Wednesday, March 4, 2009

Open Source Licensing and Business Models (Onetti, Verma, 2008)

In this study, written at Insubria University in Italy, the authors aim to shed light on licensing issues for open source companies and its implications for the choice of business model.

Licensing and Business Models (Onetti, Verma, 2008)

Software licenses
The Open Source Initiative (OSI) currently has a set of 72 licenses as open source "OSI-Approved" and the authors provide a clear picture of the basic open source approaches. They differ between GPL-like and BSD-like licenses and some of the different available variants with different trade-offs between advantages and disadvantages.

GPL-like licenses are the most popular and well-known examples of licenses that require copies and derivatives of the source code to be made available on terms no more restrictive than those of the original license. Any user (licensee) is given the permission to modify the work, as well as to copy and redistribute the work or any derivative version.

BSD-like licenses are permissive free software licenses that allow users to use the code in proprietary software, with or without modifications without obligation to propagate the license to derivative work. Any user (licensee) may create closed versions, re-brand the software and commercialize it. A BSD license can easily create competitors that can launch products based on the same source code.

Business Models
The authors consider three main business models and present examples of companies moving from one business model to another and the complications involved. The business models are:

Reciprocal - based on GPL-like licenses generating revenues from professional services such as maintenance, support, customization, consulting and training.

Academic - typically built around a BSD-like license with revenues generated from both license fees on software reselling and from professional services.

Dual - based on two different licensing models, one at no charge with GPL-like license and one license for which the customer pays a license fee.

As the authors write it is not easy to assign open source companies to the business model categories as they typically adopt hybrid schemes.

The choice of OSS license is typically made by the creator of a project, usually a software developer, without the business or legal skills needed to understand how the choice of license affects the choice of business model. Since the terms of a license determine what companies can do with their software, companies are implicitly narrowing the choice of business models when they select a license type. Business models are often defined around the license and not the other way around.

The authors show with examples an interesting trend in companies changing from one license type to another, trying to adjust the license to the business model at a later stage. Also, if the company does not find a suitable OSI-approved license, it seems to be a trend to create a custom/private license by adding terms to an OSI approved license scheme.

Obviously not all open source companies can change the license as they might have given away the rights needed. Only the ones who own the IPR or the ones who are able to get assignation of rights from all contributors to the software, are entitled to change the license. The authors believe that there are plenty of open source companies for whom modifications of the license to fit another business model is not available, forcing them to adopt suboptimal business models.

The conclusions are very similar to the ones I have experienced within R&D and patenting where the inventor, usually a researcher in a narrow technical field, rarely has the skills to understand how the invention and patent will be used, and how do strategically design the patent application or keep parts of the invention as trade secrets to enable different business models.

Further reading:
Open Business Models
David Rowe on Open Hardware business models


  1. Thanks for highlighting this article (which I will read in more detail later) and for the post.

    One minor correction - the dual model consists having one version GPL (or other FLOSS license) for free (generally as in beer) and one version commercial/proprietary for a fee, not the GPL/BSD model you mention.

    I haven't had time to read the underlying article in depth, so forgive me if it is in there. However you note that:

    "the terms of a license determine what companies can do with their software, companies are implicitly narrowing the choice of business models when they select a license type"

    I agree that choosing a license narrows your options and business models, but it is whether or not your own version that you produce _accepts community (IP) contributions_ (and how it does so). For example if you make GPL software but no one ever modifies it (or their modifications never make it into your code), then you have the option to take your code (and only your code) wholly proprietary or to offer a dual version.

  2. Jordan, thanks for your comment, I know you are an expert in the field of open content. You are correct in that the license as such is not the narrowing factor, but the use of code in accordance with the license.