open-source-business-model

Open-Source Vs. Freemium: Open-Source Business Model In A Nutshell

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-source origin story

The “open source” started by the end of the1990s as a software licensing model, where the code is made available to anyone to change, or perhaps distribute under the open source license. While open source itself is not a business model, but a software licensing model, it has given rise to the whole industry of companies in which business models have been built on top of it, which we will call open-source business models.

But if the open source is free and open, how does it get monetized?

Mozilla Open-Source Model

The way companies build a business model around an open-source can vary widely. Usually, the open-source software is held by a foundation, which is a non-profit company. In Mozilla’s case, the foundation is the one owning the open-licensed browser. The Mozilla Corporation instead collects the royalties coming from the deals built on top of the open-licensed software.

For instance, in 2018, the Mozilla Corporation generated $435.702 million from royalties mostly coming from a deal with Google, featured as a default search engine on Mozilla.

how-does-mozilla-make-money
The 94% of Mozilla Corporation’s revenue comes from royalties earned through Firefox web browser search partnerships and distribution deals. According to StatCounter back in 2008 Mozilla Firefox controlled over 26% of the browser market. Today, due to the market dominance of Google Chrome and Safari, Mozilla has a 5% market share. 

Read: Mozilla Business Model

Slack Freemium Model

slack-business-model

Slack follows a freemium model, where a free version is developed in-house. Thus the software is closed and proprietary. The company, which is a for profit holds the right to distribute the software and therefore doesn’t have any constraints in its pricing and distribution strategy.

Free users are converted in paying customers if they want more usage or advanced functionalities. Slack combines the free model with a direct sales force to acquire enterprise customers with yearly recurring revenue of over 100K. Those customers were 575 in 2019, and they accounted for 40% of its revenues. 

Read: Slack Business Model

Connected Case Studies

WordPress

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.

Wikipedia

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.

Mozilla

how-does-mozilla-make-money
Most of Mozilla Corporation’s revenues come from royalties earned through Firefox web browser search partnerships and distribution deals. According to StatCounter back in 2008 Mozilla Firefox controlled over 26% of the browser market. Today, due to the market dominance of Google Chrome and Safari, Mozilla has less than 5% in market share.

GitHub

how-does-github-make-money
GitHub provides web-based hosting for software development and version control using Git, which facilitates collaborative source code development among programmers. GitHub was founded by Chris Wanstrath, P. J. Hyett, Tom Preston-Werner, and Scott Chacon in 2008. Microsoft acquired the company for $7.5 billion in 2018, and it was integrated as part of Microsoft’s enterprise offering. On top of its free repository, GitHub also offers plans for teams and enterprise customers. And the GitHub marketplace also monetizes on some of the apps developed on top of it.

GitLab

open-core
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.

Slack

slack-business-model
Slack follows a freemium model, where a free version is offered, and users can convert in paying customers if they want more usage or advanced functionalities. Slack combines the free model with a direct sales force to acquire enterprise customers with yearly recurring revenue of over 100K. Those customers were 575 in 2019, and they accounted for 40% of its revenues. 

Grammarly

how-does-grammarly-make-money
Grammarly leverages on a freemium service, where free users are prompted to switch to a paid subscription. Grammarly makes money by selling premium plans starting at $11.66 to $29.95 per month. The company also makes money by selling human proofreading services to its paid users.

Dropbox

dropbox-business-model
Dropbox generated over 90% of its revenue via its self-serve channels to convert users in paying customers through in-product prompts and notifications, time-limited free trials of paid subscription plans, email campaigns, and lifecycle marketing. Dropbox generated over $1.1 billion revenue in 2017, with an average revenue per paying user of $111, $305 million in free cash flow and 11 million paying users

Zoom

zoom-business-model
Zoom is a video communication platform, which mission is to “make video communications frictionless.” Leveraging on the viral growth from its freemium model, Zoom then uses its direct sales force to identify the opportunity and channel those in B2B and enterprise accounts. 

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