If ever there was a topic that someone was qualified to discuss, it would be me talking about how open source companies need to balance the interests of their community while making money. In fact, our company is named Funambol because it is based on the Latin words funis (rope) and ambulare (walking) that mean a tightrope walker. Managing an open source company requires constantly walking a tightrope that balances the needs of the community and the business. Every step involves decisions between keeping the community committed and satisfying commercial customers.

Choosing the right business model for an open source company is paramount for success. Even the largest and most well-known open source companies such as Red Hat and MySQL are still a work-in-progress. Yes, they have millions of users, and sales in the many millions of dollars. But they face constant threats to their business. What's to prevent another large entity from deciding that since Red Hat's code is open source, it can provide the same services as Red Hat? What's the guarantee that as MySQL gains even more free users that this will translate into profits? While there is no doubt that open source is a disruptive force to commercial software companies, open source companies themselves are susceptible to being "disrupted" as others can just take advantage of their openness.

Since we started Funambol five years ago, I have thought a lot about a business model that allows open source to be a viable alternative to proprietary software. As our website says, our "idea is to get the best of open source (high quality software, a community of people working together, no vendor lock-in), while providing a source of income to pay for the development of the software (yep, open source developers need to eat, too)." So what business model enables an open source company to achieve this balance?

To start with, I don't believe that the business model behind the Linux operating system is readily replicable. You cannot just build an open source project, hope it will gain a huge critical mass and expect a white knight to magically appear and contribute money. For an open source company to thrive and succeed, it needs a sustainable model that creates value for its community while generating enough cash to pay the bills.

Dual Licensing: A Duel Between Constituencies?
Open source companies can choose from many different business models and have many different ways to generate income, including charging for:

• Technical support
• Software functionality over and above what's in the open source project
• Training, consulting, professional (implementation) and other services
• Licenses for embedded software (such as DBMSs)
• Media distribution and documentation
• Hardware and appliances
• Legal indemnification, trademark licensing and other types of legal protection

The two predominant commercial open source business models are selling support and a dual license approach of offering a free open source and a commercial version of one's software. A major balancing act with dual licensing consists of where to draw the line between free and commercial functionality. A guiding principle for our company has always been to "just be honest" with our community. It is based on the concept that if someone changes the code in the project and uses the project with the "public," they need to give the code back to the community or pay so that the money can be plowed back into the project.

Putting this theory into practice, however, requires constant decisions about major new features. Investors and salespeople want to "close source" important features to make it easier to sell the commercial version, while the community wants everything to be open. This creates tension in the community ("why did you put THAT feature in the commercial version? We need it! We'll build it ourselves").

Further, if you put too much in the open source version, customers will ask why they should pay for software; if you don't put enough in the open source version, you risk alienating the community as they might decide to work on more innovative projects or fork the project.

So, dual licensing with commercial extensions naturally creates tension between the open source and the commercial audiences that manifests in the product roadmap. In the long run, it's not clear that having commercial extensions is a sustainable strategy for many companies (what happens when the software reaches a state of maturity where it is good enough for most users' needs?). Some open source companies have acknowledged this and have switched to a 100% services-based model.

Segmenting Based on Users
So how can an organization remain faithful to its community's interests without creating a gigantic bait and switch situation, while generating enough cash to sustain itself?

In our case, we segmented our product based on our user base rather than product features. On one side, we work with our community to build a phenomenal open source project, pure and honest. On the other side, we build a commercial product based on the same core BUT targeted to the needs of someone else. If that "someone else" is not in the open source community, you are golden. Your community remains satisfied and gives back code to the project while "someone else" pays for it and gets what it needs.