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The Open Source Software Business Model

By Marcus Bailey

I'd like to begin by recommending a terrific book written by Fadi Deek and James McHugh, PhDs at the New Jersey Institute of Technology. The title is Open Source, Technology and Policy published by Cambridge University Press, 2008. This book is 350 pages of very readable, and often entertaining, content written for “suits” not programmers. Open Source describes the origins of open source, the key players, the key products/projects, the legal issues, and various business models in open source. The central theme of the book is that open source is a movement, not just a way of developing and delivering software. The “free” in “free and open source software” (FOSS) refers not just “free of software licensing fees” but also free access to the source code, free flowing of ideas on enhancements, and freedom to break rules and normal conventions. While the Open Source Initiative (OSI) is very important in this world, the Free Software Foundation (FSF) is home to the movement's most passionate believers. The open source business model, especially the way software is developed, is far more similar to the tradition of academic and scientific research than it is to traditional capitalist business. In open source software development, virtually every developer stands on the shoulders of those who started the project and uses the work that has already been completed and approved by the project's leaders to enhance or fix the program. In the open source world it is commonly said, “a good programmer can write great code; a great programmer can improve someone else's great code.”

Let's start with the way open source software is guided by one of a few industry standard software license agreements that are very different from the licenses used by proprietary software companies. The most ubiquitous of these licenses is the General Public License (GPL). More than 70% of all open source software is licensed under the GPL. The GPL requires downstream users of software programs to preserve the freedoms and privileges of the original developer/copyright holder. These privileges include the freedom to run the programs without restriction on use, to see and learn from the source code, to modify the source code if desired, and to redistribute the program with or without the modifications under the same terms and conditions as the original GPL. The GPL specifically prohibits the inclusion of GPL-licensed software in publicly distributed proprietary software. Under the GPL the original developer retains the copyright ownership of the program. The most commonly recognized open source software program is the Linux operating system kernel. Other highly recognizable open source programs include Firefox (internet browser), Apache (web server platform), MySQL (relational database), and PHP/Perl (programming languages), and OpenOffice (word processing, spreadsheet, and presentation).

It's important to understand that the GPL does not require that the programs  be provided at no charge. However, most open source software suppliers do not charge license fees. Sometimes they charge for the cost of distributing the software. They almost always charge for the technical services they provide to users of the software.

Product development in the open source business model is typically very different from the way it's done in the proprietary software world. In the proprietary world, source code is carefully guarded as the company's most important asset. Almost no one outside the company's legally encumbered employees and consultants can get access to the source code. In the proprietary world, the developers request advice and suggestions from downstream users, but all programming is done under highly restricted physical and legal access.
In the open source business model, product development generally starts with one developer “scratching a personal itch.” Then that developer places a copy of the source code in an easily accessible place (like on the world wide web) and uses tools like usenets, email lists, and blogs to solicit advice, feedback, and help from the outside world. Anyone who is interested in joining the project is free to do so and to submit suggested changes/fixes/enhancements to the original developer/copyright holder for his consideration.

If the copyright holder chooses, he can merge programs and patches from these outside GPL-licensees via a content management system called a Current Version System (CVS). Once the new code is merged, the latest version of the source code is instantly available for the outside world to license and work with. This style of distributed, decentralized software development is the way most of the world's most famous open source software was developed and enhanced (Linux, Apache, BitTorrent, MySQL, GIMP, KDE, X Windows, etc.)

Quality assurance and testing in the open source world is also very different from the same functions in the proprietary world. In open source every developer is his own tester. The unusual peer pressure to be recognized as a person whose code was accepted into the base source code of the program seems to provide all that is needed to assure high quality software submissions. Most source code “gatekeepers” further test submissions before merging the new code with the base. A testament to the vibrancy of this style of bug fixing and testing is the commonly used saying, “Given enough eyeballs, all bugs are shallow.”

RDA Systems dba OpenRDA

Today, OpenRDA makes its fund accounting software (and other modules required by local governments) available via the GPL but only a handful of RDA Community Member IT staffs participate in the distributed development process. It is our intention to put more resources into the effort to encourage participation by more Member IT staffs as well as by independent developers with an interest in open source software development. Our Members have many itches that need to be scratched and we do not claim to be the only smart developers in the K-12 and Local Government sectors in the U.S. 

OpenRDA does not charge software license fees. Our revenues come from providing technical services such as data conversion, user training, IT infrastructure auditing, process consulting, and Help Desk services. To our knowledge, OpenRDA is the nation's only fund accounting software company using the open source business model. This status gives us the decided advantage of being the industry's low-cost provider. For the first time in its 35 year history, in 2009, RDA Systems, dba OpenRDA, is publicizing its open source status and its “inside advantage.” We fully expect to grow the business significantly once the decision makers in the K-12 and Local Government markets realize there is an alternative to proprietary software... open source.

Frankly, fundamental to our business model is the belief that the more budgets are constricted in our target markets the more new Members we will gain. It is hard to imagine a school system Superintendent, a County Manager, or a Mayor faced with a budget shortfall continuing to send hundreds of thousands of dollars each year to Microsoft Corporation, Oracle, and Intuit when high quality Free and Open Source Software (FOSS) fund accounting software is available for downloading.