Thursday, January 12, 2006

On Software Business Models, Part 3

Open source software can be sold as a good, service, or insuranceModels, even if sometimes crude, can help us better get a understanding of the world. After dividing the industry in 3 sectors (goods, services, and insurances), we have seen how this model applies to software. We'll focus now specifically on open source software, and we'll see how this model can help use categorize different types of open source business models.

Companies cannot charge for the license of an open source software. But they can still charge for the box or the CD that contains that open source software. The value there is in the convenience provided by getting all the bits on a CD. This is what RedHat, SUSE and others have initially done, in fact quite successfully, to monetize Linux distributions. With the growth of broadband it became convenient enough to download the bits, and selling packaged open source software as goods is now more of a rarity.

Today, when we pay for open source, it is because we want either some service or insurance. Service include things like training, custom enhancements, and consulting while insurance is often presented as a support subscription plan. While smaller open source vendors tend to be more oriented towards services, larger vendors like RedHat and JBoss prefer to sell subscriptions, or "insurances" as I like to say, or "piece of mind" as Marc Fleury, JBoss CEO likes to say. They find this model more scalable, and are able to make it viable thanks to the size of their community.

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