Making Money from Free Software

 
 
By Steven Vaughan-Nichols  |  Posted 2005-07-13
 
 
 

Making Money from Free Software


The last time around, I talked about how you could go broke from working on free software. Some people thought I was preaching doom and gloom about profiting from creating open-source software.

Nonsense!

Let me share with you what Marten Mickos, the CEO of MySQL AB, told me after he read that column.

Click here to read "Going Broke with Free Software."

Mickos said: "I believe that it is possible to build a fantastically profitable business on free software, but one must realize that open source/free software is not a business model in itself. It is only a production and distribution method."

Exactly. "Some of those who make money off free software make tons of it. Look at HP, IBM, Google, Yahoo, Amazon and the pure open-source vendors Red Hat, JBoss and MySQL," continued Mickos.

"At MySQL our ambition is to demonstrate that you can be fully devoted to free software and still build a fantastic business. Our revenues grow very fast, and we just closed our best quarter ever. We think we owe it to our community to build a very strong business that will not go away one day."

So how do you do it? Well, there are a bunch of business plans that have been shown to work.

Theres the dual-license model, where businesses offer an open-source version, usually for free, but charge a fee for a commercial license. MySQL and Sun, with Openoffice.org, follow this model.

To pull this one off, you need a very compelling value proposition. The MySQL database and the Openoffice.org office suites are arguably the best of breed in their fields. People are willing to pay for their commercial versions.

It doesnt have to be a big-name program. It just has to be a program thats very good in its niche. TrollTech, for example, is certainly not a household name … well, except in developers homes. Nevertheless, its dual-licensed, popular and powerful Qt GUI development framework has kept the company growing for more than 10 years, and it now has more than 130 employees.

A second approach is the support model. With this approach, you can get the software for nada, but the company charges you for support. Thats the approach Red Hat switched to with Red Hat Enterprise Linux, when the company realized that box software sales were a road to ruin and killed this line.

People hated this move. But, you know what? It worked.

Today, Red Hat is seeing more than 40 percent year-over-year increases of revenue. No, Red Hats not Microsofts size … yet. But, as it looks like it will make more than a quarter of a billion (yes, billion) in revenue for 2005, its not peanuts either.

Some companies, like IBM, simply use open source to supply services to enterprise companies. Unlike Sun, which is still shaking off its reliance on hardware sales for profits, IBM is living proof that running and supporting open-source software for customers is already a billion-dollar-plus business.

Next Page: Retaining control of intellectual property.

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A related approach, and the one that Sun seems to be following, is to retain explicit control of your open-source intellectual property. Sun is doing this with licenses such as the CDDL (Common Development and Distribution License) while freeing up its software for customer use and development.

As Sun President Jonathan Schwartz explained to critics, "Its like saying Google shouldnt be free or they wont be able to make money.

"In fact, the more people taking advantage of Googles free service, the more attractive their business model. Same with us—the more users there are, the more opportunity there is for service contracts, systems sales, JES [Java Enterprise System] licenses, storage and hooking into our grid."

Click here to read more from Schwartz on open source.

No, the question isnt: "How can anyone possibly make money from free software?" Its: "Which business model makes the most sense for me?"

Having said all that, let me point out that none of these business plans is simple. Far too many people cant get past the easier models of direct sales or play-and-pay shareware-style licensing.

To be blunt, if you want to profit from open source, you need to be more business-savvy than you would in other businesses. But if you one of these models and make it fly, you can certainly make your living, your first million, heck, maybe even your first billion, from free software.

Good luck.

eWEEK.com Senior Editor Steven J. Vaughan-Nichols has been using and writing about operating systems since the late 80s and thinks he may just have learned something about them along the way. He can be reached at sjvn@ziffdavis.com.

Check out eWEEK.coms for the latest open-source news, reviews and analysis.

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