Open Source

Open Source describes practices in production and development that promote access to the end product's source materials. According to ‘Open Source’ as an official label relating to computer software was first coined at a strategy session held in 1998 in Palo Alto California and grew out of the free software movement and hacker culture. The inception of the label coincided with the formation of the Open Source Initiative (OSI), an organisation dedicated to promoting open source software. The ‘Open Source Definition’, as defined by the OSI, states ten core principles any open source software should adhere to. Fundamental is that open source software should be free to redistribute, access to source code should be freely available and the license must allow modifications and derived works (and free distribution thereof).

Due to its inherent nature (as defined above) the use of Open Source software is exponential. For example there have been approximately 180,000 legally defined uses, giving rise to over 2000 different forms of software licenses. Therefore a problematic issue concerns enforcing open source software licenses, due to their proliferation and moreover the fact that disputes often cross multiple borders. Subsequently, it tends to be more cost effective to forgo enforcement.

A natural principle and practice that stems from the open source model is peer production and development in any end product. This is enabled through bartering and collaboration, with the end-product, source-material, and documentation. From a business perspective, open source may seem a counter intuitive model for success; however it can offer some distinct advantages. It closely aligns an organizations activity with the interests of its potential clients. In doing so it gives people a shared responsibility or perceived stake in any organisation, along with associated products, and all the benefits that entails. This holds especially true in regard to software. Initial bugs can be detected and fixed at a far faster rate than otherwise. Furthermore by allowing others to contribute to development, quality can increase and a product can organically evolve and develop unforeseen yet attractive tangents.

Incorporating open source in your business model means you choose not to build the core of your relation with customers on the “End User License Agreement” (EULA), as for proprietary software. EULA chiefly focuses on profits, whereas in open source software the underlying mission is also paramount. Open source business models thus often require innovative methods of generating revenue. The debate concerning open source profitability is as old as FOSS (free and open source software) itself. We discussed on open source in relation to start-ups in an earlier blog post. Over time the debate has shifted from a theoretical question — “How is it possible to generate revenue from something that is free?” — to a practical question — “What products and services do open source vendors provide that customers are prepared to pay for?”. Classic examples include Red Hat, which generates income through post-sales support services (available through subscriptions). Google Inc’s revenues arrive from companies advertising on its web apps or by embedding its Android operating system on a variety of devices.

Open source companies commonly adopt a freemium business model; starting with a free edition, and then scaling up when the needs of the customer grow. Long-term sustainability of open source has been secured by the roles played by prominent foundations (e.g. Linux, Apache and Wikipedia) or supporters, e.g. Firefox (Google), or Eclipse (IBM), however different their approaches may be.

Naunidh Virk & Alberto Carlini
Amoo Venture Capital Advisory