Value proposition development

Open Source

Go Open Source to gain market mass and earn on affiliated products

Illustration of Open Source

Archetype

See also: Crowdsourcing, Crowdsourcing

Key Partners Key Activities Value Propositions Customer Relationships Customer Segments
Key Resources Channels
Cost Structures Revenue Streams
The business model canvas was designed by Business Model Fondry AG and distributed under a Creative Commons license.

How: Make your source code or product blueprint freely accessible for anyone under an Open Source licence. Let everyone contribute to the design and use it for free.

Why: Besides helping to open up a large user base, the collaborative production model of Open Source can help widen human capital invested and in turn help increase diversity of ideas and surface better solutions than if you were on your own.

This business model is part of the Business Model Patterns printed card deck.

A collection of business models that will help you understand the key drivers of business model success. The card deck will be ready for purchase in the end of 2023 and is now undergoing rigorous testing.

Reserve your deck!

Open Source refers to a development model in which products are created and maintained by a public community, rather than by a single company. The source code for these products is publicly accessible, enabling anyone with the appropriate skills and interest to contribute to the development and improvement of the software. As a result, the solutions developed through this process belong to the public at large, rather than to any single organization. Open Source products are also typically freely available for anyone to use, modify, and distribute.

The Open Source development model also provides a number of advantages for companies that choose to adopt it. One key benefit is that it eliminates the need for significant upfront investment in the development of new products. The community-driven nature of Open Source development means that much of the work is carried out voluntarily by passionate individuals, rather than by paid developers. As a result, companies can leverage the collective brainpower of the community to create better solutions than might be possible through proprietary development models. Furthermore, Open Source development is free from dependencies on suppliers, giving companies greater flexibility and control over their technology stack.

Where did the Open Source business model pattern originate from?

Open Source development has its roots in the software industry, with its earliest known use dating back to the 1950s at IBM. Following the introduction of the first IBM computers, a user group known as Share was formed to facilitate the exchange of technical information among programmers, operating system developers, and database experts. This early form of community-driven development laid the foundation for the modern Open Source movement.

The Emergence of Open Source in the Browser Market

In the 1990s, Open Source development experienced a resurgence with the Netscape Communications Corporation’s efforts to develop an alternative browser to compete with Microsoft’s Internet Explorer. This marked the beginning of the Mozilla Open Source project, which ultimately led to the development of the popular Firefox browser. This experience demonstrated the potential of Open Source to create value in the software industry and paved the way for its continued growth and adoption.

The Growth of Open Source and the Emergence of Profitable Business Models

Over the years, Open Source Software (OSS) has become an integral part of the software industry. One of the first companies to establish a profitable business model based on Open Source was Red Hat, which generated most of its revenues through the sale of service agreements and complementary software applications for the Linux operating system. Red Hat’s success helped to pave the way for other companies to generate significant revenues from Open Source products, and serves as a testimony of the viability of open source business model.

Applying the Open Source business model

Open Source development has found wide application in the realm of software design. By embracing an Open Source development model, organizations can relinquish a significant degree of control over a given project, but in return gain a competitive advantage through the setting of standards, the sharing of resources and risks, and the creation of a community of users to whom they can later sell additional commercial products or services.

Despite the availability of Open Source software at no cost, there are opportunities for income generation through business models that build upon an Open Source foundation. Rather than earning revenues directly from the software, companies may offer paid support, consulting services, or additional products or services that leverage the functionality of the Open Source software. This allows organizations to derive indirect returns while still maintaining the freedom and accessibility of the underlying software.

The biggest challenge with Open Source as a business model is not creating value, but capturing it. When designing an Open Source business model, it is important to ensure that at least some of the created value remains with the originating company.

There are a number of different opportunities for income generation using the Open Source model, including:

  • Selling support and consulting services. Companies can offer paid support and consulting services to help customers troubleshoot and optimize their use of the Open Source software.
  • Developing and selling additional products. Companies can develop and sell additional products that build upon or integrate with the functionality of the Open Source software.
  • Offering hosted or managed services. Companies can provide hosted or managed versions of the Open Source software, which can be especially appealing for customers who want the convenience of having someone else handle the technical details.
  • Selling training and education. Companies can offer training and education to help customers become more proficient in the use of the Open Source software.
  • Creating proprietary add-ons. Companies can create proprietary add-ons or plug-ins that extend the functionality of the Open Source software, and sell access to them.

Opportunities for income generation can vary depending on the specific open source software, the industry and use-case as well as the legal and economic climate. However, the main idea behind all this is to monetize the open source software without limiting its accessibility and freedom, which is the main principle of the open source movement.

The future of Open Source

As the Open Source becomes more prevalent across industries, it continues to gain acceptance as a viable approach to software development, delivering an array of benefits such as cost-effectiveness, collaboration and community, and flexibility. The wide range of uses and the increasing number of projects and companies adopting Open Source, have made it a fundamental part of software industry.

Trigger Questions

  • Is our strategic direction in line with community goals?
  • How can we capture value while still sharing our research and development efforts?
  • Is the technology amenable to an Open Source approach?
  • Would open collaboration on our research and development endeavors yield a strategic advantage?
  • Does the Open Source business model promise the potential to generate and capitalize on value?

Examples

Automatic & Wordpress

The free-to-install content management system software is also available as a paid subscription service on Wordpress.com.

Google & Android

Google Open Sourced its Android mobile operating system for free, earning revenue from its Play Store and mobile searches.

Wikipedia

The online encyclopedia, launched in 2001, has become the world’s most widely used reference work. Articles are written and edited by a global community of users and the platform is sustained through donations. Through its Open Source model, Wikipedia has disrupted the traditional encyclopedia market and forced established publishers to adapt their business models.

mondoBIOTECH

The Swiss company operates as the world’s first Open Source biotechnology firm. Its mission is to identify compounds for the treatment of rare diseases, known as ‘orphan diseases’. Instead of laboratory research, the company screens existing research results and information for potential compounds, which is a more efficient and cost-effective method. Just 11 years after launch, the company has developed a pipeline of over 300 active substances, 6 of which have achieved orphan drug status.

Local Motors

Launnched in 2008, it is the first Open Source car maker. It operates on an open design network, allowing engineers worldwide to contribute ideas and collaborate on car development on its online platform. Their first car, the Rally Fighter, was developed and produced using this model, and while only 150 units have been sold, Local Motors reached its break-even point barely two years after launch.

Sources

Want to learn more?

Receive a hand picked list of the best reads on building products that matter every week. Curated by Anders Toxboe. Published every Tuesday.

No spam! Unsubscribe with a single click at any time.

Community events
Product Loop

Product Loop provides an opportunity for Product professionals and their peers to exchange ideas and experiences about Product Design, Development and Management, Business Modelling, Metrics, User Experience and all the other things that get us excited.

Join our community

Made with in Copenhagen, Denmark

Want to learn more about about good product development, then browse our product playbooks.