Why Invest in Open Source Software?

Why Invest in Open Source Software?

Why Invest in Open Source Software?

Open source development has attracted the attention of numerous developers and even very large technology firms. Individual developers often choose to invest time and resources in open source projects for various personal reasons such as personal fulfillment, the challenge of solving a problem or simply out of need. Companies, on the other hand, invest in them for very different reasons. Typically, only the projects that can help improve the bottom line get investment from companies.

Complementary Offerings

One reason to invest in a an open software is that for a proprietary company, such projects can provide complementary offerings. By investing in an open product that improves the functionality of a proprietary offering, companies can increase their sales. Open source software that extends or enhances proprietary systems is a valuable sales tool that many companies are discovering.

Potential for Profit

Besides complementing existing software, open-source projects are an excellent opportunity to standardize the core IT stack that proprietary software runs on. One example is the popular Linux-Apache-MySQL-PHP (LAMP) stack used in web development. This stack provides a stable IT core which allows companies to focus on building and selling software that sits higher up the stack such as middleware applications or developer tools. Typically, these types of products have a much higher profit margin which makes investing in the open source stack very profitable.

Software-as-a-Service (SaaS)

Another reason to invest in open source is the phenomenal increase in the popularity of hosted applications. Cloud computing has driven greater adoption of hosted software that is sold as a service (SaaS). This is leading to the commoditization of some classes of software. Investing in open source is one way to build robust hosted applications. SugarCRM is a great example of an open product that can be purchased as a hosted application.

As software becomes more of a commodity in the cloud computing era, companies must find new ways to earn revenue. SaaS is certainly one way. Selling services related to software products is another. There are a number of companies that have built entire businesses on supporting popular open-source products. These companies often learn a great deal about what users need and want in providing services so it makes sense for them to contribute back to the projects based on this knowledge. You can also make a case that customers are more willing to purchase support and other services for a free product from a company that is involved in that product's development. Investing in open-source can lead to a profitable services business built around that project.

Licensing Opportunities

Investing in open source also opens the door to mixed licensing opportunities. A company that invests in an open source project can provide an community license and a commercial license. There are several examples of companies that have successfully done this including Sugar CRM and Trolltech, the makers of the QT graphics library. Both of these products are available in community or non-commercial versions but commercial licensing is also available.

There are a lot of reasons to invest in open source software. Setting aside philosophy and the motivations of individual developers, most companies invest in it because they can make money doing so. Investing in open source often provides additional opportunities including services, hosted applications and mixed licensing. Open source also provides a stable core which allows companies to build commercial offerings higher up in the software stack. This usually results in higher profit margins.

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