Making Money from Free Software

Opinion: Yes, you really can make money from "free" software; you just need to have a good business plan.

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.


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

/zimages/1/28571.gifClick 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, follow this model.

To pull this one off, you need a very compelling value proposition. The MySQL database and the 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.