Open Core Ventures starts commercial open source software (COSS) companies and prefers the open core business model.
The open core business model is a method for monetizing open source software. It includes a “core” version of the software that is open source and a commercial version that includes additional features and functionality that are proprietary and source-available.
In contrast, support and services-based COSS companies (Red Hat) only produce open source code but charge subscriptions for support, training, and implementation services.
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Open core companies are outcompeting closed software and will replace closed-source proprietary software as the default model.
Open core has an advantage over closed-source software because it enhances trust and R&D velocity. With open source software dominating more and more of the market, closed-source software companies will be at a disadvantage because more users will expect to be able to inspect, modify, and contribute to the software they use. Open core software will become the default because it’s more secure, modifiable, and benefits from faster R&D velocity. In the future, people won’t trust closed-source companies when there are open core alternatives
Andrew Lampitt coined the term in 2008 after he noticed there was confusion in the industry around dual licensing strategies, and as a result, they were getting a bad rap due to what was perceived as bait-and-switch tactics. The problem, he argued, was that dual licensing doesn’t accurately describe the approach as an emerging business model. Open core does not claim to be open source—it is a business model that builds alongside an open source project.
Characteristics of open core
Deciding what is open source and what is proprietary has become a point of tension in open core. Segmenting features based on user instead of features is considered best practice.
Most companies do not pirate software.
There is a risk of increased piracy when making proprietary code source-available. The risk is generally low and outweighed by the community contributions and customer trust you will receive in exchange for providing access to the code. Those willing to pirate software are unlikely to pay for software regardless.
Buyer-based open core is a framework for determining which features are open source and which are proprietary. The BBOC method places features into tiers based on the most likely user. There are typically three tiers, and the order of increasing cost and tiers is based on the buyer. Features that appeal most to an individual contributor are open source and free. Features that appeal most to management or an executive are proprietary, and you charge the highest amount of money. It's no longer about "Where is that feature technically?" Or "How much more work was it to make?" Or "Where in the repo does it live?" It's about the end-user.
📹 Watch the full presentation on Commercial Open Source Business Models.