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.

Characteristics– Source code is openly available to the public. – Encourages collaboration and contributions from the community. – Typically free to use, modify, and distribute. – Transparency and user-driven development. – May rely on volunteer contributions or donations.– Offers both free and premium versions of the product or service. – Free version provides basic functionality. – Premium version includes advanced features, often for a subscription fee. – Generates revenue from a subset of users who upgrade to premium. – Often used by software companies and apps.
Approach– Emphasizes community-driven development. – Focuses on transparency and sharing. – Relies on a large user base and community support. – May have no direct revenue model from the software itself. – May generate income from related services, such as support and consulting.– Uses a tiered pricing strategy. – Provides a free version to attract a wide user base. – Encourages users to upgrade to paid plans for premium features. – Monetizes a portion of the user base while providing value to free users. – Balances between free and paid offerings.
Community Involvement– Relies on a community of developers, enthusiasts, and contributors. – Anyone can contribute to the project. – Collaboration and sharing are key principles. – Development often follows an open roadmap.– Focuses on attracting a large user base. – Encourages users to explore premium features. – May solicit user feedback and input. – Development priorities are influenced by market demands.
Revenue Source– May generate income from donations, sponsorships, or grants. – Offers related services like support, training, and customization for revenue. – May sell branded merchandise or hardware. – Often relies on a passionate user community.– Generates revenue primarily from premium subscriptions or one-time purchases. – May offer in-app purchases or upgrades. – Can benefit from advertising if it has a large user base. – Revenue comes from a subset of users who upgrade to premium.
Examples– Linux operating system. – Mozilla Firefox web browser. – WordPress content management system. – Apache web server.– Dropbox, offering free and paid storage plans. – Spotify, with free and premium music streaming options. – Evernote, providing basic and premium note-taking services. – LinkedIn, offering free and premium networking features.
Key Differences– Open-source software is typically entirely free and open to the public. – Its development and improvement rely on contributions from a diverse community. – There may not be a direct revenue model tied to the software itself.– Freemium offers a basic version for free and a premium version for a fee. – It focuses on monetizing a subset of users while providing value to free users. – Freemium models are common in software, apps, and online services.
When to Use– Open-source is suitable when you want to leverage the power of a global community for collaborative development. – It’s a good choice when transparency and openness are priorities. – Use when the product’s value is enhanced by a large user base and community contributions.– Freemium is useful when you want to attract a broad user base with a free offering and monetize a portion of those users through premium features. – It works well for software and online services with tiered functionality. – Use when you can clearly define which features should be free and which should be paid.



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.

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 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. 

Key Similarities Between Open-Source & Freemium:

  • Software Distribution: Both models involve providing a basic version of the software for free to attract users.
  • User Base: Both models aim to build a large user base, with the hope of converting some of the free users into paying customers.
  • Customer Acquisition: Both models rely on converting users to paying customers to generate revenue, either through premium versions or advanced features.

Key Differences Between Open-Source & Freemium:

  • Licensing: Open-Source model uses open-source licenses, allowing users to access and modify the source code freely. Freemium model keeps the software closed and proprietary.
  • Ownership and Control: Open-Source software is often owned by non-profit entities or foundations, while Freemium software is typically owned by for-profit companies that have full control over its distribution and pricing.
  • Monetization Approach: Open-Source companies generate revenue through premium versions, support services, or commercial products built on top of the open-source software. Freemium companies focus on upselling premium features to free users to drive conversion.
  • Community Collaboration: Open-Source fosters a collaborative community of developers and users, encouraging contributions and modifications. Freemium companies develop the software in-house without relying on external contributions.
  • Product Development Strategy: Open-Source software is continually improved by the community’s contributions, whereas Freemium software development is driven internally by the company.

Key Takeaways:

  • Monetization Flexibility: Both models provide flexibility in generating revenue, allowing companies to experiment with various strategies to find the most effective one for their product.
  • User Engagement: Offering a free version of the product attracts a larger user base, providing an opportunity to engage and build a relationship with potential customers.
  • Value Proposition: To succeed in both models, companies must offer value to their users through the free version and compelling enough reasons to upgrade to the premium version.
  • Balance Between Free and Paid Features: Finding the right balance between the free and premium features is crucial. The free version should be valuable enough to attract users, while the premium version should offer significant added benefits.
  • Long-Term Sustainability: Both models require a well-thought-out business strategy for long-term sustainability, which may involve a combination of revenue streams and continuous product improvement.
  • User Conversion Strategies: Successful execution in both models depends on effective user conversion strategies, such as offering free trial periods, providing seamless upgrade processes, and emphasizing the value of premium features.
  • Community Engagement vs. In-House Development: Companies adopting the Open-Source model benefit from community engagement, while companies pursuing the Freemium model have more control over the product development process. The choice depends on the organization’s resources and objectives.

Open-Source Business Models Case Studies:

  1. Apache HTTP Server:
    • Open-Source Model: It’s the most popular web server software in use. Anyone can use, modify, and distribute it.
    • Monetization Strategy: While Apache HTTP Server itself is free, companies offer paid support, consultancy, or premium tools built on top of it.
  2. Elasticsearch:
    • Open-Source Model: Elasticsearch is a search and analytics engine based on the Lucene library.
    • Monetization Strategy: Elastic, the company behind Elasticsearch, offers cloud-based solutions, premium features, and support for enterprises.
  3. Blender:
    • Open-Source Model: A powerful tool for 2D and 3D graphics, animations, and games.
    • Monetization Strategy: While Blender is entirely free, the Blender Foundation accepts donations and also offers paid training and certification.
  4. Git:
    • Open-Source Model: A distributed version control system commonly used for source code management.
    • Monetization Strategy: While Git itself is free, platforms like GitHub and GitLab provide repositories to host Git projects and offer premium features for collaboration and enterprise use.

Freemium Business Models Case Studies:

  • Spotify:
    • Freemium Model: A music streaming platform where users can listen to music for free with ads.
    • Monetization Strategy: Users can upgrade to Spotify Premium to enjoy ad-free listening, offline downloads, and higher audio quality.
  • Trello:
    • Freemium Model: A visual collaboration tool for organizing tasks and projects.
    • Monetization Strategy: While the basic version is free, Trello offers premium plans with advanced features, integrations, and security controls for teams and enterprises.
  • Canva:
    • Freemium Model: A graphic design platform that offers free templates and design tools.
    • Monetization Strategy: Canva offers a premium version, Canva Pro, which provides additional features like brand kits, premium stock images, and advanced design tools.
  • Evernote:
    • Freemium Model: A note-taking and organization app. Users can store notes, images, and web clippings for free.
    • Monetization Strategy: Evernote offers premium and business plans with features like offline access, more storage, and advanced collaboration tools.
  • Grammarly:
    • Freemium Model: An online writing assistant that checks for spelling, grammar, and clarity in your writing.
    • Monetization Strategy: The free version offers basic writing corrections, while Grammarly Premium provides in-depth writing feedback, style suggestions, and plagiarism checks.
Software DevelopmentThe Linux operating system is open-source, allowing developers to access, modify, and distribute the source code freely.Dropbox offers a freemium model, providing basic cloud storage for free and offering premium features for a subscription fee.
Content Management SystemsWordPress is an open-source CMS that anyone can use, customize, and extend for various website needs.Evernote offers a freemium service, providing basic note-taking features for free and premium features with a subscription.
Web BrowsersMozilla Firefox is an open-source browser, allowing users to customize and contribute to its development.Spotify offers a freemium model, providing ad-supported music streaming for free and premium ad-free, offline access with a subscription.
E-commerce PlatformsWooCommerce is an open-source e-commerce platform for building online stores, offering customization and scalability.Shopify offers a freemium e-commerce platform, providing basic store functionality for free and advanced features with a subscription.
Mobile AppsAndroid, the mobile operating system, is open-source, enabling device manufacturers and developers to use and modify it freely.Spotify offers a freemium mobile app, allowing free streaming with ads and premium, ad-free listening with a subscription.
Project Management SoftwareTaiga is an open-source project management tool that allows teams to collaborate on projects with full customization.Trello offers a freemium project management tool, providing basic task management for free and advanced features with a subscription.
Video Streaming PlatformsVLC Media Player is an open-source media player that can play various video formats and is highly customizable.Netflix offers a freemium video streaming service, providing a free trial and premium access to a vast library of content with a subscription.
Educational ResourcesMoodle is an open-source learning management system (LMS) used for creating and delivering online courses.Coursera offers a freemium online learning platform, providing access to free courses and premium content with a subscription.
Graphic Design SoftwareGIMP (GNU Image Manipulation Program) is an open-source graphic design software for image editing and manipulation.Adobe Creative Cloud offers a freemium graphic design suite, allowing limited access to Adobe tools for free and premium features with a subscription.
Social Media PlatformsMastodon is an open-source social media platform, enabling users to create their instances and customize their experience.LinkedIn offers a freemium social networking platform, providing basic networking features for free and premium job-seeking and networking tools with a subscription.

Read: Slack Business Model

Connected Case Studies


how-does-wordpress-make-money 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 (a premium platform) through freemiums.


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.


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 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.


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 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 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 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 $2.1 billion in revenue in 2021, with an average revenue per paying user of $133, based on 16.79 million paying users.


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. 

Connected Business Phenomena


Bundling is a business process where a series of blocks in a value chain are grouped to lock in consumers as the bundler takes advantage of its distribution network to limit competition and gain market shares in adjacent markets. This is a distribution-driven strategy where incumbents take advantage of their leading position.


According to the book, Unlocking The Value Chain, Harvard professor Thales Teixeira identified three waves of disruption (unbundling, disintermediation, and decoupling). Decoupling is the third wave (2006-still ongoing) where companies break apart the customer value chain to deliver part of the value, without bearing the costs to sustain the whole value chain.


Unbundling is a business process where a series of products or blocks inside a value chain are broken down to provide better value by removing the parts of the value chain that are less valuable to consumers and keep those that in a period in time consumers value the most.

Business Engineering


Business Model Innovation

Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.

Innovation Theory

The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.

Types of Innovation

According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).

Continuous Innovation

That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.

Disruptive Innovation

Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.

Business Competition

In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.

Technological Modeling

Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.

Diffusion of Innovation

Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.

Frugal Innovation

In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.

Constructive Disruption

A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.

Growth Matrix

In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).

Innovation Funnel

An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.

Idea Generation


Design Thinking

Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.

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