Open source is considered an exemplar of the ‘private-collective’ model of innovation,1 a compound model with elements from both the private investment & the collective action models.

This model was an attempt to rationalise and reason about the existence of the open source software industry, and answer the question: “why would thousands of top-notch programmers contribute, without apparent material incentives, to the provision of a public good?”.2

This essay revisits the assumptions of the private-collective model, in the cloud-compute era, to understand the surgent phenomena of the open core revenue model in the commercial open source software industry. This is of particular significance in view of the perceived siege of the open source model by cloud vendors.3

Private-Collective Model

A public good produced under the private-collective model has two classes of users: innovators and free-riders. Innovators are users of the the good, and active contributors to its sustained development. Free-riders are passive consumers of the good, with no contribution to the advancement of the good.

For the sustenance of an open source product, it is imperative that the innovator class has incentives beyond what is available to the free-rider class of users. It is a myth that the development of a public good can be sustained on the basis of pure altruism from the innovator class of users.

In case of individual innovators, the incentives, as postulated by the model, are:

  • learning, which is an immediate incentive.
  • signaling incentive, which is a form of delayed incentive.
    • career concern incentive: in the form of future job offers, shares in commercial open source corporations, or future access to the venture capital market.
    • visibility incentive: in the form of peer recognition.

For an organization to participate as an innovator, a different set of incentives could be at play. Unlike the case of an individual contributor, the incentives are harder to classify, and much-less researched at scale. A majority of organizations have looked at the incentive structure of open-source from the same prism as an individual contributor. Open source provides organizations signaling incentives to attract talent, and visibility in the community (again, this helps in hiring). Very few incentives beyond this have been identified and utilised by organizations, till recent times. This explains why organizations do not feel compelled to open source proprietary products on which the revenue of the company has a direct dependence.4

A recent wave of COSS (Commercial Open Source Software) organizations are trying to change this fact. A reason for this phenomenon is an hypothesis that has emerged in the industry that the open source process is a way for a small-scale organization to use the diffusion networks associated with open source to take on a dominant player in the industry.5

The Cloud Era

The experimentation with open source as a business & product delivery model by COSS organizations is also becoming contemporaneous with the near-monopolistic rise of cloud vendors. In the private-collective model, the existing cloud vendors would be classified as free-riders. The zero-sum (winner-takes-all) nature of the cloud model6 means cloud vendors have little motivation to contribute back to the community, while capturing a disproportionate share of the value generated by an open source product.

It is in this context that an open core model has emerged as a viable business model for COSS organizations. As with other innovations of business models happening in the COSS industry, it is an emergent phenomena, and its efficacy and implications are yet to be understood in full measure. Its efficacy will be judged in terms of the degree of sustainability it brings to the COSS industry; while its implications with respect to the spirit of open source and free-sharing of software (and how far removed it is from that ideology) is up for debate.

Footnotes

  1. Hippel, Eric von, and Georg von Krogh. “Open source software and the “private-collective” innovation model: Issues for organization science.” Organization science 14.2 (2003): 209-223. ↩

  2. Lerner, Josh, and Jean Tirole. “Some simple economics of open source.” The journal of industrial economics 50.2 (2002): 197-234. ↩

  3. Dix, Paul. “The Open Source Business Model is Under Siege.” (2017) ↩

  4. An argument against open sourcing products with direct impact on revenue is minimal product differentiation resulting in limited pricing power and corresponding lack of revenue. ↩

  5. A prominent recent example of this phenomenon is Hashicorp Inc. ↩

  6. A consumer of a cloud-vendor has every reason to use the cloud-vendor’s offering of a service (built on top of a open source product), rather than using it from a different organization, even if that other organization is the original initiator of the underlying open source product (and therefore, arguably, has more of an expertise in it). ↩