Does deploying Open-Source Software kill the business model?

Question

From Podcast #60:

Joel thinks that hosts deploying open source software crash the business model down to the cost of the hosting itself. I wonder how companies like Six Apart (of Movable Type fame) continue to survive if that is the case. And eventually, won’t someone create an open source clone of what you’re doing anyway? Why not beat them to the punch and take control of the situation, by open sourcing the real thing yourself?

Is this really true? If you develop a "killer" open source product, or even a killer closed source product clone, will you be pushed out by the biggest host? If so, like Jeff said, why are companies like Six Apart surviving with this model?

Answer 1

SixApart is doing just fine selling its services. Think of it as a classic example of the freemium business model.

Even if your core technology is open source, building the infrastructure, offering the service and providing quality support is worth money for some customers.

Answer 2

I don't believe this. If this was the case we wouldn't have anyone working in anything but production. There are ample oppportunities for the services business even in the FOSS model. It's all up to what you see as your core business:

If it's software you need to sell your software (and keep the code closed). If it's hardware you might give the code away to boost your hw sales (the Sun way). If it's services (training, hosting, implementing fixes and changes to existing code) you might also want to give your code away to increase the user base more than otherwise. This can then create you new business opportunities.

Companies are looking at FOSS software more and more instead of propretary software because they want to save in licensing costs. If the FOSS alternative does roughly what the company needs there is a good chance they try it. If you have written the FOSS software you are the best bet for them to ask for related services.