Open Source Business Does Not Scale

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At first sight, the findings of The 451 Group’s latest CAOS report, “Open Source is Not a Business Model“ might seem to be terrible news for open source:

Open source is not a business model. It is a development and distribution model that is enabled by a licensing tactic.

Vendors that build revenue streams around open source software for the most part do not choose between open source and proprietary development and licensing; they choose business strategies that attempt to make the best use of both open source and proprietary development and licensing models in order to maximize their opportunities for generating revenue and profit.

Matthew Aslett's post on the same fleshes out some of the findings:

The majority of open source vendors utilize some form of commercial licensing to distribute, or generate revenue from, open source software.

Half the vendors assessed are using hybrid development models — combining code developed via open source projects with software developed out-of-sight of open source project members.

Vendors using hybrid development and licensing models are balancing higher development and marketing costs with the ability to increase revenue-generation opportunities from commercially licensed software.

And

Ad hoc support services are used by nearly 70% of the vendors assessed, but represent the primary revenue stream for fewer than 8% of open-source-related vendors.

Most vendors generating revenue from open source software are reliant on direct sales staff to bring in the largest proportion of revenue.

People have been interpreting these as a failure of the pure open source way, and proof that some kind of hybrid approach involving proprietary elements is needed. But as the summary quoted above rightly points out, open source is not a business model, it is a development and distribution model.

To treat it as some kind of pixie dust that can be sprinkled on a software business to produce endless pots of gold is clearly folly. But I think that the misunderstanding about what open source – and, even more pertinently, free software – is about, goes much deeper.

For people in the open source business world have been concerned not just about how to make money – a completely reasonable thing to ponder – but how to make *lots* of money (the figure of $1 billion is sometimes bandied around here).

In particular, people worry about how to make an open source business “scale” - shorthand for finding a way to make lots of money without really trying. As the CAOS report notes, the only way people have been able to come up with something that “scales” is to add proprietary elements.