Open Source Business Models

Lately, there has been a lot of discussion on open source business models. Susan Wu at Apache and Stephen Walli at Optaros have a good posts. Most of the discussion has been around VC funded open source companies and if there is an open source bubble. I think we will see a bubble burst near the end of 2006.

However, the VC funded investment model misses the point. The exciting thing about the Eclipse community is that there are a number of different business model being adopted at Eclipse. Most that don’t rely on a vc funded open source company.

Right now I count 5 different models:

1) Platform Vendors -– These are the companies whose core value is a platform, ie operating systems, J2EE server, device, etc. These vendors need developers to build applications for their platform and do so by providing developers with ‘‘productivity’ tools. They look to Eclipse to provide 1) the technology base for their tools, 2) an eco-system of third party plug-ins to supplement their own offerings, and 3) a distribution channel to attract new developers. Good examples of platform vendors would be BEA, Nokia, IBM, Macromedia, Wind River, QNX, etc.

2) Technology Consumers (Make vs Buy) – Lots of companies are using Eclipse as a technology provider. It is the classic make vs buy decision that every technology vendor has to make. Eclipse is a predictable, reliable source of high quality technology that is critical to lots of software applications. Agitar, SAP, SAS, and a host of companies using Eclipse RCP look to Eclipse instead of rebuilding it themselves.

3) Value Add Features -– There is a growing community of companies, often smaller ISVs, that are being very successful marketing value add software to the Eclipse user community. Eclipse has a larger growing community of users. The open source projects have not, and I don’’t think will every provide, all the functionality required by the user community. Users + Need = Opportunity; which hopefully leads to $$$. Examples here could include, Instantiations, Genuitec, M7 (now part of BEA).

4) Service and Education Providers -– As Eclipse becomes more established in IT shops, there is a growing requirement for Eclipse expert services and education. Good examples are AvantSoft, Espirity, and others.

5) Eclipse distros and support – There are a number of companies that have started to offer Eclipse distros. Some are offering support and certification on the different components. This is essentially the model Red Hat has mastered for Linux. Look at Innoopract, OpenLogic, NexB.

Interestingly, the open source company business model being backed by VC companies (ex. SugarCRM, JBoss, MySQL) does not seem to be happening at Eclipse. In this model the company staffs and funds the core committer development team and profits by selling service and support. This maybe due to the Eclipse Foundation focus on ensuring a vendor neutral community?

In reality, I think a lot of companies fall into more than one business model. I’’d be interested in knowing if I have missed a business model or if a new business model is emerging?

btw, I apologize in advanced if I did not mentioned your company. Feel free to leave a comment about your company and what model you might be using.

One Response to Open Source Business Models

  1. David says:

    Hi Ian, would love to speak with you more about the Eclipse business model. I work for a non-profit startup building an open architecture for health data.

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