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Free Code for Sale: The New Business of Open Source

By Christopher Koch

February 15, 2006 — CIO —

The future of open source is not Linus Torvalds.

It’s Marty Roesch.

In 1998, Roesch, then 28 and an engineer at telecom company GTE-I, created an open-source program called Snort for detecting intrusions into computer networks. Today, he sheepishly acknowledges that he’s a multimillionaire, having sold Sourcefire, the company he created to sell add-ons to Snort, for $225 million to security software leader Check Point. (The deal is expected to be finalized before the end of the first quarter 2006.)

Roesch’s road to riches—using the Internet to distribute open-source software for free and selling proprietary (closed-source) pieces that enhance the free stuff—is emerging as the most popular new business model in the software industry, according to venture capitalists. Call it the mixed-source model. On the surface, it would seem to offer the best of both worlds: CIOs get free software, and the companies developing the code get e-mail addresses from downloaders, so they can try to sell them proprietary add-ons. Venture capitalists love this model because they can invest their money in software that can be sold rather than in big sales staffs or expensive marketing and branding campaigns.

But in the rush to monetize the open-source model, these startups could be on a collision course with the communities that spawned them. When a venture-backed company builds both open-source and proprietary software under the same roof, it invites a showdown between the people contributing the free stuff (the open-source community) and the company looking for competitive advantage from the proprietary stuff. "It’s an inherent conflict of interest," says Jo Tango, general partner at Highland Capital Partners, a venture capital company. "Whose additions to the software get approved? And how are those additions prioritized? Is it for the open-source product or the for-profit stuff?"

And that could lead to situations in which CIOs are seduced into using what seems to be free technology only to find they must pay to make it work down the road, says Michael Goulde, senior analyst for Forrester Research. Adds Tango: "This model has been around for years. It’s called a trial version."

Proprietary software companies have been giving away trial versions of their software for years. But the code is closed, and the free versions are lesser versions of what you’d get if you paid full price. "That’s no different from what these so-called open-source firms are doing with their community [open source] and enterprise [proprietary] editions of their software," says Barry Strasnick, CIO of CitiStreet, a benefits management company.

 

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