Open Source Business Model for a Startup

Question

For a small startup, what are the benefits and risks of going open source? As an example, suppose I want to create an "RSS to Email" application (this is just an example, please don't comment on the feasibility of this business) to start a company. If I don't have a large team, I would favor open sourcing it. This would help obtain support from a community.

But then I expose my Intellectual Property (in the current example, there probably is not much IP) for exploitation by anybody. This introduces a risk that a large firm may "eat up" my company. Now anybody can just copy my code and start his own "RSS to Email" company. These factors reduce the competitive advantage of my company.

What are my revenue streams? Adwords within the email is one. Probably I can introduce an "Enterprise collaboration" tool on top. I can't think of much revenue streams right now. The reason might be that the example does not have much IP. Probably open source favors high IP projects?

I would like your comments and links to essays about open source business model in the context of a startup.

PS: Although this question is not directly related to programming, it is an important question for programmers as open source has become a very strong force.

Update: Just saw these links - http://stackoverflow.com/questions/116581/open-source-why-or-why-not http://stackoverflow.com/questions/18700/arguments-for-going-open-source

Answer 1

At our university in Germany, some guys kinda started a startup to write an open source collaboration system or something. They received capital from an "incubator", were doing something for a year or so then money went out and so did they. I suppose they didn't have a clear idea on how to commercialize it either.

Not sure if that's relevant, just the first associative response to keywords "startup" and "opensource".

I do not believe that open sourcing your creation is a good idea. This way everyone will copy it without even saying "thanks", and after it's been hugely modified by a community, it's not much of yours anymore.

These days better to come up with a service (read web site) than with a installable application which eventually be cracked if it's any good. You could be earning on "enterprise support" for your application just ignoring poor guys who will use it and not pay anything, but that's only possible after you've become known and respected in your niche.

Maybe you just want to make a fun project for yourself and then hopefully it will yield some profit?

Answer 2

I love open source, but at the same time I believe that if you want to make money, releasing your stuff to open source is not the way to go.

For money making, marketing skills are the essential thing. I've seen managers buying expensive systems that frankly speaking suck compared to their free, open source alternatives. It seems to be so that the people who have money and decision power are often not technically aware, but are instead affected by good marketing.

Answer 3

Two of the most common revenue streams for Open Source projects are paid support and training.

There is an article by the Open Source Initiative entitled "Open Source Case for Business" which has segments which may interest you. The article also links to a Wired.com list of Open Source-based startups from which you might be able to learn something.

Answer 4

This is a good link you might want to check out to get a grounding on free software and it's relevance in business

Answer 5

It really depends on the domain of appliance of your solution. I really think open-source works as a business model for middleware: you make the code available and people will need support, then you can sell consulting (think SUN).

Now, you don't release the source code of a full-fledged application to get the work done by the community and then sell the product. It makes no sense.

Answer 6

open source can be great advertising for your real business. So if your real business is consulting and you write and release an app that would help your customers, and shows off your skilz people that use it will be aware of your services. Good luck!

Answer 7

From an another discussion on stackoverflow I found this article in which Joel discusses positioning strategy of a company. "Smart companies try to commoditize their products' complements." I found the discussion highly useful in the context of open source.