Pure software is not the only way to go

5:21 pm General

Reposting from the Neary Consulting blog

My previous post on free software business models got some really great feedback, but I think that I was arguing against a straw man that I’ve built up myself. That straw man is the “pure open source start-up” – and I’m not the only person tilting at this particular windmill.

The false assumption here is that only software companies can make money off free software in a “pure” way.

There are lots of ways of making money leveraging free software. Simon Phipps writes often on about the core principle behind some of these.

First, there are all the hardware-based models. Reduce your per-unit costs for some hardware you’re manufacturing because you’re integrating a free software stack. Make a better product, because you can modify the software running on it from top to bottom. Sell more server hardware because your software is more widely distributed. To paraphrase Doc Searls, people aren’t making money with free software, they’re making money because of free software.

Second, you have the software as a service business model. If your software gets more useful the more people use it, then at some stage, it doesn’t matter whether it’s free software or not – the value is in the user base and the data. Imagine a SugarCRM where there were substantial network effects in having an account on their hosted service. Eventually, it wouldn’t matter that the platform is available for download, the value would be in being hosted.

And thirdly, you have what Simon says “payment at the point of value”. Get your software out there. Make sure that you’re heavily deployed. And set yourself up so that when people need help they come to you. This is the “pure open source” play, and it is the one which I have talked about before. In this model, you’re open to competition, since you are monetising a value-adding support and expertise in a product which anyone can master and change.

There is a fourth way of making money off free software which doesn’t make sense for a company, but might make a lot of sense for an individual developer. And that is, get paid to do what you love by someone who belongs to the first three groups, and who values your expertise. Thus, Nokia, Novell, Red Hat and Canonical hire established free software developers to keep on doing what they were doing before, for money – because what they were doing has value to those companies in the context of their business model. Companies such as these, and other companies who hire people to work on products they depend on, are ensuring the future of free software.

If your company is building products on free software projects, then you would be a fool not to invest in those projects to ensure they continue to develop and improve. You can invest with a service contract, by outsourcing to a company like Spikesource, or by hiring in a hacker – the net result is the same. Companies using the software will ensure that key free software projects will continue to develop, independent of any one business model.

One Response

  1. Understanding design & software freedom: How to make money with free software Says:

    […] Neary has recently published a series (one two three) of very excellent posts about free software business models (the third one is the best). […]