How Open Source Companies Make Money

Opensource Revenue

Ever wonder how an open source company makes money? Even if a software company offers a “free” product, they still have to generate revenue to pay their employees, keep their lights on, and stay in business, right? So how do they do it?

Many of these companies earn revenue by offering add-ons. They allow you to download and use the basic software package for free, but if you need an app for a specific task, or would like to add a widget or tool to your software package, you will have to pay for it. Many of these open source software packages limit the amount of functions available, so you are almost forced to buy these “upgrades” when you start using the software.

Another way open source companies make their money is by offering “community editions.” Essentially this is an open source software platform with no support or resources available. Support is provided by other users in the community and everyone is basically on their own. If the community is unable to resolve an issue you can get paid support from the actual software manufacturer in conjunction with other resources. This business model doesn’t necessarily gain income from upgrades, but rather from paid customer service and troubleshooting.

Companies can also release an open source product with a full suite of customer service options available in conjunction with software tools as a marketing method for their other software products. For example, if you download and use free software, and end up liking and using it a lot, there is a chance you may look to see what other software programs are available from that company. Those packages may all come with a cost, but by releasing the free program, they’ve effectively promoted their brand and stimulated sales of their other product offerings.

Open source companies may also release free software in an effort to disrupt their competition’s market. It can not only help with customer retention, but also steal customers away from other software companies that are charging users for similar software platforms.

Ultimately there are many direct and indirect ways open source companies earn money, from traditional up selling on top of their free product to increased market exposure resulting in increased sales of other products. WordPress is a perfect example of how a free service can be scalable. WordPress has an estimated website value of 4 billion, yet its platform is free. It earns revenues by offering gadgets, widgets and tools within their software platform for various prices. They also offer templates and upgradable web development packages all for different prices.

Just because a company is open source does not be it isn’t making money. It’s merely making money in a different kind of way. Traditional software companies spend time and money on development, and then release their product for a cost. Then enough people need to buy it in order to turn a profit. With open source, the actual software is just the medium in which you are selling the customer through. It’s your portal for direct access to a user who is already using your product making them more likely to buy from you when the time comes to up sell them.

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