Making Money in Open Source

The folks over at Pingdom in their Royal Pingdom Blog have collected the financial information of some of the most popular open source software companies.

No surprise that it is only Red Hat so far that has had runaway success with a business model purely around open source. They are a publicly listed company, and in a partner event I attended last year, made a big deal about the fact that their revenues have been consistenly growing year on year and are well over US $500 million (and if their growth continues, will join the mythical billion dollar club of Microsoft, SAP, Oracle soon if they are not acquired or bought out first along the way).

For Novell and Sun Microsystems, the money they make from open source software is harder to pin down as they are large, very diversified companies (but with open source a key component of their strategy–as the recent acquisition of MySQL by Sun and SuSE by Novell has shown). Same goes for IBM or Oracle.

For open source application companies, they are still relatively small. Alfresco who does open source Enterprise Content Management solutions is reported to be earning around US $10 million, while SugarCRMaround US $15 million. They are small fry versus the incumbents but definitely respectable given their relatively young age, small size (in terms of headcount) and their adoption rates (albeit many are non-paying customers).

It remains to be seen if pure-play opensSource software companies will be as successful as their proprietary counterparts. I read from CNET in Matt Asay’s (of Alfresco) blog that low conversion rates (as low as 1%) from free downloads to paying customers is not uncommon. One thing is for sure-they are disrupting the market, helping keep the big vendors honest, and offering customers choice. In the long run perhaps the real money that will be made is not from subscription fees or support services for open source code but from savings made in R&D, marketing, testing and QA by leveraging a wider community of users and sharing knowledge embedded in software code.