Open Source software is free software. Free is where the problems start. For some people, free is just another word for 'worthless'. For other people Open Source is everything and the concept of commercial software is comparable with a crime against humanity. The truth depends on your point of view. If you like multi-perspectives, this might be for you...
To understand the present, one needs to study the past.
Early days
In the old days, there was no other way of getting software than building it from scratch. Commercial parties were just starting and 'shrink wrapped' software was considered 'not ready' for business use. Companies hired platoons of analysts, developers and system engineers to accomplish what they needed. Results: screamingly high costs, but perfectly adapted to the business needs.
In the years to follow, shrink wrapped software matured. Although development costs were extremely high for the developing company, those costs could be quickly returned by selling it on a large scale. In order to reach high numbers, the focus started on the end user. So called 'standard software' like office suites started to emerge. People realized quickly that 'standard' software had its benefits: significantly lower costs and - far more important - the ability to communicate with each other across the borders of a company. Result: low costs, standardized functionality, communication.
Today's commercial software
The shrink wrapped software paradigm matured into the business area. But here a problem emerged: no single company is the same, no matter how 'standard' you make your software. Companies change constantly, as do laws, and the business' software has to change with it. So the industry invented 'parameterized' software - software with a lot of buttons to push and settings to set in order to adapt to specific needs. The complexity of this type of software is most often so high, that a company needs several so called 'consultants' to push the right buttons and to set the right settings. Result: lower costs than before by outsourced development, but still very expensive. A side effect emerged: a lot of the consultants were able to start their own businesses in delivering support for this kind of software.
Throughout the years, companies realized something else - companies are not forever, neither are software companies. When you buy software from a software company and the company itself seizes to exist - the buyer has no other option than to go to the next software company and buy something else. Results: high conversion costs, double investments, loss of productivity.
Open Source software
Then there came Open Source. Instead of choosing between constructing and buying, there came a third option: co-creating. Choose the software that is as close to your needs as possible, and develop from there. Result: lower development costs by jump starting, supplier independence and the creation of value networks on the run.
So, what is the friction with 'free' in Open Source?
People who work hard to accomplish something, expect recognition and money to live from. There's nothing wrong with thinking like this, only it doesn't fit most Open Source. In Open Source, people who work hard to accomplish things, give it away for free and only hope for recognition in return. From the commercial point of view, people tend to go for the best value/price combination. Economics dictate that - given equally valued free and commercial software - you can't sell the commercial software. This ruins the commercial market place. No buyers, no income. End of game for the 'old thinkers'?
From the perspective of the 'buyers' of Open Source software, things change for the better. Investment costs are dramatically lower. There is no dependency from commercial parties. You have control in directions of development to take. You benefit from other business parties who co-create the software. But wait... where's the catch? Apart from being responsible for your own actions, there aren't any. There is no one to blame when things don't go your way. And if others don't understand the concept of Open Source and keep their developments to themselves, the software will not evolve enough over time to benefit from it. That's all.
Then how do they get paid?
There is no reason not to sell Open Source software. Yes, you read it right, Open Source software can be sold like any other resource. Free is not a synonym for 'gratis'. However, as the buyer is at liberty to give it away for free, a company with a business model solely based on selling, wouldn't stay in business very long. So better models were developed. A few seem to be dominant, which we will explain to you.
Shared corporate development
Being a corporate developer, its often a too huge task to maintain a complex product on your own. The business is at risk here - few developers, highly specialized so attractive for other companies... you can sketch the picture yourself easily. So instead of risking personal dependencies and high development costs, share it with whomever wants to use it in return for continuity, stability, quality control, co creation and shared workload for the company. The corporate developer keeps his/hers profile when he/she leaves the company. This really is a win/win situation. In this type of Open Source usage, only non-material bills get paid. This seems to be the most often used model.
Split Licenses
It is possible to use licenses that prohibit commercial usage of software. This type of Open Source software let you use the complete software for non commercial purposes, but as soon as you start making money from it, you are required to buy a commercial license. This enables companies to test and play with the software as long as they like, until they declare it 'fit for use'.
Service model
Many Open Source companies give away their software and sell you their services. Service can be education, support contracts, documentation, you name it. These companies really take a risk - no company can prevent another company to develop the same services on the same Open Source software. However, as long as the other companies contribute to the code base and don't compete in the same region of the world, all companies thrive.
Freemium
Give 80% of your software away for free and sell the remaining 20% as premium software. This is the so called 'freemium' model, which is especially well suited for service providers. In this case, the license terms of the free part is crucial. Some licenses prohibit this combination of free and commercial usage. It's obvious how service providers benefit from this model, as they don't sell their software and therefore are mostly free in their adoption of Open Source software.
There are other models as well, but they seem less dominant. One example of this is disruptive Open Source. The sole purpose is of this model is to break the monopoly of some commercial software vendor. This can create a lot of attention, which can be considered to be the equivalent of a far reaching commercial. As a lot of people get warm feelings seeing Davids attacking Goliaths, even if they fail to reach their primary goal, the name of the creators or funding companies gets well known.
Conclusion
Open Source is often compared with 'shrink wrapped' software. However, it was never meant to be, except for some rare examples as OpenOffice.org and the Gimp. However, when seen as the 'third option' next to development and 'shrink wrapped' software, it has a right on its own and has many advantages above the other two. The bill is always paid, but not always with money. The true power of Open Source however is the unlocking of co-creation. No other software procurement method shares that property.
