open-core

The Open-Core Model In A Nutshell

While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

Open Source vs. Open Core

open-source-business-model
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.
open-core-strategy
The Open Core Strategy was explained by Andrew Lampitt (Image Source: Slideshare, credit: Andrew Lampitt).

As Nick Heudecker explained:

The central value proposition of open source core vendors has been freedom from vendor lock-in. After all, the core elements of the product are open source, developed by a global community. The core product isn’t owned by a single company, but, in almost every meaningful instance, by the Apache Software Foundation (ASF). If the worst happens and we go out of business, the code will live on in the ASF. You’re safe. If you don’t like us, it’s open-source. You’re protected. I don’t know what happens next but hey open source.

Other examples of open-core

As pointed out by cmswire.com

In an open-core model, like Elastic, some portion of the product is free, but the premium version or add-ons are licensed with a commercial license. (Think community edition vs. enterprise edition.) “Here an open-source vendor’s biggest competitor is usually its free version,” said Kellogg.

Criticisms of Open Core

As pointed out by GitLab:

There are valid criticisms of Open Core. At Open Core Summit in 2019, Deb Bryant of Red Hat highlighted the following four:

Participation Is Constrained. Open Core companies may limit participation to keep premium features from being contributed. – We actively work to grow participation since our missions is that Everyone can Contribute. Also, we do not say no by-default to having existing paid features contributed to our open source project.

how-does-gitlab-make-money
GitLab was created in 2013 by Ukrainian developers Dmitriy Zaporozhets, Valery Sizov, and Sytse Sijbrandij as a source code management solution for collaborative software teams. GitLab is a web-based, open-source DevOps tool providing issue-tracking and continuous integration and deployment pipeline features. It makes money via its main two paid plans (Premium & Ultimate) and via its subscription add-ons.

Connected Business Models

how-does-wikipedia-make-money
Wikipedia is sustained by the Wikimedia Foundation, which is supported mostly by donations and contributions, which in 2018 amounted to almost $98 million. Wikipedia is among the most popular websites on earth, and it is, as of these days, an open, non-profit project, on which other twelve projects have been developed.
how-does-wordpress-make-money
WordPress.org became the most popular CMS and blogging platform in which the Foundation owns the trademark, and revenues come from donations. The Foundation holds a public-benefit-corporation who manages the revenues coming from WordPress events and conferences. Automaticc – the business arm – monetizes premium tools built on top of WordPress.com (a premium platform) through freemiums.
fastly-business-model
Fastly follows an enterprise business model, which offers an edge cloud platform. Fastly business model leverages on an active community of developers. As an enterprise business, a good chunk of its revenues is spent on sales and marketing processes. The company has 56 sales representative and sales managers across the company. For a monthly fee, enterprise customers get access to the platform and also account management and enhanced customer support.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"