What Are Open Source Startups and How Do They Work?

What Are Open Source Startups and How Do They Work

The concept of “teamwork” takes on a whole new meaning with open source startups. Here’s how

Even the best companies are not devoid of software glitches. In fact, recently, Elon Musk’s electric vehicle company Tesla had to recall nearly 12,000 cars due to a software glitch. While building a company without any technical glitch seems utopian, open source companies get close because they involve the efforts of not just their employees but also their user communities. 

So, what are open source startups?

Put simply, an open source startup refers to a startup that is predicated on open-source software projects. The source code behind the project is accessible to all and can be modified by others. Some examples include Red Hat, Confluent and MySQL.

Being open source is especially advantageous for startups in the ever-changing tech field. You can get inputs from expert developers who you might not be able to afford otherwise. You are also able to open your project up to a range of possibilities, thus ushering in technical progress. Plus, you can use the open source code of another project for your own. This way, your in-house software developers can save development time and, instead, focus their efforts on innovation. 

Your open source startup can be dedicated to data storage and processing or creative projects à la Adobe. 

How do open source startups work?

For an open source startup to succeed, it requires a large community or user-base and credibility. Since most developed open source software is free (except for the premium services), having a large user base and credibility helps your odds of getting paying consumers. As the Founder and Chief Strategy Officer at Cloudera, Mike Olson, notes, “Open source is a really important component of strategic thinking. It’s a great distributed development model. It’s a genius, low-cost distribution model—and those have a bunch of advantages. But you need to think about how you’re going to get paid.”

For that, typically, open source startups utilize five business models:

1. The support model

Using this model, open source startups provide “support” in the form of deployment services. You can offer training, bug fixes and other maintenance or back-end support to users. The model boasts low profit margins as it involves a lot of manual work. Plus, big companies might not want to pay an external company a fee to manage certain additional services. Given that, if they foresee using your services for the long-term, they will just hire their own team to replicate the model. That said, this model can be a good starting point for your startup, as it will help you make contacts.

2. Fully-managed services

This is another popular business model where the startup offers a fully-managed version of its project. For instance, Databricks is a cloud-based open source company that provides a fully-managed data analytics and storage platform. This way, users don’t have to worry about operating it too much or even preparing back-ups. Another popular example is the blogging site WordPress.

3. Open-core 

As one of the most popular models, an open-core startup offers the majority of its code as open-source (available for free) while some of it is proprietary (paid), which means it is owned by the enterprise. So, a limited version of this software is free and involves community participation. The proprietary part of the code is run by the company’s engineers and developers, and does not involve community assistance. Additionally, both the codes—open-source and proprietary—are present in two different documents, so users have to switch between them to navigate the codes.

4. Restrictive licensing

Some companies require users to comply with certain licenses, such as the General Public License (GPL) and Affero General Public License (AGPL), to use their software, thus adding an element of exclusivity. Owing to these licenses, users must display copyright when copying the source code. Also, any work they share with others must follow the same terms and conditions. Sometimes, they have to pay for patent rights. So whenever they distribute their software, they are also giving away the patent rights. While these restrictions can offer legal protection to a user, they can also be very limiting in their application. 

5. Hybrid licensing 

This model is an advanced iteration of the open-core model. Here, open-source code and proprietary code are both present in a single, unified code. This makes it easier for the user to navigate the final code without having to shift from one document to another. Plus, users can also comment on the proprietary code if they find any problems, even though they can’t modify the code themselves. 

Often, companies use a combination of all of the above models. The CEO of an open-source data streaming platform Confluent, Jay Kreps, concludes, “A key aspect of these kinds of technology-developer data products is they have to have a combination of bottom-up adoption and top-down SaaS (Software-as-a-Service), and you actually have to get both of those things working well to succeed.” All things considered, creating an open-source software startup will boost both innovation and profitability if executed well. 

Header Image by Freepik

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