Revenue Model for Creating Business from Free OS Software

Revenue models for creating a product from FOSS:

1. Per-unit royalties. Who said open source was free? While the Linux kernel may be accessible to anyone with a web browser (subject to GPL terms), there is a huge leap between a kernel and a fully integrated, optimised, customised, certified and stable operating system. That’s why vendors like Azingo, ALP, Purple Labs and Mizi Research do charge royalties for the Linux-based software stacks.

2. NREs (non-recurring engineering fees) for integration & productisation. Most open source projects are designed to be 90% complete.. but the remaining 10% of pushing a project to ’shrink-wrap’ product status requires an entity with commercial interests to the deliver the project to the finishing line. As such, system integrators and software vendors such as MontaVista and WindRiver will happily engage in integration and productisation project for Linux-based OSes, in exchange for professional services or NRE fees.

3. Subscriptions for product updates & support. This revenue model is common with dual-licensed open-source products, where the product is branched into a version that’s available under GPL non-commercial terms and one that’s available under commercial non-copyleft terms. Companies like Funambol, Volantis, and Trolltech offer paid-for subscriptions to product updates as a service to customers of the commercial product branch and an incentive to move from trying the GPL branch to to buying/licensing the commercial branch. This revenue model presents a growing opportunity for any system integrator involved in the mobile industry, as both device-side and network-side software products based on open source are becoming increasingly used, while at the same time lacking support contracts and service level agreements (SLAs) that customers have come to rely on.

4. Certification and compliance testing fees. In the case where open-source-based products need to be certified or pass a compliance test - as is the case with Java JSRs - an additional fee may be leveraged for undergoing these tests - as is the case with the TCKs for Sun-owned JSRs, specifically the phoneME MIDP2 implementation.

5. Hardware sales. A more subtle revenue model is that of making the software available for free, but charging for the hardware. Taiwanese manufacturer FIC practices this model for OpenMoko, the distribution which is almost 100% open source. Here customers have a reason to go to FIC to build OpenMoko-based devices for them, so as to leverage from the product know-how and hardware integration expertise that the manufacturer has on OpenMoko.

6. Insurance for product liability and indemnification. This is a straightforward insurance service that software vendors often provide as a premium, which indemnifies or insures the customer of an open-source software product against liabilities.

7. Sharing development costs. Last and certainly not least, open source licensing can be used as a modern approach to shaving costs off software development, by pooling that development effort across multiple industry participants. Companies participating for example in Eclipse, Webkit, Maemo and Android projects seek to share their development costs of a commoditising software base with other peers (even competitors), while leveraging on that base to build essential value add.