Open Source Business Model Is Broken

by on December 3, 2008 · 10 comments· LAST UPDATED December 3, 2008

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From the article:

The open-source business model that relies solely on support and service revenue streams is failing to meet the expectations of investors. For anyone who hasn't been paying attention to the software industry lately, I have some bad news. The open-source business model is broken.

Companies have long hoped to make money from this freely available software by charging customers for support and add-on features. Some have succeeded. Many others have failed or will falter, and their ranks may swell as the economy worsens. This will require many to adopt a new mindset, viewing open source more as a means than an end in itself.

I do not agree 100% with the article. You can make tons of money by selling solution. For example, I can sell Linux Webserver cluster setup solution to meet my clients need or setup OpenBSD based CRAP solution to save tons of money on Cisco gear. Once solution is sold, someone need to monitor and fix the problem. Another option is bug fix or add addition features to original software. If you can add a value to customer, they will purchase your solution. What do you think?

=> Open Source: The Model Is Broken

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{ 10 comments… read them below or add one }

1 Sanjay Nagpal December 3, 2008 at 11:20 am

The open source can’t fail, the challange would be that the companies need the core tech guys who can scale the architecture and can find out the better way to optimize the websites.

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2 George December 3, 2008 at 11:54 am

Your argument works for a small business, but the situation changes when your initial investors want to take the company public. Investors will want to see that your business model is able to produce profits in the long run, by having stable revenue, new products and service contracts that make money.
If you sell and produce Linux based solutions, these tend to be maintenance free or tend to generate minimum profits from service (it might be profitable for you as a single contractor, but not for a company with higher overheads costs).

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3 rupert December 3, 2008 at 12:01 pm

Linux will shine in a time when we work to benefit humanity and not bank balances.

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4 TommiZi December 3, 2008 at 2:01 pm

I agree with rupert, it is the very structure of the nowadays industry that does not favour the use of open source software.

However, Linux packages which work with ease like Ubuntu for instance could be sold if they are to be used on more than a home computer. Companies are used to paying for software therefore they wouldn’t mind paying for Linux but perhaps with slightly lower price tags (not like Windows). Again, software support for Linux should be charge appropriately.

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5 nixCraft December 3, 2008 at 2:07 pm

George,

Excellent point. I never thought of as a company.

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6 Matt Kukowski December 3, 2008 at 3:27 pm

You can think of Open Source/Linux as the INVERSE of what is traditionally thought of, in terms of HOW TO MAKE MONEY.

Traditionally, you create software, sell it, and hopefully, if the software works and is bug free, will turn a profit.

However, Open Source does NOT work this way! One does not sell software BITs, but rather some other service that the software provides.

The beautiful thing, is the services that software can provide — therefore able to profit from — greatly out number the possibilities of just selling software bits.

The examples are too numerous to type, but for those that STILL do not get it, here are a few.

Amazon.com – Leverages Open Source to provide multiple services and makes millions.

Google.com – Leverages Open Source to provide Ad sharing and revenues sharing, to make BILLIONS. (Google can than afford to mess around, to create many other sub-services, of which there are many.)

My Space, Face book (social networks) – Leverage Open Source to bring people together, then advertise to.

There are thousands of smaller niche businesses, that leverage open source to provide a service.

I as an example. I run many ‘niche’ web sites that offer ways to advertise to others. I build all my web sites, on the LAMP open source stack, and use open source languages like PHP to create them. I make a HEALTHY living, and I am just one man.

You do not have to be a multi-million ot billion profit making business to BE A business. There are UNTOLD amounts of wealth being generated on an individual basis, or so called mom and pop, family owned and operated businesses.

This is what is refered to as THE LONG TAIL of business. This long tail, is the collection of all the small mom and pop internet business — using open source to create a niche service — which, if you collect all together, is equal to or even GREATER than, the sum of the major corporations, LLC’s etc… profits.

Open Source software is so FLEXIBLE and customizable, that anyone with an IDEA can make it possible. The software is there for the taking. In turn the same industry helps to debug, release new software and supports itself.

Example: If I have a problem with apache or php or any part of open source, I report it as a bug to the Upstream, and help the open source community that way.

In return, I get to use top grade software, that is virus free, fast and easy to configure, to start a services orientated business, all using open free software.

In contrast, if I ( and the tens of thousands of other niche open source businesses on the web ) had to rely on MICROSOFT, would be a major thorn in the side of our backs. License fees, fear of MS stealing our ideas, or simply, their proprieatary software not being FLEXIBLE or CONFIGURABLE enough to even make our ideas even possible.

Do, you see my point? The myriad of business ideas and opportunities are only limited by ones imagination.

Open source allows anyone to make it happen, due to its open, flexible and FREE to use the software how ever you please to make a profitable services company.

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7 nixCraft December 3, 2008 at 3:49 pm

Matt,

Excellent information, especially ‘THE LONG TAIL’ nature of Open source software.

Appreciate your post!

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8 Todd December 3, 2008 at 5:25 pm

For years I’ve seen massive growth within the Linux community. One major area that’s always had an upside is the server market. And now, the desktop market is being heavily integrated with Linux. Not to mention other mobile devices, etc.
I believe firmly that any degradation towards a company’ loss is a weak attack by other players (eg. Microsoft).
Linux is a world community sharing the benefits.

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9 sigs December 4, 2008 at 1:46 am

Failure is not in the Open Source business model, it’s in the impatient investors. Times are getting tough, for shareware devs, open source devs, big house devs and consultants alike. VCs want their money back, rather now than next week; something that two years ago was no big deal.

Business dynamics, people, big cycles. The writer of that article is yet another doomsayer we see zounds of right now. /ignore.

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10 deepak agrwal December 8, 2008 at 12:38 pm

i have xp installed in c drive and linux installes in extended partition. i want to install 2003 server replace the xp. but i dont want to lost my linux os. is this possible? assist me pls

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