Business models for open-source software

Software companies focusing on the development of open-source software (OSS) employ a variety of business models to solve the challenge of making profits from software that is under an open-source license. Each of these business strategies rest on the premise that users of open-source technologies are willing to purchase additional software features under proprietary licenses, or purchase other services or elements of value that complement the open-source software that is core to the business. This additional value can be, but not limited to, enterprise-grade features and up-time guarantees (often via a service-level agreement) to satisfy business or compliance requirements, performance and efficiency gains by features not yet available in the open source version, legal protection (e.g., indemnification from copyright or patent infringement), or professional support/training/consulting that are typical of proprietary software applications.

Historically, these business models started in the late 1990s and early 2000s as "dual-licensing" models (for example MySQL^[1]), and they have matured over time, giving rise to multiple variations as described in the sections below.  Pure dual licensing models are not uncommon, as a more nuanced business approach to open source software businesses has developed. Many of these variations are referred to as "open core" model, where the companies develop both open source software elements and other elements of value for a combined product.

A variety of open-source compatible business approaches have gained prominence in recent years, as illustrated and tracked by the Commercial Open Source Software Index (COSSI),^[2] a list of commercial open source companies that have reached at least US$100 million in revenue. Notable examples include open core (sometimes referred to as dual licensing or multi-licensing), software as a service (not charging for the software but for the tooling and platform to consume the software as a service often via subscription), freemium, donation-based funding, crowdfunding, and crowdsourcing.

There are several different types of business models for making profit using OSS or funding the creation and ongoing development and maintenance. The list below shows a series of current existing and legal commercial business models approaches in the context of open-source software and open-source licenses.^[3] The acceptance of these approaches has been varied; some of these approaches are recommended (like open core and selling services), others are accepted, while still others are considered controversial or even unethical by the open-source community. The underlying objective of these business models is to harness the size and international scope of the open-source community. Depending on the project the funding options and their success differs for a sustainable commercial venture.^[4] The vast majority of commercial open-source companies experience a conversion ratio (as measured by the percentage of downloaders who buy something) well below 1%, so low-cost and highly-scalable marketing and sales functions are key to these firms' profitability.^{[5][citation needed]}