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What Is The Open Source Model?
Primarily, the open source model for business refers to those which create software products available for use under specific open source licenses. This allows open access to the source code, allowing people to freely modify the works. Simple as that.
Distribution is almost always done via downloads online, though some open source software may be mailed via CD for low or no cost, such as the Ubuntu Live CD.
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What's The Advantage?
The open source model has immense appeal for users across the board, no matter what use they may have for the product. An increasing number of people prefer open source products over paid-for products for either philosophical or economic reasons. Software for everyone and anyone who wants it is a pretty cool idea.
Open source businesses have lower development and start-up costs. Additionally, inherent in open source programs is the tendency of the user base to assist in creating patches, adding features, creating ports for other OSs, and just generally improving the product. This makes them vastly more secure, as the code will exposed to tremendous public scrutiny. Such peer-reviewed software is also much more reliable.
Many users may also create derivative works under the same open source license, further improving and popularizing the product.
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Where's The Profit?
A business has to make money somehow—so how does a business make money if all their products are free? Well, a number of ways:
Some open source businesses make their money from training people to use their programs, such as the employees of other companies. Others get their money through providing paid technical support for their products, such as Canonical Ltd. with Ubuntu.
Still others offer some free products alongside other products that are available for purchase, such as Sun Microsystems offering OpenOffice for free while offering the paid-for StarOffice right besides it. Other open source businesses, especially lone individual developers, will make a large portion of their revenue through donations of people who want them to keep at what they're doing.
Sometimes, one company will make an agreement with another company to include some sort of advertisement for the product within itself, such as Mozilla's partnership with Google for the inclusion of their search engine within Firefox. Others still put advertising, such as Google AdPages, on their download and support pages, depending on that for their revenue.
Most commonly of all is some combination of the above techniques. All in all, there are plenty of ways for the open source model to be viable.
This doesn't entirely satisfy some businesses, however, which turn to “hybrid” licensing models, taking something of the best of both worlds, open source licensing and traditional licensing.
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Many open source businesses choose to offer two different licenses for the use of their product, known as dual licensing, for different uses of the product.
But what's the point of that? Well, for instance, software can then be available in two flavors: free to use and download under the open source license for at-home users, but for commercial use the appropriate license must be purchased from the company. The licenses tend to be cheaper than the same licenses for purely proprietary software.
It's hard to remember to make the distinction, but open source doesn't necessarily equate freeware, as often as they are grouped together: it is sometimes necessary to purchase some sort of license.
Of course, some businesses market their products under even more licenses, resulting in a “multi licensed” product.
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Another hybrid option is to create an open source “core,” usually free for download and non-commercial uses, while special proprietary features and upgrades may be purchased for a small fee.
This has garnered some criticism from those who view this method as more of a “bait and switch” technique: get them to download a faulty product, and then be goaded into an upsell so that they may use a functional “upgrade.” Users who just want something that works end up paying the very price for a proprietary license that they were trying to avoid. However, this is not the case with all open core models, as some are genuinely functional at the most basic level.
For more information on open source business model and how it works, check out Opensource.org's business page.
Check out this list for articles on the open business model, from academic research to blogs.