Open Source Revenue Models in the Cloud Era

Shawn Wilkinson
October 16, 2018

A debate in the open source community recently erupted when Redis created a new licensing clause called the Common Clause to address its revenue dilemma. At the crux of the debate was whether or not current open source revenue models are sustainable in the cloud era and if new licensing could solve the problem. Some argued that increasing license complexity would reduce open source adoption, while others said that open source companies and projects were being abused by the massive cloud providers and Redis’ approach was a pragmatic solution.

Today, MongoDB made a similar announcement, issuing a new server side public license (SSPL) for MongoDB Community Server. The new license is similar to AGPL, but clarifies that if any organization deploys MongoDB as a service, they must open source the software that it uses to offer the service. MongoDB’s approach seems to hold cloud providers to contributing back to the project, rather than penalizing them for using their software.

Today, the cloud industry is valued at $180 billion, while public open source software (OSS) companies have combined revenues of just $5B, but drive more than two-thirds of cloud workloads. As cloud continues to grow as the main model for computing, there is no question that it is impacting revenue opportunities for open source platforms. The major cloud companies offer open source software as a loss-leader to sell compute services; as such, traditional open source companies will never be able to compete here because of the scale of these cloud providers. We believe this is a dangerous scenario and that it’s critical to create a viable model for OSS to monetize the cloud.

We the community need to solve this challenge. Open source software leads innovation; it’s often considered the collaborative R&D department for the world. Businesses and developers depend on OSS projects and companies so we must ensure they are supported.

We believe with decentralization, community and collaboration, we can uncover new ways to build sustainable open source businesses.

Storj straddles two worlds - open source software and decentralized platforms - both of which share many core characteristics. The two pair so well together that decentralization can create new revenue opportunities for open source, and our team has a solution specifically related to cloud storage.

The Storj platform can generate a sustainable revenue stream for open source projects every time their code is used on the network. As decentralization continues its rise to support new web and technology infrastructure, these mutually beneficial opportunities shouldn’t be overlooked.

To inform the future, though, first we must consider our present. And as new licensing ideas are proposed, we must also consider what open source revenue models exist today.

OSS revenue models can be broken into two different approaches. Licensing models use a specific type of OSS licence to drive a certain type of behavior and generate income. This is a push approach that drives behavior by limiting other options and imposing restrictions. Business models use partnerships, go-to-market approaches, and other techniques to provide value and attract users. This is more of a pull method that aims to attract users through incentivization.

There are many revenue models in the open source community. Some would be classified as licensing models, some as business models and some are a combination of the two. Here are a few of the most common revenue models:

Foundation model

You donate your project to a foundation that commits to maintaining the software. The foundation takes over supporting the open source ecosystem, raising revenue to sustain the project through a combination of events, donations, services and other methods. The Linux Foundation is probably the dominant organization in this space but others include the OpenStack Foundation, Eclipse Foundation and Apache Foundation.

Restrictive licensing model

The company restricts certain uses of the platform, requiring a paid license if the software is used under those circumstances. Those who oppose this approach say it eliminates the “open” in open source. This is where Redis falls today with its new Commons Clause.

Open core model

The company makes its core platform open source but charges for certain features. This is very common among emerging open source platforms. Companies such as Oracle with its MySQL database are an example, offering a “community edition” and an “enterprise edition.”

SaaS model

The SaaS model was very effective early on, but once public cloud took over the market, it made it difficult to compete on cost due to the economies of scale cloud computing companies can achieve within their platforms. These cloud providers offer and support the software for free, using it as a loss leader to sell their infrastructure.

Support/subscription model

In the support/subscription model, an OSS provider gives its software to users for free, but then charges for support. Generally, this only works for large enterprises and usually requires a large financial investment to make this possible. Red Hat is an great example here and Tidelift, which recently announced a new Netflix-like support platform, would also fall into this category.

Decentralization partnerships

This is our new OSS revenue model we have created. Our team here at Storj has formed relationships with some of the top open source companies in the world to make it possible for them to generate revenue when users upload data to the cloud. Every time a user stores data on the Storj network, and that data is tied to one of our OSS partners’ platforms, a portion of the revenue generated goes back to the partner. This is part of our new Open Source Partner Program, which kicked off at Open Source Summit this summer. Our partners at launch include Confluent, Couchbase, FileZilla, InfluxData, MariaDB, Minio, MongoDB Nextcloud, Pydio and Zenko, however any open source company can join.

What’s your take on the revenue model options today and how does decentralization factor into the future of open source software?

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