Now we will understand all the different types of approach you can use as a company or open source product
creator.
If you wanted to monetize your product now in open source business model, our company will try to create
a value by making their product publicly available, and they will also try to capture some part of
that value.
So let's discuss about all the different ways you can monetize our open source product.
The first approach is open core, where we open source the core part of our product.
Then we have system integration where you have open source, the complete product, but you will have
a couple of companies or let's say some enterprise client if they wanted to have some integration in
their product.
Third one is the constellation of value added libraries or services.
So let's say you have an open source product, but you are also writing libraries or some plugin for
that product so that if some people wanted to use those library or plugin, they can pay you a small
amount for that.
So let's say you have open source a database product and you also have built an analytical tool on the
top of that.
And if somebody wanted to use that analytical tool, they can pay you a small amount.
The fourth one is hosting, and we have already seen that in case of WordPress.com.
So you can use the free version of WordPress dot org.
But if you want performance improvement or you don't really have to worry about the hosting and the
domain name, in that case, you can try out WordPress dot com and their paid plan.
Let's start with Open Core.
Now open Core is a business strategy where company offers the core version of the product with some
limited features as free, but they try to sell some add on on the commercial version as a proprietary
software.
Now the free core product will act as a growth channel, but the company is generating massive amount
of revenue from the enterprise version of the product.
Now as a company, you don't really use individual open source product.
You want a complete version of the product.
And that's why if you want these companies to help you in gluing all of these individual pieces together,
in that case, you pay them a small amount.
And that's how the open core business model work.
And this is used by multiple companies like Docker, Elastic, GitLab and Radice.
These are all technology companies.
So GitLab is a version control G UI or graphical user interface.
This is for caching.
Then you have elastic and docker.
Now, if you closely observe these two, you will realize that the mix of how functionality is open
and how much a paid add on can vary a lot across tools.
So let's look at all of these different types of open core business.
So you have a thin open core layer.
Then you have a lean open core layer and a thick open core layer.
So if the 90% of the software is open source, then it's a skinny OSS core.
If the 70% of the core product is open source, then you have your thin open core.
And if the 50% of the software is open source, then you have your lean open core.
And if only 10% software is open source, I mean, the code is publicly available.
In that case, that's a thick open core.
So you can look at all of these different types of product and how much of their portion is open source.
So if you look at product like Hashicorp or Databricks, you will realize that 90% of their software
is publicly available.
I mean, that's open source.
On the extreme side, if you look at product like GitHub or fastly, they're only 10% of their software
is publicly available and 90% of it is closed source.
So that's why you will realize that their open source version and paid add ons can vary a lot across
different tools.
Second way by which a open source business can make money is with the help of system integration or
service model.
So let's say you are the owner of the product and you have open source it to the public.
And let's say an enterprise client wanted to build a complex application on the top of your product.
Then you can charge them for technical support or consulting service or let's say you can also build
a add on and you can also sell it to them.
But we all know that the service revenue is always unpredictable.
I mean, if you wanted to scale that specific operation so that you can serve so many enterprise client,
in that case, you literally have to increase the headcount and your margins will be very less.
Because now you literally have to hire people and you have to train those people for your specific technology
so that you can help these enterprise client to implement your software in their company.
Now, some companies like Red Hat have figured out some ways to monetize their business.
So Red Hat have an open source business and they make three X revenue from consulting, but their margin
from these consulting services is just 31%.
And when you compare that with a subscription margin in subscription, you have 93% gross margin.
So a really good example of providing services for your product is Red Hat and video DJs.
Now, video DJs is a video player and the builder of video DJs is still helping these big tech company
so that they can implement this video player into their tech stack.
The third way by which you can monetize your open source product or software is by charging a small
hosting fees.
If those people wanted to use your product end to end.
So let's say if you use an open source CMS.
So there are many content management software like WordPress dot org or Sanity CMS or cost CMS.
Now all of them are open source and you can use this product for free.
But let's say if you are a big company and you have a lot more user in that case to manage the infrastructure,
you literally have to hire a DevOps team.
And that will increase your operational overhead.
Now, to minimize that, you can use the hosting of these platform and they have built the hosting for
scale.
So they have these hosting options from AWS to Google Cloud platform to Microsoft Azure.
So you can deploy the software in any cloud computing platform by paying a small fees.
So if you look at products like MongoDB, now MongoDB is the open source database and their core product
that is the open source database is absolutely free.
But if you want to have a reliable service or let's say you want it to use the analytical software that
work on the top of MongoDB, in that case, you can take their enterprise version.
So in their enterprise version you will get MongoDB Atlas, that's their data analytics product and
you will also get some level of support so that you can resolve all the queries you have.
And that's why if you look at their gross margin, their gross margin is somewhere around 65%.
So there are many hosting platform.
So for content management software, you have sanity, they have a open source and enterprise version.
Similarly for data analytics, you have post hoc, they have an open source software and enterprise
version, and then you have MongoDB.
So the fourth way by which you can monetize your open source product is with the help of marketplace
business.
So if you look at product like WordPress, so if you're having a blogging website on WordPress, then
you may have seen their marketplace where you can find millions of themes or plugin or add ons and you
can install or maybe buy those plugin add ons or theme.
So every time you purchase anything on the marketplace of WordPress, you are basically paying a small
cut to the WordPress so that they can maintain the platform.
And that's the beauty of having a marketplace.
So WordPress is absolutely free, but every time you purchase an add on or a theme on WordPress marketplace,
they will get a small cut.
Now the example of this is Android.
So Android make majority of their money from their play store fees.
So if you buy an Android smartphone, you will get playstore as the default app.
Apart from YouTube, Google and Gmail and that's how they are earning their money.
But their core piece of technology that is the operating system is absolutely free.
So then we have WordPress and you already know about this.
The third one is Mozilla Firefox.
That's a browser.
They generate majority of the revenue by making Google as their default search engine.
So every year Google pay them somewhere around $500 million so that Mozilla can make their default search
engine as Google.
So broadly, we have six different methods that you can employ if you want to make money using open
source business, you have page support.
So if you are the creator of that open source product, you can charge a small amount to these enterprise
client or big companies so that you can maintain the product.
Then you can build a software product on the top of the open source product you have built.
So if you look at a product like MongoDB Atlas, that's an analytical tool for a database and that's
not free.
I mean, you have to pay for that.
So you can give your core product for free.
And if they wanted to use some add on or something else, they have to pay for it.
Third one is open core model, where the core product is free and you are helping these different enterprise
clients so that they can glue all of these different pieces together.
Then you have GitHub sponsor, and if you have an open source business or open source library, then
you can put these logo of these different brands saying that this product is sponsored by these many
people.
Why don't you try out their app?
So if you look at few libraries of NPM or so many packages, you will find that they are advertising
companies like Fastly or Versal.
These are all cloud computing platform so that people can try out those product.
So GitHub sponsor is also a way by which developer can make money.
Another one is paid feature request.
So if you understand the product in that case, you can develop a paid feature or an extension or a
add on for some specific client.
And sometimes these companies will also be up a small amount to build the open source product.