The world is moving towards deploying more open source solutions, but are businesses adopting open source in proportion to the way these solutions are being deployed? If yes, are there any proven business models that can help open source companies sustain themselves? Should new companies (startups) venture out in the world of open source?
Open source, about a decade back, was referred to as something solely meant for geeks, programmers, and educational institutions. A few years ago, it started gaining recognition as something that is for everyone to leverage upon. Today, even large organisations like Microsoft are openly talking about it, and investing in the same as well.
“A lot has happened and evolved in open source. The top view shows it is free. However, even if it is being made freely available, there are billions of dollars riding on the ecosystem. Not only are there open source companies valued at more than a billion dollars; industry giants including Google and Microsoft are investing millions of dollars in the same,” says Mukul Mahajan, MD, Tetra Information Services Pvt Ltd.
Most of these investments, as a matter of fact, focus on hiring manpower for the open source ecosystem. Business models like professional services and cloud hosting are evolving, but the big question is what are the opportunities available to organisations who aim, or are already working on, in being an open source player, and what are the business models they can pursue for profits?
“I think the key aspect is to have a business model. But here’s the thing, the vast majority of people who are investing in open source are not quite investing directly for the sake of it. I don’t think there is something directly attracting them to invest in open source,” says Hadi Hariri, VP, Developer Advocacy, JetBrains.
He adds, “They are not investing to make a better world using open source but there are key indicators that force us to use open source, which are good until there is a sustainable business model, which unfortunately many do not have.”
Cue: Microsoft’s here!
We have all heard and also used Microsoft, and the biggest cue that open source is indeed the future can be derived from what the organisation is doing on the respective open source front. But why is Microsoft in open source?
“Satya (Nadella) was very clear when he took over Microsoft, that it has to be more open than it ever was. This actually goes back to our core thinking of wanting to do more for every person and organisation, which cannot be achieved by being closed,” says Sanjeev Sharma.
He adds, “If 40 per cent of CIOs have Linux as one of their prime strategies, and 60 per cent of developers want to see the cloud providers in open source, if 90 per cent of enterprises deploy Linux in some shape and form, I think it indicates an absolutely clear market decision.”
Sanjeev mentions that he sees tremendous opportunities to build around open source, affirming that Microsoft is committed to stay open in the future. It is worth mentioning here that 50% of Azure’s VM cores are Linux, and 60% of images on it are also Linux based. More than half of the ecosystem on Linux, as Sanjeev confirms, is Linux based. SaaS applications and various other applications are leveraging open source.
He goes on to explain, “This also brings opportunity for any new offering that is coming to the market to continue to leverage their core DNA while also getting exposed to the larger market worldwide, giving an opportunity to experience the full might of larger cloud providers. Talking about India, we have more than 30,000 customers in just one segment.”
Solving one problem using open source creates room for solving many other problems. For example, a normal customer service app has to touch different platforms, while being compatible with different types of devices. The same might also have to browse through multiple databases. The idea, as per Sanjeev, is to slowly and steadily multiply what is being offered to clients.
“You begin to try by offering one solution to one type of customer base and then you can pivot to a larger market. Today’s cloud provides you that opportunity to experiment,” he adds.
Another remarkable thing to point out is that Microsoft had acquired GitHub for $7.5 billion in 2018. The company then, in March 2021, had announced a grant of ten million rupees to fund India’s open source contributors working on building software using open source tools.
Subsidise and maximise
Taking example of the likes of Microsoft, Amazon, and Google, along with the open source ecosystem they operate in, it is clear that their open source business model is subsidised by the cloud service they provide/sell. Facebook, as per Hariri, is subsidised by data and advertising. Similarly, there are others who subsidise the business of open source by selling tools, and one example of the same is JetBrains.
“I don’t think there are any key parameters. You should look at how you are going to sustain your open source contributions. I don’t believe that business models based on priority giving succeed. There are only a few success models like that. The best example that can be thought of here is RedHat,” explains Hariri.
The model of RedHat, as most of the industry gurus will agree, is complicated yet successful enough to require consulting, which is provided by the RedHat team itself as part of the business model. The chances of making the business model sustainable may decrease if the consulting is taken care of by a third party.
Open source, as Mukul points out, might be more of an enabler that helps get traction and build newer business models. What enables open source and new business models to sustain is the demand it gets from all verticals of business.
“When running a business, sometimes you need to subsidise what you are doing for the greater good. Otherwise, you could simply be considered a hobbyist,” remarks Kabir Chandhoke.
Market place: Enterprise or community
Enterprise and community are two popular business models that have started to become the talk of the town. The community edition refers to free usage of open source with limited capabilities, whereas the enterprise edition refers to a business model which offers a lot more features available at a cost.
“These two models are becoming very popular. On top of these you can also offer complimentary services such as certification, development services as well as support contracts,” says Samir Doshi.
Whether someone refers to an enterprise, community or any other business model around open source, marketplace is one such model that joins all the dots together.
“Marketplace is definitely a brilliant business model as it adds a lot of value to all the open source products. You have brilliant brains coming up with add-ons and applications. It is definitely a good one,” adds Samir.
It is critical to understand the relationship between open source and cloud in order to understand business models better. The debate around whether cloud is making open source popular, or vice-versa, is something that the experts still lock horns about.
“If you think about the cloud itself, open source is what actually drove the cloud in the first place. Can you imagine the public clouds we have today and companies paying license fees for their operating systems?” asks Kabir Chandhoke. “We would never have achieved the scale of, say, AWS, had there been license fees for millions and millions of servers rolled out.”
He is of the view that open source is the driving factor behind public cloud. This might unearth another business model revolving around offering cloud services to consumers using open source.
“The reverse is also true as the public cloud is responsible for making open source projects popular. Another way public cloud has accelerated the monetisation of open source is through the SaaS route,” adds Kabir.
Cloud and open source can enjoy a mutually beneficial relationship as long as the former does not start eating into the latter’s business model. This situation arises when an open source product becomes tremendously popular.
“I definitely see evolution taking place in the partnership between cloud and open source. It will be interesting to see how this partnership continues to evolve with opportunities for both the community and the owners being compensated,” explains Kabir.
Elasticsearch, in open source, needs no introduction. It is basically a search engine based on the Lucene library. At a point in time, it was the go to favourite of many, if not the majority of open source developers. The breaking news from the company came in early 2021 as it decided to inform its audience about Elastic License 2.0.
This, as per the company, simply means that the license allows the free right to use, modify, create derivative works, and redistribute. However, there are three limitations:
- You may not provide the products to others as a managed service
- You may not circumvent the license key functionality or remove/obscure features protected by license keys
- You may not remove or obscure any licensing, copyright, or other notices (as published by Elastic.co)
In simple words, this means that neither the Elastic License nor SSPL has been approved by the OSI. Hence, the company is no longer referring to Elasticsearch or Kibana as open source. Elasticsearch is the greatest example proving how fast the world of open source is evolving, and how fast the existing business models are shrinking, while new ones are making their way!
“From the community perspective it was impacted in two ways. The first was that contributors, who worked for the same, were suddenly told that what they worked for was no longer truly open source. The second, keeping big and small players in mind, is the fact that the solutions they are developing now cannot be made public, keeping the announcements made by Elastic in consideration,” says Kabir.
Partnership with big players
This decade has been more about collaborations and mergers in the world of technology, and the open source vertical is not an exception. Following this trend, to partner with a big player like Microsoft can be a big opportunity for startups and organisations already operating in the domain of open source.
Sanjeev explains, “If you are a services provider, there are opportunities available with Microsoft as the company has a specialisation in open source Linux and Kubernetes.”
In terms of ISV and IP opportunities, the world is witnessing innovation and launch of new solutions. Sanjeev, who gave an example of an assessment engine based on open source notes, “It scaled up very easily. However, the problem was finding customers beyond India. They leveraged the 60+ datacenters that Microsoft has.” He also gave an example of a sales nudge solution company, which helps the sales team to analyse deals and close them quickly.
Whether the solutions are for education, health, finance, or any other industry, big players, as per Sanjeev, can not only help scale the offerings across geographies but can also help make these solutions more secure.
“The core of the solutions that Microsoft offers are actually coming via partners. We are only providing them the platform. The solutions are coming through organisations which are based around the world,” explains Sanjeev.
The opportunity, as per him, is coming in accordance with the solution provided by the company. More than 60% of the solutions being offered are open source.
Partnering with big names also brings forth a question. Why is the value of open source companies so high? The answer lies in the consumer base that many of these organisations have. It continues with how brilliantly these companies are handling the complex layers of architecture.
“The conflict between Amazon and other companies is also one of the reasons behind the high evaluation. There still exist companies which believe in hosting everything in their own server rather than a cloud,” feels Samir.
Then, why do developers work for free?
Samir answers, “Because you are using that tech for yourself. For example, if I am working on a project, I will want to use that for myself as well. I may want to build my UI using React and many such things. Once you start doing that and notice a missing feature, or find a bug, you end up fixing it and that creates an impact for the greater good.”
“The same also allows young and experienced developers to polish their skills. It’s almost the best CV you can have. It probably serves better than most internships that a developer could have. Where else would you have the opportunity to have your code checked by some of the best and brightest in the world,” he adds.
The open source industry is now undergoing a trend wherein the big players (the one’s providing cloud services) have also started facilitating open source stacks. Going by the trends, it looks as if every big company will soon join this race, and the same could lead to big changes in the open source Ecosystem.
“I don’t think there is space for any major changes. The community will always be there, whether it is from the cloud provider or open source companies. I do not think there would be any threat to communities or business models as such,” feels Samir.
Kabir adds, “I think this is the reaction to the recent license changes made in the world of open source.”
This article, based on a panel discussion held at OpenSource India 2021, has been compiled by Mukul Yudhveer Singh, Business Editor, Electronics For You, until recently.