Below is a compilation of the helpful comments I've received from readers of this blog in response to my recent post on Open Source, along with some comments and questions.
Patent-Based Dual-Licensing Open Source Business Model [PDF available here]
I found this model intriguing since the inventors/licensors of patented software would "…distribute to the public, under open source licenses, software that embodies our patented inventions, and we will seek to encourage those who improve our software to do the same. [They] will encourage the creation and distribution by others of free and open source software that embodies our patents without fear that [they] will sue them for patent infringement. And at the same time, [they] will implement a licensing model that allows inventors and authors, and the universities and research institutions that sponsor them, to profit when their patented inventions and copyrighted works are used in commercial and proprietary products and activities."
While it allows for "… (1) the making, use, sale, offer for sale, importation, licensing or distribution of open source software; [and] (2) the making or use of software or hardware for experimentation, research or teaching … Companies and individuals are free to modify their open source software in private to develop new applications, but once they put that patented software into production, they must seek a patent license from [the licensor]." In addition, it "… excludes proprietary software and hardware embodiments of [the] patents."
I read this to mean that when licensees want to sell any application they've developed that incorporates the patented invention, they must pay the licensor "...reasonable royalties based upon the value-add of [the] patented technology." Also, any derived work must be distributed to the public as open source software.
Several readers commented that I go with a dual license containing a GPL for the OS community and a commercial/business-like license for a fee because it offers the benefits of community support and transparency, which helps develop more reliable products (e.g., through bug tracking), continuous quality improvement, more coordinated development, more satisfied customers through ongoing feedback. The down side is lower profit since revenue is limited to fees generated as a service provider, royalties for the value add, and a smaller market of potential customers since members of the OS community have the rights to sell into the same market.
Another potential downside is that GPL users can charge the licensor a fee for any patches they develop that improves the code. A suggestion is to put the code of the commercial and open licenses in different modules, which are loaded at runtime and thus unavailable to the GPL user. Commercial users that have access to the source code, on the other hand, would be required to submit patches with authorization for the licensor to distribute under commercial license.
Still another downside of GPL dual-licensing is it discourages the distribution of code since developers don't get some of the profit when others sell it under commercial license. That's why it was recommended that a very permissive BSD license be used in the portions of the code to which the licensor may want to add proprietary extenstions.
I'm not sure I have this all correct?
"Freemium" Business Model [link]
While not an open source (OS) model, per se, the Freemium model, the basic product is given away for free, and upgrade features are sold to consumers as "premium offerings." I suppose this is similar to the "loss leader" model. This is a good way to stimulate viral marketing (work of mouth) and it can work for a software company as long as the consumers are willing to pay for the upgrades and are not content with only the free version.
BeeKeeper Model [link]
This combines an open source project and a proprietary software vendor in a Professional Open Source Software (POSS) model. "POSS companies exist as an exchange system between two sets of consumers: an open source community (motivated by mutual contribution) and a mainstream market (motivated by economic rewards). Organizations in need of support, services, training etc contribute financially for those services as paying customers. That money is used by the POSS company to pay for full-time resources (engineers, product managers etc.) whose efforts … end up as open source software, freely available to an open source community. The open source community contributes to the software by helping improve the design, functionality, quality, translations, and documentation of the software. The improved software attracts more customers and the cycle continues, hopefully perpetually. In this model, all three parties gain:
- The community gains open source software they can use for their own purposes. This software has more functionality and more resources than a 'pure' open source project could provide. In this way the community profits directly from the POSS company and its customers.
- The customers gain higher quality software at a better price. The customers profit from the open source community's ability to produce high quality software.
- The POSS company gains by growing and increasing its valuation as a result of keeping both sets of consumers content."
Conclusion and Next Steps
There are many ways to go. At this point, I'm most interested in the Dual-Licensing Open Source option, and utilizing some aspects of the Freemium model (since they appear compatible). I'm not clear as to the best way to handle the intricacies when it comes to the OS part of the dual licensing, however.
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