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The business of free software

Mike S. April 5, 2019

Ten years ago, we created the Gluu Server, a distribution of free open source software for identity and access management (IAM).

To build a robust community around the Gluu Server, we decided our open source offering would include four things:

  1. The code would use a developer friendly open source license;
  2. We’d work hard on creating quality documentation;
  3. We’d release Linux packages to enable easy deployment;
  4. The Gluu team would directly engage in community support.

We felt it was important to make a usable “Community Edition” available without paying a license fee.

In the IAM ecosystem, we need more people who understand the domain. Making the Gluu Server free of charge would get the software into more people’s hands, lowering the barrier to learn how to use the software.

When we started the Gluu Server project, we also founded Gluu, Inc. — the business behind the software. But one challenge quickly presented itself: how could we balance free of cost with the business imperative to generate revenues, innovate the product, and grow the company?

Creating a business based on cost-free software may seem counter-intuitive, but “free” is one of the most powerful words in the marketing lexicon; many successful businesses use “free” as part of their business model.

Radio is free. Adobe Acrobat pdf reader is free. Registering for a Twitter or Facebook account is free.

We believed the benefit of adoption would outweigh the ensuing revenue challenge. We also hoped the benefit of a large community would help us write better software, and innovate faster.

There were a number of working business models already “out there” we could emulate. What could go wrong?

Types of Open Source

Over time, we’ve developed a more nuanced understanding of open source. We’ve discovered there are three types of open source software projects:

Community Open Source

Fueled by volunteer enthusiasm, these open source projects are critical to the Internet. Many software projects we take for granted are developed in this way. We owe a large debt of gratitude to all these contributors for their work, which often goes unnoticed. They deserve thanks, but also tangible support for the important work they do. This is one of the reasons we like what Tidelift is doing to help enterprises consume open source and fund it along the way. If you want to learn more, Tidelift was recently a guest on The Changleog podcast… listen in!

Corporate Open Source

Microsoft, Google, Facebook, Uber, IBM and many other large companies fund open source projects that do not translate into a competitive advantage. Benefiting from collaboration outweighs keeping the intellectual property proprietary. For example, Google doesn’t make money on Linux containers, they sell ads. But it’s hard to take away meaningful business lessons from these successful projects. Their existence depends on the deep pockets of sponsors, not necessarily their success in the market.

Pure-Play Open Source

For “pure-play open source” companies, profit is paramount. This is what Gluu is, and what I was most interested to explore. These projects live or die based on the success of the company maintaining the code. Free open source software must contribute to the business model, without destroying it!

Going deeper

We felt strongly that the key to success for Gluu was to build a large community.

“Cost-free” helped us achieve one of our business goals: increasing the supply of engineers who understand security. But Gluu initially struggled to develop a business model that was able to fund development of our complicated product.

The journey to build the business was made more difficult because we didn’t have a good road map. My first instinct was to find comparables — other successful open source software companies.

How did they make money? How did they develop channels? Who were their customers? How did they build their team?

It was harder than I expected to get reliable first hand information on the topic. I found several articles on “open source business models”, but it’s more valuable to hear this information straight from the proverbial horse’s mouth.

This gave me the idea to document the stories of successful pure-play open source software companies on a podcast. I felt this kind of business know-how would be invaluable to the next generation of entrepreneurs building companies around open source software.

The podcast idea steeped for some time.

Finally, in 2018, I decided to do something about it: with the help of the Gluu team, we launched the Open Source Underdogs podcast.

The response has been overwhelmingly positive. Almost every open source company we asked to participate has volunteered their time.

If you are an entrepreneur starting out, make sure you tune into the podcast. Many years of experience are encapsulated therein. The advice has already helped me steer our direction at Gluu — it can help you too!

So far, we’ve recorded more than 20 episodes.

We have about 20 more in the pipeline.

I’m not sure how many successful open source software companies are out there, but we plan to keep recording episodes until we document them all.

Profiting from open source

Below is a simple summary of the some of the revenue streams we’ve discussed so far on the podcast.

It’s not comprehensive. And there is quite a bit of nuance in how these revenue streams are structured. But the following strategies are tried and true, and are being used with success in the market today.

Open Core: This is the most common strategy, where vendors license extra features in the product that customers are willing to purchase.

Cloud: Software vendors can offer their open source software as a service. This is one of the most attractive recurring revenue models. It makes adoption of the software easier, and aids in one of the biggest challenges for deploying open source software: operations.

Distribution: Vendors make the open source more consumable by enterprise customers by packaging, testing, versioning, supporting and patching for a period of time, and by offering legal assurances. This may include releasing the software in binary form, such as packages or docker images. Or may include access to a restricted repository.

Tools: Build complementary commercial products that are adjacent to the core product. In some cases, these tools may aid in deployment at scale. In other cases, the vendor is utilizing their market share in the core product to upsell products in tangential markets.

Hardware: Sells hardware that runs the open source software.

Brand License: A vendor can charge partners to use the open source brand for marketing purposes.

Marketplace: If there is large community that produces software extensions, the open source vendor can provide the ecommerce and license infrastructure needed to support third parties in their efforts to sell complementary software, taking a percentage of the net revenues.

Learn more on the podcast

Open Source Underdogs is available on Apple iTunes, Google Podcasts, Stitcher, and Spotify.

The website also has the audio and transcripts (which are released some time after the audio).

If you’d like to share your story on the podcast, please reach out to us.

Otherwise.. listen, learn and share!

I wish I had such a resource when I started Gluu — it could have greatly accelerated our execution of a viable business strategy.

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Mike Schwartz

Mike has been an entrepreneur and identity specialist for more than two decades. He is the technical and business visionary behind Gluu. Mike is an application security expert and has been a featured speaker at RSA Conference, Gartner Catalyst, Cloud Identity Summity (now "Identiverse") and many other security conferences around the world.