FLOSS Business Models

One of the constant themes since the free software movement has hit the mainstream is how the can you make a software business successful when you don't charge per se for your software. This is a nonsensical argument on several levels. First off the philosophy of the Free Software Movement doesn't prohibit you from selling your software! They only require that you make the program and it's source available. Strangely people make the rather silly assumption that by making your software available freely you will undercut demand for the commercial version (ie the one that costs money). This is one of the strangest calculations I have seen people make in regards to the free software movement. For example here's a telling quote from the open source section of Wikipedia Making money through traditional methods, such as sale of the use of individual copies and patent royalty payment, is more difficult and sometimes impractical with open-source software. Yet there is no real explanation why this is often said, nor anything other than anecdotal evidence that it is true. Nothing prohibits the GPL model from selling individual licenses. When a corporation or individual purchase a piece of software they are not simply purchasing a single license, they are also purchasing access to support and the help desk and most importantly upgrades. Software acquistion costs represent a tiny fraction of the cost of ownership of software. Most companies when purchasing a piece of software look at the after installation support and integration costs. They look at the support costs. They look at the help desk costs. The above article seems to bemoan the relative lack of FLOSS companies operating in todays markets. But the challenges facing any FLOSS software company is no different than any closed source company. Indeed, it seems to me that starting a closed source software company is an inherently riskier proposition especially when chasing customers in today's markets. For example for a corporation to buy a piece of closed source software from a relatively new vendor is next to impossible as the risk that vendor will go out of business is far too high. Source code escrow will be required at least along with 2-3 years of financial data. Perhaps even a completion bond. With an open source company may have these same challenges as well but availability of source code acts a risk mitigator for the CIO considering purchasing the software. Indeed if I were starting a new company and my market required selling to companies larger than 25 million in annual sales, I don't see how any approach other than an open source one gets you in the door. Getting source code out of escrow with a company in bankruptcy (a very real concern for any start-up company these days) is next to impossible. The simple fact is that there is almost no difference between an FLOSS company and closed source company. They face the same challenges for adaption in the market. The FLOSS company has the advantage that they can use the open source nature of the company as a marketing tool to acquire customers, mitigate risks for their customers. Let's face it. Starting a software company is a risky proposition. Many of them are bound to fail. Being an open source software company just makes it easier to succeed.