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The Both-Source Way to Open Source Revenues

SAN FRANCISCO -- At the Open Source Business Conference, held Tuesday and Wednesday in San Francisco, a mix of startups and established players such as IBM, HP and EDS grappled with the question of how to make money selling something that started out as free.

Many open source vendors are using a combination of free and commercial licenses. They offer some products as free downloads, then charge for proprietary enhancements. The idea is, once a customer finds the free product useful, it will want more: more functionality, support, customization.

This hybrid, known as the "both source model," is also seen by many here a way to encourage wider use and help move a company's technology toward standardization.

Under a free license, anyone adding code must also offer that source code to others under the same terms. The free model lets the company benefit from bug fixes and enhancements, which make both the free and commercial products better. It also can increase its market share, since free is a powerful marketing tactic. But some customers prefer to pay in order to avoid having to release their own code, generating financial return for the vendor.

Three "both source" companies, Sleepycat Software, Trolltech and MySQL, jointly announced on Tuesday that software license revenues for each increased an average of 65 percent last year.

"Open source is always a way of saving money, because you can produce software at a lower cost," Marten Mickos, CEO of MySQL, told the audience. "Dual licensing lets you make money. If I can both save money and make money, that has a good effect on my bottom line."

Ping Identity, a Denver-based company appearing in the conference's company showcase, offers free downloads of software for a gateway that enables identity federation. Ping CEO Andre Durand likes to call his business model "gene splicing," combining good aspects of open source and owned code. "The grand vision is building managed Web services to help control and risk-mitigate federation transactions," Durand told internetnews.om. "We give away the software, and then have people pay to subscribe to the services. The gateway is the razor; services are the blades."

Mike Olson, CEO of Sleepycat, said that his company's commercial license follows standard industry practices. "To our paying customers," he said, "we look just like any other proprietary software company."

In another panel discussion, vendors talked about the challenges and advantages of the both-source model. Jeremy White, CEO of Code Weavers, said the hybrid model allows his St. Paul, Minn.-based company to deliver sets of products and services around WINE, the open source implementation of the Windows API . Its proprietary add-ons "drive critical value for our customers that better enable them to use Windows software in the Linux space," he said.

Jeff Hawkins, vice president of Novell's Linux Business Office, said that his company will continue to offer a family of commercially licensed products as well as its open-source SUSE Linux distribution, with the understanding that these products will slowly become commodities as open source products arise to provide the same functions at a lower cost.

There's another reason why some vendors offer commercial licenses: They're easier for customers to understand. White said that embedded Linux company Wind River experimented with several business models and realized that the market wasn't ready to pay for services and support instead of product. "We use the hybrid approach because people can understand it," he said. "It's hard for customers to see the broader picture."

Ping Identity's Durand expects to see many other hybrid business models emerge from open source vendors. "Once you open the door to the possibility of shades of gray," he said, "people get smart."