How to Make Money with Open Source Software?

What is Open Source Software?

An Open Source Software or OSS has a source code, which is open to changing, modifying, and distributing as the access to it is open and free of charge. A source code is the fundament of an application, its architecture, features, and functions. You do not normally see it unless you’re a software engineer, who works with the code.

According to a source, Mozilla Firefox, Google Chromium, Android, LibreOffice, and the VLC media player are the best examples of open-source software.

Open-source software development and distribution belong to the software development business models. What is the purpose of the source code to be accessible in the open software? Most of all, to ensure code transparency and to allow the developer and customer ecosystem to learn and with the help of obtained knowledge drive positive innovations. And, second, to receive revenue. The global open-source services market size was valued at $25.03 billion last year and is expected to grow at an annual growth rate (CAGR) of 16.9% from 2023 to 2030. 

What are the benefits of free and open-source software? Taking advantage of its availability it is possible to:

• Reduce development costs
• Improve software quality worldwide
• Bring software products faster to the market
• Have full ownership and control over the software
• Drive innovations quickly
• Promote flexibility in production
• Have a broad perspective ahead
• Customize and integrate the software
• Modify software in case of need and enhance it
• Collaborate to ensure better solutions are made
• Receive a large developer community support

That’s why most software developers find source code openness convenient and practical in their daily job.

Let’s dig deeper and try to understand, how the OSS development model work, where is the open-source code located, and what is an open-source business model or models companies use these days.

How Does an Open Source Development Model Work?

The code, which is an open-source one, is located in a public repository like GitHub and can be used or shared openly. What’s more, developers can even contribute to this source code by suggesting design and functionality improvements. If software engineers know how to enhance the source code and find it useful to create their basic application – the repository is a good place to start from.

To make OSS available to anyone, it has open-source licenses with terms and conditions defined. According to a license, developers can use the source code, study it, modify it, and distribute it. The GNU license speaks about the free source code of the open-source service. But, there are other licenses of the open-source companies that require fees.

Changes made to the open-source code require a written explanation of what exactly was altered and with the help of what technological tools. The GNU license supports any modifications that were made to the initial source code and approves it to be hosted at the companies’ websites and paid for. And, this is how most software development providers use their OSS to gain monetary rewards.

Open-source software development processes have several phases. For example, the source defines 4 main steps to initiate the source code development. These are:

• A public announcement to develop a product on-demand
• A developer releases a limited source code to the public, which is the first version of an open-source project
• A project source code is released for public usage
• An open-source project is forked by someone interested

How to work on open-source projects? To start a successful project, investigate the software development market first. The process begins when you either adopt the existing project or start a new one. The new project starts with the Initiation phase. The existing project adoption starts from the Execution phase.

Are All Open Source Solutions Free?

Although many open source programs are free and accessible to all, some may require various levels of licensing or a one-time payment to access and utilize the open source code yourself. And even if you stumble upon an open source solution, you may be required to use the software as open source, depending on the creator of the original open source software or platform. In a nutshell, if you modify the software or use it to build another product, you may need to release the modified source code to the public.

Carefully review the licensing terms associated with each project to understand any potential costs or obligations. The specific terms can vary, and some open source software may come with certain conditions that impact how you can use, distribute, or modify the code.

Essential Prerequisites For Open-Source Companies To Generate Revenue

Generating revenue for open-source companies requires a strategic approach that goes beyond traditional software sales and can be achieve by the following:

Extensive adoption

Achieving widespread adoption of your open-source software is fundamental to its success and revenue generation. A larger user base increases the revenue potential and enhances the software’s reputation and visibility. For instance, the demand for specialized expertise and assistance — open-source companies can offer premium support packages, customized training programs, and consulting services to help users optimize their use of the software.

A widely adopted open-source project attracts attention from potential partners, collaborators, and contributors. Strategic partnerships with other companies or organizations can lead to joint ventures, integrated solutions, and expanded market reach. Such a collaborative approach strengthens the ecosystem surrounding the open-source project and opens up avenues for revenue-sharing arrangements and mutually beneficial business opportunities.

Big reputation

Credibility is crucial for gaining the trust of users and potential clients. Consistently delivering high-quality software, providing excellent support, and actively engaging with the community contribute to building and maintaining a positive reputation.

A well-regarded open-source company is more likely to attract users willing to invest in additional services and support, which enhances revenue opportunities. That’s why you should regularly monitor and address any issues that may arise, and actively participate in industry events and forums to reinforce your company’s credibility within the community.

5 Main Ways Open Source Companies Can Make Money

There are different ways companies can monetize open source building a profitable open-source business. For example, there are 5 ways to make money with open-source software:

• Donations
• Hosting
• Licensing
• GitHub Sponsors
• Open-core model

However, the list is not limited to those options and, this way, you can also make money with open-source projects via paid extra features, certification, and support business models, which we will discuss further.

Donations

Donations are a type of money-making that is mainly used by individual developers or small startups. Large corporations with big profits have no potential benefit of making money this way.

How do donations work? A developer or a startup produces an open-source project and makes it open to anyone interested. However, the contributor asks the open-source code users to donate any sum of money for further code development. Anyone, who finds the code useful and takes it can donate the sum of their choice. With the help of donations, developers and startups can make a good profit.

But, the drawback is that this business model is unstable. You cannot predict when someone will be generous enough to donate and the income will never be sustainable. There are people, who tend to use any convenient codebases and their updates with no intention to pay. The others try to support the project but cannot give out everything till the last penny. So, making money on OSS with donations can be the first step to payable software code usage, but not the ultimate.

Hosting

The other way to receive costs is to allow others to store your software on their websites. How exactly? For instance, you have developed an OSS and would like to share it with the world. Businesses, that need your software can run it on their web servers. This is a free option. The only minus is that they will need to configure the open-source project to their server to make it work. But if they need to run the app on your servers – this option is to be paid for.

This type of gaining profits is very popular but will not work for every OSS. Differentiating the paid and free versions of the software is great. But you have to remember that the cost of the paid version cannot be too high as developers might think that maintaining their servers will be a better choice here. You can make hosting software as easy as pie on your servers, but be careful with the price you set. Approach this method reasonably.

Licensing

Dual licensing includes two types of payment for the OSS. A single developer using the source code will receive it for free as his/her purpose will be mostly to learn and create something useful. One software engineer is just too small to receive monetary rewards for their OSS usage. However, large companies using the core codebase will have to pay a licensing fee as their usage will result in profit gains. Some of the OSS companies offering dual-licensing are MySQL, Oracle Berkeley DB, Asterisk from Digium, and many more. If you plan to use the dual licensing model, look through what it offers to gain some insights.

What’s more, companies that use the source code can decide on the appropriateness of the licenses and choose the one that will suit them best. However, the choice should be based on integrity and result in legal compliance with the licensing rules. No company that has paid for the open-source code is allowed to make this code public.

GitHub Sponsors

Let individuals and businesses financially support the development of open-source projects directly — GitHub Sponsors enable users to contribute funds to support the maintainers and contributors of the open-source software. There, users can make regular or one-time financial contributions to the project and receive benefits such as early access, exclusive updates, or other perks, depending on the sponsorship tier.

GitHub Sponsors provide a direct way for the community to financially support the developers behind open-source projects, fostering a sustainable ecosystem where developers can dedicate more time and resources to improving the software. This model can complement other revenue streams, contributing to the overall financial health of the open-source company.

Open-core model

In the open-core model, the core functionalities of the software are offered as open source, while additional features or advanced capabilities are provided in a commercial or proprietary version.

You can offer a free and open-source community edition with essential features, and introduce a commercial or enterprise edition with premium features. Users who require the enhanced capabilities can opt for the commercial version, typically available under a subscription or licensing fee.

The open-core model strikes a balance between providing a free, accessible version of the software to a broad user base while offering advanced features to businesses or users with specific needs. This allows the open-source company to monetize the software by targeting enterprises or users who are willing to pay for additional functionalities and support.

Mobile app monetization models to look out for!

Paid Extra Features or Functionalities

Tailwind UI is an open-source CSS library that was established back in 2017. The question remains: how open source software make money for its extra features? The creator of the open-source project dedicated every minute to its development and gave out the core code for free but the extra code components like the UI were charged for.

The framework to build software and its main features are free, but if you need extra features then get to see the price list. How is it an advantage for developers? Buying the already existing components allows us not to waste time and support the OSS project. How is it beneficial for businesses? They obtain cost for giving extra software features these companies need.

This profit-gaining model is suitable if your core users are large enterprises, which need extra features in a software product. For instance, specific integrations (payment systems, etc.) user management possibilities, SAML Authentication, and others. Here, you can charge them for every extra feature because they will still need these and will lack time to deploy features on their own. Companies of medium or small sizes and startups are highly unlikely to need extra features.

Paid Certification Services

The open-source developers worldwide really lack training, and 54% of open-source professionals were disappointed with this tendency in 2020. Based on the need for open-source software support worldwide, it is always a good choice to produce video courses and teach potential OSS users how to manage and maintain the software themselves. Of course, this can be done at a reasonable price. What is an open-source operating system that produced numerous training courses to give developers the basic info on how to manage open-source software and to make money with open-source software? It’s Linux. There are courses free of charge and paid ones, which makes Linux Foundation receive certain costs to their budget if developers choose the paid versions of training courses and want to obtain certificates in the future.

Providing Support in Open Source Software

Creating paid support for the OSS is a model of money gained produced by Red Hat. How do open source companies make money? Here, the open-source software has to be paid for to be supported by the creators and configured. If you’re a business that needs to resolve some issues concerning the OSS or maintain and manage it – choose the support contract offered by the software distributors.

It is always a better idea to ask the OSS creators to manage and maintain their software than to do it yourself. Here, the costs of self-management will be higher. If this way the costs assume to be bigger than the benefits, the software loses its accessibility and becomes unavailable to the masses.

Paid courses and training

Develop and offer paid courses and training programs for users seeking in-depth knowledge and expertise in your software. Such courses can cover advanced topics, best practices, and specialized use cases. With charged fees for enrollment, the professional training programs must be filled with valuable insights, hands-on experience, and certifications upon completion, adding revenue stream while enhancing user skills.

Choose what is better for you: in-house vs outsourcing software development

Conclusion

To wrap up how open-source software makes money, there are multiple ways to do it. For example, through asking to make donations to support your code development, to make licensing on usage, change, and distribution of your open source projects, to allow hosting the OSS, to make extra paid features for the OSS, to provide paid support and sell training courses of OSS management. All these types have to be adjusted to your business needs and possibilities.

If you need a piece of expert advice we recommend you to try our product discovery service and receive the most efficient opinion on open-source software development. We can also provide web development and mobile development services and custom software development services for startups Don’t hesitate and find out all the answers today!