world. Relying just on donations or people’s goodwill? Super hard. So, many projects began seeking compromises to maintain their OS nature while incorporating elements of traditional business models. But as we will see, those compromises often create conflicts of interest and fragment the community.

Full Open-Source Business Models

Let’s first examine in detail financial models that align with open-source ideals.

Donation
Donations can help, but they’re unpredictable, making long-term planning challenging. Furthermore, there can simply not be enough. Additionally, most users benefit from the software without contributing financially, leading to a significant imbalance in the distribution of costs and benefits.

Consulting
By offering consulting services, projects can earn revenue. However, continuous client acquisition can be strenuous, and not all projects can make this model work. The income may not suffice for the project’s ongoing needs. Worse still, some might offer sparse documentation or complex codes to push clients towards their paid services.

Alternatives with Compromises

Given these challenges, some projects have turned to other methods. These approaches seek to balance upholding open-source principles and acquiring the necessary funding. However, it introduces a new set of challenges stemming from the compromise made with the OS philosophy.

Dual-licensing
Here, software is available both as open-source and proprietary. While this model can generate income, it often divides the open-source community and the proprietary users, leading to conflicts and fragmentation. Furthermore, this approach is not feasible for all types of projects.

Selling Proprietary Extensions
Some projects provide a basic open-source software version but sell advanced features or versions. It can create challenges in maintaining a balance between open-source and proprietary components. There is a risk of limiting the development of the OS version in order to drive users towards the proprietary offerings. This can hinder collaboration and restrict the benefits of open-source software to a select group of users.

Selling Proprietary Updates
This involves giving out all versions as open-source but charging for released artifacts like security updates or update scripts software updates. Users have to either pay up or face a tedious manual update process.

I’m gonna hit pause on listing more alternative approaches for now. I tried to cover the juiciest ones, but there’s a bunch more you can check out here. What I’m itching to chat about next is a different side of these models. Even those totally in tune with open-source values: are they playing fair with everyone?

The Compensation-Contribution Gap

How does a project generate funds? Through donations, consulting fees, or other means? Sure, bringing in money is great, but how is it allocated?

Distribution of funds can be a real challenge in open-source projects. Some of these initiatives are centralized, and their decision-making isn’t always equitable. In many open-source endeavors, some contributors are employed by the main organization overseeing the project, while others volunteer their time, occasionally with compensation and sometimes without. This dynamic can lead to noticeable disparities between salaried contributors and those who aren’t.

Moreover, most of those models typically require the establishment of a formal, centralized legal entity to be able to receive payment. This poses a dilemma: What if a major contributor isn’t part of this formal entity and thus doesn’t get compensated? There’s a clear mismatch between who contributes significantly to the project and who actually receives payment. It’s an inequitable situation.

The new “Open-Source Economic Model”

Crafting a brand-new “Open-Source Economic Model?” Yeah, it’s a bit of a brain-bender, and the ins and outs can get twisty. Especially because we want our solution to be fully open-sourced and decentralized. But that is a cost to pay if you want to build something very solid, allowing open-source to thrive while sticking to its values.

If you’re up for a deep dive, check out our white paper and drop your two cents in the comments.

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I get it — ending the article with a cliffhanger isn’t everyone’s cup of tea! But every blog journey has to kick off somewhere.