Five models for open source revenue
How do you earn money from something that’s given away free? We look at five methods which have been successfully used by companies
Open source is often associated with the word ‘free.’ However, there are certain ways to generate a revenue stream. Paid support: Paid support is the most common business model used by organizations eying revenue through an open source model. The model is simple: the core software is freely downloadable, but once customers start using it they will need support since not everything may work out of the box. Red Hat has built a billion dollar revenue stream based on this model; its support works on a subscription model, which is renewed annually.
Bengaluru-based Deeproot Linux has been giving away its software for free but has been charging for support. “Practically everything we have created over the past 14 years has been given away for free. Customers have downloaded, filed bug reports, and one in a few hundred has come back and signed for paid support,” says Abhas Abhinav, CEO, Deeproot Linux.
Reducing operation costs: Google, Amazon, Red Hat and Zoho are examples of a few successful companies that have leveraged open source to build cost-effective products. These companies have taken advantage of the fact that the software comes free, and that this has reduced their licensing costs since they run hundreds of thousands of servers.
“We run OpenStack on our server infrastructure and have saved on an average $3,500 per server on licensing alone. This has helped us to offer cloud instances which are 20-30 percent cheaper than the competition,” says AS Rajgopal, MD, NxtGen Datacenter & Cloud Enterprise, Bengaluru.
Reducing project costs: IBM has gone on record to say that it has saved over $20 billion in project costs while using open source software to solve customer problems. The biggest advantage of open source is the community support. “Most open source developers rely on community support to solve each other’s problems. This reduces software development costs tremendously,” says Tarique Sani, CTO of the Nagpur-based SANIsoft Technologies.
Studies by Black Duck Software have proved that the cost-efficiencies of using open source software in software development can be as high as 62 percent as compared to using closed source products.
“By using OpenStack, we have saved $3,500 per server on licensing alone. We can now offer cloud instances which are 20-30 percent cheaper than the competition” AS RAJGOPAL MD, NxtGen Datacenter & Cloud Enterprise
Selling hosting services: Build an open source product, popularize it, and offer the product on a SaaS model with support. This is the latest revenue model which a number of global start-ups have successfully used to create revenue. Seafile, an open source alternative to Dropbox, provides the software free but offers the same services on a SaaS model. Similarly, Sugar Inc, which open sources SugarCRM, the popular enterprise-class CRM solution, offers its software on a SaaS model.
“You need not own or contribute code. For example, we offer, on a hosted model, a number of open source softwares such as Zimbra, Wordpress, Drupal and VtigerCRM, and charge customers on a pay-as-you-go model. Our engineers are well-equipped in answering queries and providing support,” says Manoj Rao, Senior Manager, Hosting Raja, Bengaluru.
Appliance model: It is estimated that almost 70 percent of commercial network hardware use components of Linux or Free BSD. A majority of network routers use versions of IP Tables of IP Chain for delivering services such as firewall or QoS. Many companies such as D-Link, Asus, Buffalo, Netgear and HP have released commercial hardware which makes use of open source using the appliance model.
Enjay IT Solutions has successfully demonstrated this in multiple products. “Whether it is our Tornado OS inside our thin clients or the software that powers our NAS or Tinguin OS, we have built them on top of Linux and customized them to create hardware that has been accepted by both customers and partners,” says Limesh Parekh, CEO, Enjay.
“Most open source developers rely on community support to solve each other’s problems. This reduces software development costs tremendously” TARIQUE SANI CTO, SANI soft Technologies