What does "open source is not a business model" actually mean?

Amanda Brock, CEO of OpenUK and thought leader in the area of open source business building, likes to say that open source is not a business model. She’s absolutely right, but I think that the phrase could use some unpacking. (She did some unpacking in our podcast, published last week, but I have my own thoughts).

I do think open source can be a core part of startup’s strategy — or, for that matter, a core part of any business’s strategy. The way that Huawei or AWS or Sony think about open source is different from how HashiCorp thinks about open source, and the way that HashiCorp thinks about open source now is surely different than when the company had freshly closed a seed round. In all cases, open source is strategic — but that doesn’t make it a business model.

What, after all, is a business model? It’s a description of how you intend to make money. Open source, of course, is free. It makes you no money… in fact, it’s a cost center for your business, even if you don’t think of it like that (and if you’re really committed to building an open source company, you probably shouldn’t think of it as a cost center, even though it kind of is).

Services versus products

If you sell lemonade on the side of the road, you have a product-based business model. If you walk dogs, you have a service-based business model. Incidentally, both of those business models are routes you could take when building an open source company. The difference between service-based and product-based businesses are among the most classic, and fundamental, differences in business model. That a company being built around an open source project can do either is a sure sign that ultimately, open source can form a strategic part of your business but does not dictate how you make money. Within service or product-based models, you can have subscriptions and packages. There are different types of products you could sell based on your open source project.

Open source business models

Indeed, as I’ve written before, there are a handful of open source business models. They all have different pros and cons — and if you’ve taken venture funding, you might find that the relatively low margins of service contracts aren’t going to get your company where you need it to go. But just saying you’re going to be an open source company is insufficient information for you, or anyone else, to evaluate whether or not your idea is solid from a financial point of view.

Getting paid

Here’s the bottom line: You need to figure out how you’re going to get paid. Knowing that open source is going to be front and center in your company doesn’t really tell you much about how you’re going generate revenue. If you’re going down the open source route, you need to understand what strategic role open source is going to play in the company, but you also need to have an idea about how your company plans to make money. The sad truth is that millions of downloads of an open source project don’t pay the bills, and while they can, in some cases, be converted into paying customers, doing so profitably requires an awareness of … your business model. The two can go hand in hand, of course, but the point is, knowing that you’re going to incorporate an open source strategy into your company’s DNA is just not enough.