How to make money from Open Source.

Kevin Koo

8 years ago

Open source rules the tech startup world.

Many tech startups today are built on open source software. PHP, Ruby on Rails, Python: open source web software. Accessible to all, and free to use in any way you like. Open source software evolves like magic, online, through the wisdom of the crowds.

Many programmers contribute hours and hours of poring through the source code. Its proponents say that open source software is safer than proprietary software, because any bug can be spotted and corrected.

Occasionally, programmers “fork” software by starting their own version based on an existing version. They can do this. WordPress was built on top of an abandoned open source CMS called “b2 cafelog”. Today WordPress is a multi-million dollar thing, with a huge marketplace for customization and add-ons. You may be interested to read about the license for modified GPL code.

I think that people who promote and support open source are wonderful. They are doing whatever they can do support it.

Linux is Open Source.

I’m a big fan of Linux. You’ll know that if you read my other blog about how to be stingy (i.e. save money). Read my blog posts here, here, here, here, here, and here. But why Linux?

Users of Windows computers are often advised to use Linux to fend off virus attacks. That happens when you plug in USB drives into your computer without scanning for viruses. That leads to the painful version of “plug and play”: You plug, the viruses play. That’s why, in 2007 more than 45,000 Dell users recommended that Dell should preinstall Linux on its computers.

In 2007, Linux was still buggy. It’s less buggy now. More than half of my office PC’s use Linux, a decision prompted by laggy virus infected PC’s. I’m writing this post with a laptop that runs Linux.

What do I like about Linux? For one thing: No viruses. The second is the feeling that I am part of an elite group that uses Linux. We’re a secret cabal that drives forward an obscure operating system by helping to promote its use. I’m surreptitiously training all my employees to use Linux, so that they can boast to others about the virtues and wonders of Linux.

Today, Linux is a robust operating system. It was started by Linus Torvalds, who will live on in computing history. Linux has become many things to many people. If you use an Android smartphone, you need to know that Android is built on top of Linux. Some ATM (automated teller machines) use Linux. Your MP3 player might be using Linux. Tesla’s cars run Linux. The highly anticipated self-driving cars will use Linux.

So can you see why I support Linux? It’s great. And it’s open source.

Open source started as a software thing.

From the Open Source Initiative:

The “open source” label was created at a strategy session held on February 3rd, 1998 in Palo Alto, California, shortly after the announcement of the release of the Netscape source code. The strategy session grew from a realization that the attention around the Netscape announcement had created an opportunity to educate and advocate for the superiority of an open development process.

The conferees believed the pragmatic, business-case grounds that had motivated Netscape to release their code illustrated a valuable way to engage with potential software users and developers, and convince them to create and improve source code by participating in an engaged community. The conferees also believed that it would be useful to have a single label that identified this approach and distinguished it from the philosophically- and politically-focused label “free software.” Brainstorming for this new label eventually converged on the term “open source”, originally suggested by Christine Peterson.

Source: Open Source Initiative

Other folks trace the open source movement to the GNU Project, in 1984.

And yet some other folks point to Eric S Raymond as the originator of the open source concept with his book, The Cathedral and the Bazaar: Musings on Linux and Open Source by an Accidental Revolutionary.

GNU’s Definition of Free Software

“Open source software” is often also described as “free software”. But some people are confused about what “free” entails:

The term “free software” is sometimes misunderstood—it has nothing to do with price. It is about freedom. Here, therefore, is the definition of free software.

A program is free software, for you, a particular user, if:

You have the freedom to run the program as you wish, for any purpose.

You have the freedom to modify the program to suit your needs. (To make this freedom effective in practice, you must have access to the source code, since making changes in a program without having the source code is exceedingly difficult.)

You have the freedom to redistribute copies, either gratis or for a fee.

You have the freedom to distribute modified versions of the program, so that the community can benefit from your improvements.

Since “free” refers to freedom, not to price, there is no contradiction between selling copies and free software. In fact, the freedom to sell copies is crucial: collections of free software sold on CD-ROMs are important for the community, and selling them is an important way to raise funds for free software development.

Source: GNU Project

So the GNU definition of free software makes it clear, that you can sell the software for a price. You can raise funds. You can channel the funds to help further development of the software. It makes business sense, which is why open source projects nowadays have found ways of making money, through consulting, customization, installation, training, certification and the like.

Open source is more than just software.

There’s many other things than software that get bandied around with the open source label these days.

There is open source beer. I don’t know how it tastes as I prefer coffee. And I get scared of having a beer belly.

Open source housing designs. And open source furniture designs to match.

Arduino, the open source circuit board that hackers love. And an open source car inspired by Arduino.

Open source legal documents. (Oops, maybe I should remove that link.)

Open source servers and racks. Facebook initiated it. Rackspace is using it.

So let’s talk about how to make money from open source.

“The lack of money is the root of all evil.” – Mark Twain.

Much of what I write below here applies to open source software. But don’t let it deter you from applying it to other types of open source things. Here’s some ways how you can make money from open source.

Customization

Open source software are often free to download. Here is a tip: if a software is advertised as open source but you need to pay to download it, it’s probably not open source. If you can get the source for free and you need to pay to download the compiled binaries, that’s acceptable.

But since open source software is made for the masses, many companies that rely on open source software may want some customization to make it suit their purposes. Think of WordPress plugins that add functionality to websites. WordPress itself is free, but if you want to have extra functionality, you have to pay. After all, a programmer will have to program the WordPress plugin.

You can also make money from customizing the look and appearance of things. Think of WordPress theme clubs, which sell annual memberships. They charge huge amounts for lifetime memberships. Some people prefer to pay annual fees, and that means more money. As most open source software goes, there will be updates. Updates break themes and plugins.

The user is left with two options: First option is do not upgrade WordPress, and continue to use the existing themes and plugins. Everything works, but you’re putting yourself at the risk of software vulnerabilities. A hacker might get in and delete everything. Or the hacker might be smarter and steal credit card numbers instead. The second option is to upgrade WordPress and get the themes and plugins updated so that they work with WordPress. That means money.

I read from somewhere that it’s relatively cheap to buy an off-the-shelf WordPress theme, but customizing a website can cost up to $50,000 (USD). The theme club is a trap. The software is a trap. But people want it anyway, because WordPress is getting so big that you can find any kind of plugin that you are looking for. Creative professionals want to use what they are familiar with. It’s a money machine.

Installation and Maintenance.

There’s money to be made in installation. It’s not much, but it’s money. Some people don’t know how to use Softaculous to set up things automagically, but you do. So you do it for them, and charge them for it.

There’s more money to be made in maintenance, because it’s recurring income. If you’ve ever read “Rich Dad Poor Dad” by Robert Kiyosaki, you’ll know that the secret to great riches is passive income. Maintenance doesn’t mean hard work all the time, but it does require hard work some of the time. In any case, if you can get it, take it.

Maintenance proper means taking precautionary steps. If maintenance work can be automated by software, it’s the best because it cuts down personal time. If maintenance work can be carried out by your peons, it’s the second best because it frees you up to do other work. If maintenance work requires your personal involvement, you’ve got to seriously consider whether the pay is good enough to justify your personal involvement. You’ll certainly have staff, and it doesn’t make sense for your staff to stand by while the boss does all the hard work.

But it’s still money, and money doesn’t fall from the sky (like my mother likes to say).

Consulting.

One joke I heard early on in my career is that consultants have the licence to con and insult. But only the unscrupulous ones. The good ones have some form of ethics and adhere strictly to them. Consulting can be lucrative as it involves fuzzy concepts such as work flow design and management. With the big companies, executives are often too afraid to speak the obvious, so they hire consultants to examine the situation and then state what is on everybody’s minds. They might have been afraid of insulting a senior management executive, and so they kept quiet. You are doing them a favour.

After studying a company or its problems, you will be able to identify its problems. You might be right, and you might be wrong. If they check with another consultant, he’ll come up with a different prognosis. Ten consultants will look at the same problem in ten different ways. So it means that everybody was correct, or everybody was wrong. In any case, senior management might have been kind enough to tell you what they were hoping to hear after you finish your study. And so you create your report the way they want it, and you propose your open source solution of choice as the panacea. One of my friends had a boyfriend who earned a lot of money by selling SugarCRM. He did it by disguising it as a consulting engagement. At the end it was always a bunch of problems. And the problems could always be solved with SugarCRM. What a brilliant guy.

Training

Just because something is open source doesn’t mean that people will know how to use it. And so there’s potential business in training people how to use the software. It means money. And after you train the users, you need to train the administrators who will maintain the software. That’s even more money. And after that, you need to train them to write modules and plugins and themes and customize it to their needs. Money again. Who knows, maybe upper management will not trust their own team members and they’ll get you back in for customization, consulting, etc.

In any case, when your clients have paid you a lot of money to train their employees to use your software, they feel invested in it. They might have the money to switch, but the thought of forking out money again to retrain their employees will make them dizzy. It also means that someone screwed up when they got you in. Such an admission might be hazardous to their year-end review and promotion. And so their eyes will glaze over at the thought and, as a tear rolls softly down their cheek, they’ll realize that they have no choice but to retain your services to train their organization.

You can make money by training. But you need materials. Of course you can write the materials, even though there’s a lot of material online regarding open source software. Your textbook might make money for you.

Certification

Trainers make money, but before they do, they need to be trained. And they also need to get recognition by the maker of the software. And so certification comes into play. Certification helps to inform people that the person they are dealing with has been vetted by the founder of the open source software. It tells people that the trainer or vendor is knowledgeable. And when the certification expires (it always does) the trainers and vendors need to get recertified. It’s a business by itself.

Fabrication

These are the days that open source designs on nearly everything are available online. But seeing it online is one thing. Turning open source designs into usable things is another thing. And so, there is a market for making things from open source designs, and then sending it to people who are willing to pay.

Distribution

Open source software is free for download, but not everyone can download it. Some of the world’s populations live in places without high speed Internet. Data trickles into countries like that. For them to download even 1 GB is like punishment. You never know when the download will end, and when the connection might drop. And if that happens, the download will be incomplete.

And so, for people who need Linux (as an example) a company called OS Disc has sprung up to address the perceived need. There probably is a need, because the most popular Linux variants tend to release new updates frequently. OS Disc makes money by burning ISO images into DVD’s and shipping them to you. That way you don’t have to download it yourself. Sometime back, I thought that it was a great idea and I was interested in doing something similar in this part of the world. And then I realized that I didn’t have the time to download ISO images. Not every day.

Freemium

Freemium is a business model. You give away the basic version of something for free, and you charge Premium rates for a more advanced version of it. That basic version might be open source software. And then you have your own proprietary version of it.

The problem is that when you create the basic version of the software as open source, all derivations from that open source software should also be open sourced. (Look at the licence to be sure.) Is it right if you benefit from passion and labour of the open source community and build on top of it to create your proprietary solution? Isn’t it like taking someone else’s work and dolling it up and selling it as your own?

Listen to Steve Blank. Make money first. Forget the moral issues. When you think there is a market, you can call me to help address the moral issues.