Marie I. Rose | New York
Proprietary software providers like IBM, Microsoft, Oracle, SAP, and Blackboard have dominated the technology scene for years. Not anymore.
Publicly accessible open-source has transformed how software is developed and delivered in the last two decades. It is getting increasingly popular, with 30 million developers exchanging code and ideas and collaborating at GitHub.
In this new environment, the open-source services industry is set to exceed $17B in 2019, and expected to reach $33B by 2011, according to CB Insights.
An indication of the growth can be found on recent acquisitions (Red Hat by IBM for $34B, and GitHub by Microsoft for $7.5B), alongside large public market valuations like those of MongoDB ($7.9B) and Elastic ($7.3B).
An Alternative Which Started in the 1960s
Open-source began to offer alternatives to proprietary solutions in the 1960s when modifying and redistributing the source code became an established practice. Many manufacturers of proprietary software with proprietary hardware encouraged users to troubleshot and modify source code themselves, in order to limit the need for frequent, onsite visits. Universities began sharing bug fixes and even software enhancements with other universities and soon thereafter with the public.
Some of the most notable projects since the dot-com bubble include Mozilla’s Firefox in 2002 as well as Git (a source code version-control system created by Linus Torvalds) in 2005.
More recently, we’ve witnessed the growth of open-source databases like Redis, open-source infrastructure-as-a-service like OpenStack, and even open-source machine learning libraries like TensorFlow, Docker, Kubernetes, and Swift.
The Business Behind
In terms of monetization, the model of “commercial support” is one of the most established methods. Enterprises are willing to pay for software that is otherwise free because they want assurances. They want security flaws fixed, dedicated assistance, and software longevity. They don’t want to implement open-source software that has persistent vulnerabilities, complicates development, or may become obsolete.
An increasingly popular revenue model is referred to as “open-core,” which offers a blend of open-source and proprietary software. The core platform remains free and open-source by being feature limited. Companies can then choose to pay for add-on services or to unlock a proprietary, feature-rich platform.
Examples of open-core companies include Docker, Elastics, GitLab, MongoDB, and Redis.
The Case of Google and Tech Giants
The second type of monetization strategy is that of the corporate-sponsored project. For example, Google is the primary developer of Kubernetes, and while Google doesn’t monetize Kubernetes directly, the wide adoption of the service has brought awareness to the company’s cloud service, Google Cloud Platform (GCP).
Another one of Google’s most successful open-source projects in recent years is machine learning (ML) library TensorFlow. Its widespread use has created a large, engaged community, resulting in contributions from many independent developers.
With thousands of developers contributing, Google and other tech giants such as Microsoft, IBM, Intel and Facebook — none of which are open-source companies — benefit from the free developer input and direct user feedback. This allows organizations to build better software faster.
In addition, these projects also act as an ongoing lead generation for the sponsoring organization.