How to make more money with open source

You make money with open source by selling a closed complement to the open-source software. You can make more money when building on open-source software you exclusively own rather than building on communally owned open-source software.

If you build on communally owned open source software, and it is an attractive market, there will be competition for the closed complement you are trying to sell. Hence, your pricing has to deal with this competition, and the situation boils down to two or more traditional vendors competing with each other. This may or may not be attractive, but open source then does not help make you more money.

However, if you own the underlying open-source software, and non-paying users already put it to good use, you can charge more for your closed complement than an equivalent closed-source software vendor could. To a user, who wants to pay for the closed complement now, the cost of a closed alternative is its price plus the switching costs of going from the current open source solution to the alternative. You, as the only provider of the closed complement can therefore charge that price (of the competition) plus the switching cost minus 1€, and you will still be beating the competition.

Of course, real-life situations will always be more complex, but in principle, this is how going to market with an open source strategy lets you make more money than possible when using a traditional closed source approach.

In our seminar on open source business strategy (the OSB seminar), we discuss these and other strategies for those who want to apply them, and those who want to understand better how to not get caught up in them.

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