Open source and make money
Most of our digital products are built on open source tools. Still, the phenomenon is quite poorly understood. My mom would recognize at least the most famous example: Linux, but she wouldn’t be able to explain what open source means. Partly for technical reasons but perhaps also because the incentives of the open source model are not intuitiv. Why would anyone publish their hard work to the open web instead of getting Scrooge McDuck-level rich from their accomplishments? I’ll try to summarize how one can combine open source with making profits. The model does not automatically mean you’re not collecting large quantitates of coin. GitLab, Red Hat and MongoDB are all companies that make billions every year from their open source products.
Wait how does that work?
Because the source code is only part of the product. Those companies sell their software as a service with hosting, database management and support included. Sure, users may take the source code and build their own infrastructure, but most will not bother as that drives other costs. The open source license also prohibit others to commercialize a competing service with the same technology. For SaaS businesses like GitLab, open source gives them a counterposition against competitors as it allows their customers to actively contribute to developing the service according to their needs. It also attracts customers who value security and transparency.
Free software can generate piles of gold
Google mastered the model with Android. By providing an open source mobile operating system that could compete with iOS, they gave phone manufacturers a path to keep up without developing their own OS. They did so by winning the battle against Microsoft as the operating system provider for non-Apple devices. While Microsoft tried to repeat their Windows business model by licensing out the Windows Mobile OS, Google gave away Android for free and made it open source. The wide adoption of Android enabled the company to:
- Establish Google as the default search engine for all Android powered devices
- Distribute applications through the Play Store and collect a share of all app revenue
- Integrate their own services like Maps, Youtube and Gmail as part of the operating system
On the other side of the mobile duopoly, Google pays Apple about $ 20 billion a year to provide Google as the default search engine within Safari. Google Search is the greatest money printer in the history of the world. Meta (Facebook) have, like Google, repeatedly created developer tools and made them open source. JavaScript library React and API language GraphQL are just two examples of projects that have become some of the most widely used among devs globally. Once Zuck’s team have built those according to their own needs, one benefit of making them open source is that the rest of the world contributes to their continuous improvements. Another is that they suddenly have a large pool of talent to hire from that have already trained themselves on the technology that they are going to work with. Meta is also releasing their GPT equivalents, the Llama AI models, as open source. While the world helps them improve upon these models by contributing to the development, Meta will leverage those superb models to power functionality inside their applications like Instagram, Facebook and WhatsApp. Open source business strategy lesson 1: Use open source to boost the distribution of your core revenue drivers (Android usage leads to more Google searches leads to more ad revenue).
Lesson 2: Open source when you're behind, closed source when you're ahead (Meta has disrupted several key developer platforms to steer users out of the hands of competitors like Microsoft).