6 Money-making Strategies Used by Companies with Open Source Projects
Open Source does not mean free, there are many strategies to make money out of an open code base
During the past few years, we’ve seen how more companies have adopted a transparent approach. They provided more transparency in the company’s culture, finances, and even strategy. As transparency has gained traction, open source technology has played an essential role in this movement.
A few years ago, people would declare companies crazy for open sourcing their products. Why would you give away your business logic? Well, over the past few years, companies have proven that you can run a viable and profitable business while providing open source technology.
But how do these companies make money if you can freely copy and modify their software? This article explains six strategies open source companies use to monetize their products.
- Certifications for developers
- Offering managed services
- Selling educational content
- Venture capital investment
Certifications For Developers
Not so many companies opt to offer certifications for developers. Most often, a certification strategy only works for a product that has gained industry momentum.
If you take a look at the developers’ perspective, why would they invest time in earning a certification if nobody knows your product? For that reason, we see big companies such as Google and AWS offer certification programs. Developers can show these certifications on their LinkedIn profiles and use them as proof of knowledge during job interviews.
These certifications require a significant amount of studying time to master the skills required to pass the exam. AWS recommends that you have at least one year of experience using their products before starting to study for a certification exam.
However, other resources mention that you can pass an AWS exam after one to two months of studying.
To assist developers, companies offer learning resources and a demo environment to experiment with the product and gather the required skills. After gathering the required skills, a developer must pay to take an exam to prove their skills. It’s a possible revenue stream for companies offering open source products. However, it’s often not a significant revenue stream.
Running a consultancy business is a typical revenue stream for companies that provide open source products. This means that the company offers paid services for companies that want to use or implement their product.
It’s an obvious revenue stream because the company that maintains an open source product knows the most about their product.
It puts the open source maintainers in an expert position which allows for consultancy opportunities. You might be surprised how many companies are willing to pay for experts to resolve their problems with a particular tool than having their own developers struggle for days to find the solution.
If you make the calculation, it’s often cheaper for organizations to hire an expert who can resolve the problem quickly than having in-house developers spend several days on the problem. An expert can boost the learning process and apply the correct solution or implement best practices in this situation.
Suppose you consider a cost of 250 Euros per day per developer for in-house developers. Now, they spend four days with three developers to resolve the problem.
That’s a total business cost of 3000 Euros. A consultant can probably resolve the problem in one to two days, at a rate of 750 Euros per day. That’s an average cost of between 750 and 1500 Euros, which is at least 50% of the price of in-house developers.
To give you some examples of companies offering consultancy services for open source products:
- Percona offers consultancy for open source databases like MySQL and MongoDB
- Red Hat offers consulting services to help you implement cloud solutions
- SUSE helps companies implement open source solutions to align business and IT
Another exciting revenue stream for companies that maintain open source products is training. In this situation, companies want to educate developers to use their products while teaching them best practices. Training allows an organization to earn revenue but also boost the product adoption.
Training offers companies a quick way to improve developers’ skills. It’s a more effective method than providing “study time” to learn more about a product, as certifications do. Therefore, training allows for a better knowledge transfer tailored towards the needs and current knowledge of developers.
Offering Managed Services
Alternatively, organizations can offer managed services of their product. For instance, Ghost is a popular open source publishing platform. You can use their software to host your publishing platform.
If you don’t want to set up Ghost yourself and take care of security measures and maintenance, you can opt for Ghost’s paid managed services. If you choose this option, the Ghost team will host the Ghost software for you with some additional benefits:
- Automatic weekly updates
- Server maintenance and backups
- Threat and uptime management
- Automatic SSL certificate updates
- Cloudflare security: DDoS mitigation, Web Application Firewall, brute force protection, and automatic rate limiting
All these items require a lot of your time to implement. You can easily avoid spending time on the above tasks by paying a small fee for Ghost’s managed services. Even if your company has a DevOps team that can take care of this, it’s often not worth their time if you consider the pricing of a managed offering.
Selling Educational Content
Besides offering training, you can offer educational content. The advantage of educational content is that you don’t have to send people to companies to offer on-site training. Educational content can be consumed by anyone and scales much better than training.
However, it’s not straightforward to find an audience to sell educational content. Developers often prefer to access educational resources via free channels like blogs and YouTube. On the other hand, the information is often quite dispersed, and it’s hard to find high-quality content for advanced topics.
Therefore, companies can choose to create extensive video tutorials or other materials that tackle these advanced subjects. Though, open source companies must offer the choice to choose between documentation or paid educational content. In the end, the main goal of educational content is to offer developers a faster learning curve than reading documentation.
Remember, there are different types of developers. Some developers prefer to learn new tools by trial-and-error using the documentation, while some prefer to follow a video tutorial that guides them through each step with detailed explanations. Though, the trial-and-error approach is often much slower than a focused video course that guides you through all steps.
Venture Capital Investments
With the growing popularity of open source technology, venture capital (VC) investments in open source technology have increased. For instance, the company Databricks is the largest contributor to the open source Apache Spark project. Recently, Databricks received a $1 billion series G investment!
This event shows that VC investments are a viable money stream to keep open source businesses afloat. In the end, this move is not so strange at all. In November 2019, Slack published a blog about the next wave in company evolution — transparency in business.
In an increasingly interconnected world, transparency is the new gold standard. Rising companies are making a killing — both economically and reputationally — by sharing everything, from how much money leaders make to how diverse their staff is, all the way down to where and how they source their materials.
Increased transparency builds trust, and this is an essential characteristic for VCs. Open source companies offer increased transparency by providing their software to the public for free.
What do you think is next for open source technology?
Backend developer and technical writer who also likes other stuff: marketing, endurance sports, UI/UX, and developer experience. Happy to talk about Developer Experience and Documentation Strategy!