Open source gets down to business

No one ever made any money giving away free software - unless, that is, they use the software to support a commercial business model. Danny Bradbury reports on how companies are profiting from the open source model.

"The problem with giving away software is that you can't make any money out of it," confided the CEO of a large software firm to silicon.com at a dinner recently, during a discussion of open source. The comment was met by sage nods around the table from people who should have known better.

It's true that open source is the commercial business that never should have been. Criticised by proprietary vendors who claim that you can't get something for nothing, it has nevertheless flourished by producing business models that support the idea of free intellectual property.

Under the GNU general public licence (GPL), it is possible to charge for software but the developers cannot impose the same restrictions on the use of the source code as many proprietary vendors do. Open source vendors - usually Linux vendors in the early days - began charging for the convenient distribution of GPL-licensed source code on disk and the provision of support and consultancy services.

A good example of this is JBoss, which doesn't collect licence fees for its application server product. Instead it gives it away and charges an annual subscription for service and support, offering gold, silver and platinum tiers, says VP of corporate strategy and development Bob Bickel.

Bickel believes that application server technology is critical enough for most businesses to pay extra for support. "When they roll it out into their critical infrastructures, they will not roll it out without being able to talk to the experts. That basic support is a key piece."

Danny Rimer, general partner of venture capitalist company Index Ventures, thinks charging for support as a subscription service has a bright future. "In the case of subscription services - like one of our companies, Sourcelabs, charges - we think this is going to be very prevalent," he says. "In fact other companies in our portfolio like MySQL and Zend have offered a subscription model. It makes sense. You essentially pay for what you're going to consume and renew on an annual basis."

SourceLabs integrates different open source stack components into one easily usable system and certifies them. The idea is that customers obtaining their open source stack from SourceLabs will be buying peace of mind - it should all just work together, without any configuration problems, and that represents the added value. It provides the software free of charge, generating its revenues by selling support and services on a subscription basis, including telephone-based and online support.

Companies such as Red Hat have also taken subscription-based services online. Its Red Hat network provides automated software patches for a regular fee. And other companies are following this approach. For example, MySQL (of which Rimer is also a board member) now offers the MySQL network, providing the same types of online service for its customers on a subscription basis.

MySQL also supplements its revenue using the dual licensing model. Under this scheme, the software can be distributed as part of another product for free, as long as it complies with the GPL. However, companies who embed MySQL in their own products but who do not wish to comply with the GPL by releasing the source code for their own applications must buy a commercial licence.

Embedding open source products in proprietary systems is becoming a popular option for many software firms. This has created tensions over the GPL, which requires any company creating derivative works from a GPL-based product to feed that extra intellectual property back to the open source community. Instead, JBoss's Bickel prefers the LGPL - GNU Lesser General Public Licence - which lets companies marry their own software closely with the open source product without having to give up their intellectual property, as long as they don't change the JBoss source code.

While JBoss provides open source software for use in other people's products, replication software tool company Steeleye comes at it from the other direction, using open source code to support its proprietary products. The company runs a proprietary GUI and its replication management software (called Lifekeeper) on top of the Linux kernel, and also modifies the kernel with its own synchronisation features, feeding that part of its development back into the open source community.

James Bottomley, CTO of Steeleye, says: "What customers are buying is our assurance that we stand behind it because we developed the source code." He believes that using open source technology within his product cut his time to market from two years to six months.

Often companies will maintain an arms-length relationship with an open source group serving as a brand for open source projects associated with its own product. For example, the JBoss Federation is a brand for projects designed to produce plug-ins or enhancements to the JBoss product. Similarly, the Jabber instant messaging product has the Jabber Software Foundation, while the Smoothwall open source firewall product has a similar affiliated group. This helps such companies create a bridge between their commercial business and the wider open source world.

Novell has taken the idea of proprietary/open source hybrids one step further with the release of its small business server package. It has bundled SuSE Linux (which it owns after purchasing the German Linux vendor) with its own proprietary products such as the eDirectory system.

This is a cunning idea because it sneaks proprietary software in through the back door. Stephen Lockhart, group head of IT at a growing life sciences firm in the UK, is a SuSE user and does not like the model. "One thing about offerings like Novell's is that you start losing the value of free software because you are tied to a single distribution and therefore locked-in," he says.

Lockhart argues that no one open-source model is likely to win out. Instead, they will all serve to make open source a vibrant commercial option. "It's the variety that is invigorating that market," he says. "There's a phrase for it - environmental diversity. Monoculture doesn't survive but biodiversity does."