How to choose a monetization strategy

Yesterday I wrote about open source monetization strategies. They are finite, but there are also enough monetization strategies, and they are different enough, that you should make a conscious decision about which one you choose.

Many open source startups actually choose more than one approach, at least as they mature. That’s possible, too, but each strategy involves a different product. At the beginning, it’s best to focus on one monetization strategy and one product, so you can focus on getting that right before building out a suite products. Most commonly, the product suite looks like free open source software, enterprise open source software, cloud/SaaS version. This is 3 products and two monetization strategies — and each product has a different target market and possibly a different core value proposition. Keep things simple for yourself and don’t launch a third product until you have the first two totally nailed.

But how do you choose which to go with first? Bootstrapped companies almost always start with services of some kind, because that’s the fastest way to get money in the door. If you have venture funding, though, it comes down partially to a positioning question: Which monetization strategy is best aligned with the target market that your open source project already serves? Which monetization strategy is going to provide the most value? For example, if your OSS serves primarily large enterprises who like to host everything themselves, then offering a cloud version makes no sense.

Monetization strategy should be related to your positioning strategy — pick something that makes sense given what you already know about what your open source project does better than any other option, and the differentiated value that it provides.