Open source technology is a boon to companies that want to add features and functionality to their applications without the overhead. It eliminates the cost of databases, operating systems, and other infrastructure components, enabling quick and cost-effective access to new features. According to a survey conducted by IT research firm Optaros, companies with more than $1 billion in annual revenue reported average savings of $3.3 million in 2004 as a result of open source technology (September 2005). A similar survey conducted by IDC showed that open source databases are used by 33% of the 600 companies it surveyed.

Because of its popularity, open source is becoming mainstream. It is no longer offered only by unknown startups; HP, Unisys, Microsoft, and other technology giants are jumping on the bandwagon. And as a result, the idea of monetizing open source projects is increasingly becoming a hot topic. Many believe that monetizing open source code goes against the principals of open source itself. Putting a dollar sign on free code takes away its value - in short, it's no longer free.

Nevertheless, open source developers have created models for monetizing their code, with the goal of turning a profit and bringing rich benefits to end users. Although a case can certainly be made against commercializing open source projects, there are many benefits. Commercialization ensures an on-going business relationship with the open source provider, as well as access to valuable support and services, updates, patches, and future releases. A close relationship with the provider encourages code customization, ensuring the software meets the needs of the customer's user community. Commercialization also provides an incentive for the open source provider to continue developing and maintaining the project.

Monetizing open source code also minimizes the risk of commercial software developers using the code to enhance their own business applications without the appropriate licenses. It eliminates much of the overhead and hassle related to licensing, thereby speeding development cycles and the delivery of innovative products to market. In the field of business intelligence (BI), the commercialization of open source code ensures the quality, reliability, and interoperability required of critical business applications.

Let's take a look at the various models for monetizing open source and the benefits and drawbacks of each.

Benefits of monetizing open source projects:

• Having an on-going business relationship with the provider
• Access to support services should problems with the code arise
• Elimination of the overhead and hassle related to licensing
• Ensures interoperability with legacy and proprietary systems
• Ability to incorporate updates, patches, and changes to code in future releases to meet customer needs better
• Customization of code to meet the needs of the user community with features that target specific functionality

1.  Services and support: Many vendors will provide services, support, and training as a value-add when end users download an open source project. This can include patches, updates, troubleshooting, training and support documentation, and phone support. Customers may pay a one-time fee or annually for an ongoing contract.
2.  Selling features and functionality: Although an open source project may be available free of charge, the developer may choose to sell a "pro" version, with added features and functionality only available for purchase.
3.  Dual-license model: Licenses for open source software can be troublesome, and can even prevent developers from releasing software that incorporates the open source code. By offering a commercial license of the open source project, open source providers help developers sidestep this issue - for a fee.

These models all have pros and cons. For example, the Services and Support Model is difficult to scale and the margins are often narrow. Support personnel have to be trained and paid, and service contracts managed. In the Dual-License Model, you must convince customers of the benefit of switching to a commercial license, and they might simply have no incentive to do so. This makes it harder to capture revenue. Finally, selling features and functionality requires finding those features that meet customer needs - the value-add that prompts them to buy. Marketing and sales become critical in this model, adding cost and overhead.

A few companies like SugarCRM and Red Hat are combining models. Red Hat, for example, bundles license and support in an annual subscription, while offering commercial licenses of versions of its software with specific add-ons. SugarCRM has a commercial open source strategy that lets customers get one version of its CRM software application with a free download and free access to the source code or pay for a proprietary professional edition that comes with additional functionality and support. San Francisco-based open source BI provider JasperSoft offers an interactive reporting server and a Java reporting library for use either standalone or embedded in other applications, and offers a commercial open source strategy similar to SugarCRM.

Licensing
One of the biggest roadblocks with using open source code is licensing. While open source licenses give developers the freedom to read, modify, and share source code, many of them are legally incompatible with other free and open source licenses. As a result, they severely constrain how developers can combine various open source projects, complicating development cycles and making innovation difficult. The Open Source Initiative (OSI) has worked diligently to protect developers using open source code, as well as simplify the process of obtaining licenses. Still, restrictions remain.

For example, with many licenses, if you build applications around the code you have to release the code under the same open source license and as a result may not be able to include it in the commercial products you develop. Licensing also becomes an issue if a company with source code licensed under an open source project is acquired. The new company may want to incorporate that code with its own for commercial distribution, and the licensing stipulations may conflict, delaying or even preventing the product's release.

Offering a commercial license for a fee gives the buyer more flexibility to use the code and enjoy the benefits of open source without the restrictions of open source licensing.

Interoperability
Open source has clear advantages. A proprietary product may or may not work with existing infrastructure. With open source, you can do it yourself and then get the vendor to take over enhancements so they're included in future upgrades.

Interoperability is always a concern during software development. A proprietary product may or may not work with your existing code, and you have no ability to add extensions or modify the code to make it work. Open source software is typically more adaptable, and can be extended or modified as needed, but there are still problems. The recent establishment of a non-profit consortium, the Open Solutions Alliance (OSA), is helping to increase the use of open source software by issuing an interoperability roadmap that will address interoperability issues. Its first major project, the Common Customer View prototype, is one example of how the group will tackle interoperability issues. OSA's work in this area will further reduce the complexity of combining open source projects with proprietary code.

Customization
Closely related to interoperability is the ability to customize projects for particular applications. A developer can add code to a project to help it interact with specific systems or proprietary code. Then he can provide the code for the new functionality to the open source vendor, which can now incorporate it into the original project, create a new version of it, and maintain it. In a Services and Support Model, the open source provider would manage the new altered version for the customer. Or it could incorporate the new functionality as a standard upgrade to the original project.

The ability to customize open source code for a particular application and feed those changes back to the open source provider encourages innovation and collaboration among the community of software developers.

Updates and Patches
Another benefit of commercialized open source code is the ability of the developer to get upgrades and patches from the provider. In many monetization models, such upgrades and patches are provided automatically to the end user, who is then relieved of the burden of hunting the fixes down from Web sites and other sources and incorporating the fixes themselves. Having a close commercial relationship with the open source vendor provides this level of support. The result is greater developer productivity, faster access to the latest features and functionality of the open source project being used, and reduced IT costs.

Selling Open Source Software as a Service
You can do the infrastructure in open source and offer it as a hosted service. You can buy a commercial variant as the open source version and they host it as well.

Providing open source software in a SaaS model offers the developer community flexibility and reduced costs. Companies provide a hosted service that lowers their IT burden by eliminating costs around deploying and maintaining the software. The open source provider does it for the customer.

SaaS poster child Salesforce.com and its managed CRM service is a good example of this model. The company's AppExchange offers end users a variety of open source tools and applications to embed in the CRM system. For example, JasperSoft is offering Jasper4Salesforce, letting customers create BI reports in their Salesforce.com applications. The company recently helped Heald College build a feature in its Salesforce.com application that combines data from 11 different campuses to create an important sales report called the Admissions Flash Report. This report provides valuable insight into the trends and behaviors of prospective students during enrollment and is accessible through the existing Salesforce.com application. Users can access advanced reporting and analysis features from within Salesforce.com.

Since embedding the reporting and analysis functions into its existing infrastructure, Heald has slashed the time spent creating the report from over 50 hours to almost no time at all. IT personnel require no training ; they simply click on a tab in Salesforce.com to use the new reporting features. Reports are generated automatically, aggregating data from across the organization.

One drawback to the SaaS model is the need for Internet connectivity. If a connection is unavailable - for example, on a plane or in a remote location - you're stuck. Still, the SaaS model can provide fast access to capabilities that streamline business processes, reduce costs, and make teams more productive.

What's Your Code Worth?
The decision to put a dollar sign on an open source project depends on its application, as does the model used. However, the outcome is likely to benefit the developer. With additional services and support behind them, development teams can get to market faster with richer feature sets and differentiation, while cutting costs significantly. Having a close relationship with the open source vendor inspires collaboration and can benefit the software developer community as a whole.