Software Business Models

Extracted Attributes

• Core Premise

  Users of open-source technologies are willing to purchase additional proprietary features, services, or complementary value

• Primary Focus

  Generating revenue from open-source software (OSS)

• Revenue Streams

  Customization, Support (training, debugging), Hosting (access to infrastructure), Premium features, Subscriptions, App purchases

• Key Business Models

  Open core, Software as a Service (SaaS), Freemium, Donation-based funding, Crowdfunding, Crowdsourcing, Dual-licensing, Subscription-based services

• Community Acceptance

  Varied; some approaches are recommended, others accepted, and some considered controversial or unethical

• Key to Profitability

  Low-cost and highly-scalable marketing and sales functions

• Value Propositions for Customers

  Enterprise-grade features, uptime guarantees, performance improvements, legal protection (e.g., indemnification), professional support, training, consulting

• Conversion Ratio (Commercial OSS)

  Well below 1% of downloaders convert to buyers

Timeline

• Early dual-licensing models for open-source software businesses began to emerge. (Source: Wikipedia)

  1990s-Late

• Dual-licensing models continued to mature, giving rise to multiple variations. (Source: Wikipedia)

  2000s-Early

• IDC forecasts a significant shift in software business models towards subscription-based services, projecting their growth and dominance. (Source: Web Search Results)

  2027

Business models for open-source software

Software companies focusing on the development of open-source software (OSS) employ a variety of business models to solve the challenge of making profits from software that is under an open-source license. Each of these business strategies rest on the premise that users of open-source technologies are willing to purchase additional software features under proprietary licenses, or purchase other services or elements of value that complement the open-source software that is core to the business. This additional value can be, but not limited to, enterprise-grade features and up-time guarantees (often via a service-level agreement) to satisfy business or compliance requirements, performance and efficiency gains by features not yet available in the open source version, legal protection (e.g., indemnification from copyright or patent infringement), or professional support/training/consulting that are typical of proprietary software applications. Historically, these business models started in the late 1990s and early 2000s as "dual-licensing" models (for example MySQL), and they have matured over time, giving rise to multiple variations as described in the sections below. Pure dual licensing models are not uncommon, as a more nuanced business approach to open source software businesses has developed. Many of these variations are referred to as "open core" model, where the companies develop both open source software elements and other elements of value for a combined product. A variety of open-source compatible business approaches have gained prominence in recent years, as illustrated and tracked by the Commercial Open Source Software Index (COSSI), a list of commercial open source companies that have reached at least US$100 million in revenue. Notable examples include open core (sometimes referred to as dual licensing or multi-licensing), software as a service (not charging for the software but for the tooling and platform to consume the software as a service often via subscription), freemium, donation-based funding, crowdfunding, and crowdsourcing. There are several different types of business models for making profit using OSS or funding the creation and ongoing development and maintenance. The list below shows a series of current existing and legal commercial business models approaches in the context of open-source software and open-source licenses. The acceptance of these approaches has been varied; some of these approaches are recommended (like open core and selling services), others are accepted, while still others are considered controversial or even unethical by the open-source community. The underlying objective of these business models is to harness the size and international scope of the open-source community. Depending on the project the funding options and their success differs for a sustainable commercial venture. The vast majority of commercial open-source companies experience a conversion ratio (as measured by the percentage of downloaders who buy something) well below 1%, so low-cost and highly-scalable marketing and sales functions are key to these firms' profitability.

Web Search Results

• Software business models explained - Embroker

  Image 7: Software Business Models List -------------------------------------------------------------------------------------------------------------------------------- Software revenue models focus on how software businesses can generate revenue with their products and services. Most software companies use a variety of revenue models through a mix of revenue streams to meet different market and user needs. The following are some of the major business models and revenue streams: [...] Software companies can use open source as a business model by taking several approaches, such as by providing customization, support (through training or debugging services for example), hosting (by selling access to infrastructure), and offering premium features. ### Other Software Licensing Business Models While proprietary and open source licensing are the two most popular models, software businesses have many other models to choose from. Those licensing business models include: [...] Share this article or consumers (B2C) in selling its products and services. Software revenue business models, which include a wide variety of models depending on a software company’s preferred revenue stream(s). Revenue models include such familiar revenue generators as subscriptions and app purchases.

• SaaS Business Model: From Startup to Stable | EmpireFlippers

  The premise of thesoftware-as-a-service or SaaS modelis that a piece of software is hosted on a cloud infrastructure (i.e., operated through a web browser), and businesses pay a monthly fee to get access to this software. It often takes a good amount of coding knowledge, combined with a good amount of user interface design skills, to really make a SaaS product worthwhile. SaaS businesses in general are probably the most complex business models in our explainer series. [...] 1. Startup– this includes getting everything going, programming a working product, and “going to market” with it to acquire your first few customers. [...] 2. Hypergrowth– if the market likes your product, you likely experience an immense amount of growth very quickly as businesses adopt your software. While this sounds great, this usually is going to cost you more money, because you need to rapidly expand in data, store, bandwidth and all sorts of technicalities to support the newly acquired customers. Remember how customers of SaaS products often love the product because they don’t need to create an IT infrastructure for their business? Well,

• Software Licensing Models: Ultimate Guide to License Types - 10Duke

  A software license model is how a software business profits from selling its product through a software license. Different types of software licenses use various approaches for profit, but the core idea is that the software vendor defines how the product can be accessed, used, and the terms on which customers are charged. The goal is twofold: ensuring profitability and offering customers a sensible way to purchase licenses. It’s all about balance and flexibility. [...] According to IDC's 2027 forecast, the shift in software business models towards subscription-based services is gaining momentum. The following graph illustrates the projected growth and dominance of the subscription model in the software industry. Image 81: laptop screen showing a perpetual license model What is a Software License Model? ------------------------------------- Once you have a method for software licensing, the next step is to apply a licensing model to your product. [...] In this guide, we introduce various software licensing models, including common ones and more complex enterprise models. This guide aims to clarify misunderstandings about licensing models, as they are often discussed loosely. You may even discover that some aren’t actual licensing models. This guide covers 19 license models, but if you know of one not mentioned, feel free to let us know! All license models listed in this article are supported by 10Duke.

• Understanding SaaS Business & Revenue Models - DevSquad

  The SaaS business model means selling a cloud-based software (typically accessed via web app or mobile app, but also sometimes via a desktop app) at a monthly or annual subscription fee. SaaS—which stands for software as a service—is now used by nearly every business and most consumers. Popular B2B SaaS companies include Slack, Mailchimp, and QuickBooks Online. Consumer SaaS products include budgeting apps like EveryDollar and Adobe Creative Cloud. [...] 1. Startup: this phase involves getting everything up and running, taking the product to market, and acquiring the first few clients. 2. Hypergrowth: entering this phase occurs once the market likes your product and you must grow fast to meet the demands of businesses adopting your software. 3. Stable money maker: here the growth has stabilized, a healthy profit is streaming in, and acquiring new clients no longer tests the limits of your infrastructure.

• SaaS business model: How do SaaS businesses work? | Stripe

  Software-as-a-service (SaaS) is a billing and delivery model for software that is so superior to the traditional method for selling software licenses that it restructures businesses around itself. This has led SaaS businesses to have a distinct body of practice. Unfortunately, many entrepreneurs discover this body of practice the hard way, by making mistakes that have been made before, rather than by spending their mistake budget on newer, better mistakes. [...] On the low end, SaaS sold to small and midsize businesses (SMBs) on a high-touch model generally has an ACV of $6K to $15K, though this can range higher. The exact definition of an SMB varies heavily depending on who you ask; operationally, it is “any business with sufficient sophistication to successfully adopt software that costs $10,000,” which probably excludes your local flower shop but includes a dental practice with two partners and four employees. [...] Low-touch products sometimes involve sales teams, but they’re frequently structured as so-called “Customer Success” teams, which are less focused on convincing people to buy the software and more on ensuring that users of the free trial successfully onboard and convert to paying users by the end of their trials.