Open Core – Heresy or Winning Business Model?

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Open Source Software (OSS) is tremendously popular among businesses today, as they can use it at no cost and avoid what they perceive as lock in to a vendor. It is also a great vehicle for innovation, harnessing the collaboration of theoretically limitless numbers of developers and providing the flexibility for anybody to extend or modify a program. For a software vendor, releasing a product under an Open Source license allows for the potential acceleration of the product’s evolution by tapping into a community of contributors, and can speed adoption as anyone can use or re-distribute the product free of charge.

However the same benefits that can speed adoption and development can make it more difficult for a vendor to monetize a product released under an OSS license. There is of course no license fee to charge for the product, so the typical revenue stream for a 100% Open Source focused company is to charge for technical support or services. The advent of Cloud and its rapid expansion has further complicated the equation, with Cloud providers charging monthly subscription fees for managed versions of Open Source solutions, earning significant revenue without necessarily contributing back to the projects they are using. Also, while the organization or individual who creates an open source project can determine the governance model for the project and maintain control of the direction of the project, another group or individual can always choose to fork the code, taking a copy of the source code and starting independent development of it. After Oracle acquired MySQL, provider of the Open Source relational database of the same name, one of its original founders decided to create a new project based on MySQL named MariaDB, which has since seen considerable adoption. While one person or group can control an Open Source project, it is by design that no one truly controls the code.

Given all the implications of releasing a product under an Open Source license, can a software company truly be financially successful using a 100% Open Source licensing model? Red Hat, whose acquisition by IBM is expected to close in the second half of 2019, is probably the largest profitable 100% Open Source company, with revenue of 2.9B USD in 2018. Hortonworks, which recently merged with its Hadoop rival Cloudera, also lauded its 100% Open Source pedigree. While there are other notable examples of software companies with a 100% Open Source approach, the much more common model is something called Open Core.

An Open Core approach means a vendor delivers a core or base offering as Open Source and a commercial version or add-ons as proprietary software. Talend, a data integration tooling vendor, offers “Open Studios” for Data Integration and Data Quality, as well as fully featured commercial versions of these offerings. MongoDB, offers a community edition as well as an Enterprise version of its leading document database of the same name. Near the end of 2018, Neo4j announced that it was going Open Core, moving to license the Enterprise Edition of its popular graph database under a commercial license. Interestingly, Cloudera’s CEO recently announced that the intent for Cloudera, which maintains proprietary capabilities, was to become 100% Open Source following the merger with Hortonworks. This seems like the exception to the trend.

Open Source purists may deride Open Core as fake Open Source or against the spirit of Open Source, but Open Core companies develop and maintain something of value under an Open Source license, while protecting some of their differentiating technology under a proprietary model. Ginny Rometty, CEO of IBM, recently said on a panel with Open Source thought leaders at IBM’s annual THINK 2019 conference, “The first, most-important principle is you really have to give back more than you take,” and Open Core vendors are certainly doing that.

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