You can’t make money from open source

During the Open Networking Summit, Peter Levine, general partner at the venture capital firm Andreessen Horowitz said that open source needs a business model. Then at OpenStack Summit I bumped into a consultant who shared Levine’s views. His exact words were: “Tell me a single company other than Red Hat that makes more than a billion dollars from Linux.”

This is something I often hear critics of open source: There is only one Red Hat and there is never going to be another.

I have thought about addressing this topic for a very long time, but never had a compelling reason to do so. But after witnessing those two conversations, it’s about time I did.

Open source is not what you think it is

People who say you can’t make money from open source probably misunderstand open source.

Open source is a way of developing software; it’s not a business model. You can’t make money from open source, you make money around open source.

Red Hat challenged and changed the traditional way of selling software, the exchange of money for a good, by giving away the software for free and building a support model around it. It was a very brave move compared to what Microsoft and other proprietary companies had been doing. Red Hat was building everything in the open, it’s product was available for free and there was no vendor lock in. Red Hat’s success proves that you can make money around open source.

But there is only one Red Hat…

And that means that model is not successful. During our conversation at OpenStack, the consultant I mentioned previously brought this topic up and challenged me to come up with any other Linux company that has been as successful as Red Hat. His point was that Red Hat is where the open source business model starts and ends.

He was right, of course. But I challenged him to tell me a single company, other than Microsoft, that sells operating systems and makes more than a billion dollars per year. I challenged him to tell me a single consumer company other than Apple that creates its own hardware and software and makes more than a billion dollars from it. I challenged him to tell me a single social network other than Facebook that has more than a billion users; a single company other than Adobe that dominates the image editing software industry…you get the point.

There is always one dominant player in each segment. So why single out Red Hat?

The picture is actually much brighter on the open source side. While there is only one Microsoft and there is only one Apple there are at least three leading Linux vendors – Red Hat, SUSE and Canonical who are doing just fine.

There are many more companies that have been extremely successful around open source: Automattic makes money around WordPress; Acquia makes money around Drupal; Mirantis makes money around OpenStack; Docker and CoreOS make money around containers. And I can keep going.

For example, you may not think of Facebook as an open source company, but it’s one of the biggest. They release most of their infrastructure software as open source. They even open source their hardware stack under Open Compute Project. They have created an excellent business model around open source.

Some day in the not-too-distant future, pundits will be saying you can’t make money from proprietary software; you have to go open.