• Fri. Jun 2nd, 2023

The place’s the Cash? Choices for Commercializing Expertise, Half 1: Open Supply Software program – Tech & Sourcing @ Morgan Lewis


May 26, 2023

When the subject of know-how commercialization methods comes up, the commonest choices usually talked about embody the sale of a know-how or constructing a enterprise round know-how by promoting merchandise or offering licenses or subscriptions to technology-based options.

On this collection, we are going to have a look at know-how commercialization choices which are much less generally mentioned. In Half 1, we talk about how corporations might be able to make the most of open supply software program (OSS) as a commercialization technique. In a forthcoming Half 2, we are going to concentrate on the choice to “white label” know-how as a commercialization technique.


Now we have highlighted points associated to OSS in a lot of weblog posts: we spoke about tendencies in leveraging OSS, in addition to points to contemplate within the context of representations and warranties in M&A transactions. Our colleagues additionally mentioned enterprise dangers related to using OSS.

On this publish, nevertheless, we flip our focus to why a enterprise might select to pursue an open supply technique and the way companies should obtain industrial profit from OSS.
The central concept of OSS is to leverage the breadth and depth of the developer neighborhood, which helps in figuring out and eliminating bugs and safety points, in addition to bettering software program options and consumer expertise primarily based on consumer suggestions.

This stays the core advantage of OSS-based companies: as demonstrated by a RedHat report on the state of enterprise open supply, 89% of respondents noticed enterprise open supply as safer or as safe as proprietary software program. Nevertheless, open supply corporations have additionally proved that they are often worthwhile companies, and some current preliminary public choices within the sector show as a lot.


Earlier than we glance into how OSS house owners can earn cash, it’s price mentioning that the industrial success of OSS is usually attributable to (i) the size of curiosity within the product from each the developer neighborhood and clients to be able to make the most of the core advantage of open supply as highlighted above; and (ii) the credibility and status of the OSS proprietor, as cybersecurity points are sometimes prime precedence for purchasers. Now, let’s flip to the choices.

Open However Not Free

Whereas OSS is commonly perceived as a free software program, that isn’t essentially the case. The creator might publish the supply code underneath a license that will restrict the use and modification rights or impose an income-sharing obligation on the licensee if a product embedding the software program is commercialized, which incentivizes potential industrial customers to enter right into a separate industrial license with the creator.

This feature can be known as restrictive licensing and has been criticized by the open supply neighborhood as departing from the unique intent of OSS. Word that changing to a restrictive license after a product was first marketed with none restrictions is probably not nicely acquired by customers (see our protection of the Dungeons and Dragons case earlier this yr).

Free vs. Paid Variations

This feature is usually known as twin licensing, because the software program proprietor might permit free use of the software program with primary choices however will cost a payment for the variations that embody extra performance or are meant particularly for enterprise use. This pricing technique is usually known as “freemium.”

Open Core

A variation of the twin licensing mannequin is called the “open core” mannequin. Within the open core mannequin, the developer open-sources nearly all of the code and permits it to develop as an strange OSS, however retains sure options and performance proprietary and accessible for industrial licensing.

For instance, envision a browser or cell working system that comes with a market of add-ons and extensions created by the proprietor in addition to impartial builders, the place a few of these add-ons and extensions can be found for a payment.

Internet hosting

As a result of not all companies have the required capability to deploy and run OSS, some distributors might select to supply a distant server to run the OSS with added performance reminiscent of backups and upgrades of the OSS.

Nevertheless, provided that distant servers typically are the territory of cloud distributors, there could also be competitors between OSS builders and cloud distributors providing OSS as a service with out further price to the shopper. This competitors has resulted in some OSS suppliers together with limitations of their licenses to stop promoting their software program as a service with out paying royalties.

Assist and Consulting

OSS creators might make the most of their experience and provide clients paid help in relation to OSS deployment, configuration, integration, coaching, or troubleshooting. There are totally different views as as to whether this can be a sustainable operational mannequin long run, as many would declare that OSS ought to enhance over time, and clients won’t be inclined to proceed paying after the preliminary deployment stage. Consequently, some suppliers select to make use of this function along with proprietary options suitable with OSS or with open core.

Along with the above, there are extra methods to lift cash, reminiscent of certification charges, crowdsourcing, branded distribution, or hybrid licensing, e.g., a so-called franchising mannequin the place the OSS proprietor certifies chosen companions to develop into “licensed” distributors of the OSS and so they make the most of one of many commercialization methods and pay a payment to the OSS proprietor.