Since the foundation of Cygnus as the first company with a business model based on free-open source software, it has been proved that free software is not against development, competition, innovation and sustainability in the software and ICT world, quite the opposite, it catalysed new ways of work and new business models that made possible this sector’s great evolution in the last three decades.
However, we find that many companies that made “open source software” their emblem, actually they base their business model on selling privative components to free software, or sell free-born software under privative licenses. What would happen to this companies in a world where there would be no place for privative software, being rejected by the users?
In this post I will comment the different business models based on free software trying to project their chance of survival in a possible future market mostly ruled by free-open source software.
Summarizing the classification of business models grounded on libre software by Carlo Daffara (you can find detailed information in the FLOSS guide for SME by FLOSSMETRICS project), we can find the following models:
- Dual licensing: the same software code distributed under the GPL and a proprietary license.
- Open core: this model distinguishes between a basic Free Software and a proprietary version, based on the Free Software one but with the addition of proprietary plug-ins.
- Product specialists: companies that created, or maintain a specific software project, and use a Free Software license to distribute it. The main revenues are provided from services like training and consulting and follow the original “best code here” and “best knowledge here”.
- Platform providers: companies that provide selection, support, integration and services on a set of projects, collectively forming a tested and verified platform. In this sense, even GNU/Linux distributions were classified as platforms.
- Selection/consulting companies: companies in this class are not strictly developers, but provide consulting and selection/evaluation services on a wide range of project, in a way that is close to the analyst role.
- Aggregate support providers: companies that provide a one-stop support on several separate Free Software products, usually by directly employing developers or forwarding support requests to second-stage product specialists.
- Legal certification and consulting: these companies do not provide any specific code activity, but provide support in checking license compliance, sometimes also providing coverage and insurance for legal attacks; some companies employ tools for verify that code is not improperly reused across company boundaries or in an improper way.
- Training and documentation: companies that offer courses, on-line and physical training, additional documentation or manuals. This is usually offered as part of a support contract, but recently several large scale training center networks started offering Free Software-specific courses.
- R&D cost sharing: A company or organization may need a new or improved version of a software package, and fund some consultant or software manufacturer to do the work. Later on, the resulting software is redistributed as open source to take advantage of the large pool of skilled developers who can debug and improve it.
As you can see, the first two models are based on selling software as a product itself, while the others are based on services around free software.
Now let’s imagine that the Free Software Foundation fulfils its mission and we live in a world where users and companies tend to reject privative software and prefer to use free software, because they value very much their freedoms and they are not willing to give up them for using any kind of software.
Which business models, from the above mentioned, would still be sustainable in that hypothetical scenario?
A privative licensing makes sense because there are companies that would like to offer, distribute or adapt the free software product but they are not willing to grant freedoms for their users. Therefore in a world ruled by users and companies giving priority to their freedoms, probably the privative-licensed product would not be acquired. Nevertheless, this model may make sense in the case that the customer wants to distribute the software under a different free license, or integrate the software with other product(s) with incompatible free licenses. The source of revenues runs out once you sell the first copy, because the customer has the freedom to distribute it at be tter price or even with no-charge. But sometimes just one sale (per version) may be enough, for example in cases that the software covers very specific needs.
This model would not make sense in an environment where users are not willing to give up their freedom for using software. A business based on complements, adaptations and add-ons of free software would make sense if they are distributed under free licenses. The key issue is to find the market niche where users with specific needs would be willing to pay for software add-ons covering that needs.
Models based on services around free software
The other models are not related to the existence of privative software, so their sustainability would be the same in a scenario ruled by free software. However, while nowadays many companies take advantages of being the only ones offering that kind of services in their region, in our hypothetical “free world” probably there would be much more competition and the margins of revenues would be narrower. This situation could evolve to the small companies being suffocated and only few, big companies ruling the market. But other scenarios like a very segmented market with many small companies answering that segmented needs is also possible.