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Our Open Source Business Model

Note for clients: Having an open source business model does NOT mean that we will give away/open the code written for our clients, nor does it mean that we will do your work for free. Still interested? Read on… …

Competition is. In every business, no matter how small or how large, someone is just around the corner forever trying to steal your ideas.

Alice Foote MacDougall (1867-1945) in ‘The Autobiography of a Business Woman’ (Ch. 5 1928) – Alice MacDougall was a highly successful, self made merchant and restaurateur in New York.

With a market as large as the world and as competitive as the Internet, sharing knowledge with your peers might be the only way to stay in business.

Swati Sani – CEO, SANIsoft in December 2001.

What is it about?

Contrary to beliefs of traditional business people, not only is it possible to base your business on open source but also there are several ways to do it. Not many people know that there are 8 recognized models for doing business using open source technologies, expanded from the original 4 mentioned at http://www.opensource.org . To mention them in brief,

  1. “Support Sellers,” in which revenue comes from media distribution, branding, training, consulting, custom development, and post-sales support instead of traditional software licensing fees
  2. “Loss Leader,” where a no-charge open-source product is used as a loss leader for traditional commercial software
  3. “Widget Frosting,” for companies that are in business primarily to sell hardware but which use the open-source model for enabling software such as driver and interface code
  4. “Accessorizing,” for companies which distribute books, computer hardware and other physical items associated with and supportive of open-source software
  5. “Service Enabler,” where open-source software is created and distributed primarily to support access to revenue-generating on-line services
  6. “Brand Licensing,” in which a company charges other companies for the right to use its brand names and trademarks in creating derivative products
  7. “Sell It, Free It,” where a company’s software products start out their product life cycle as traditional commercial products and then are continually converted to open-source products when appropriate
  8. “Software Franchising,” a combination of several of the preceding models (in particular “Brand Licensing” and “Support Sellers”) in which a company authorizes others to use its brand names and trademarks in creating associated organizations doing custom software development in particular geographic areas or vertical markets, and supplies franchises with training and related services in exchange for franchise fees of some sort

As can be seen from the above list several of them cannot be used in a small purely developer kind of business like we are. Things like “Brand Licensing” and “Software Franchising” require large marketing network and advertising budget clearly beyond the resources of small, medium enterprises (SME). Also what is not mentioned is that success is achieved by a judicious mix of above models to create a hybrid which best suits your purpose. This is in no way an assertion that you should also use the same or that this will work with your business – simply put – it works for us and we want to share it

What has worked for SANIsoft?

SANIsoft is a small company that specializes in development of web applications using PHP. Our clients range from generic – classifieds, shopping carts to very specialized – property sharing, leasing, mortgage etc.

The most prominently used model in our case is that of a “Loss Leader”. While all our Open Source applications are usable as stand alone products, almost all of our Open applications have the potential to be customized and expanded according to the needs of a particular industry. Many of our applications also serve as a showcase for our prospective clients.

The second model which we follow is “Sell it, Free it”, Several of our products for example the B2B classifieds and B2C began life as in-house closed source projects. These have been our best sellers BUT since it was realized that none of the clients ever asked for an exact replica it was decided to Open the source of these products under LGPL.

Our clients should note here that the code that is written by us for them would never be opened or shared without their explicit written desire and permission.

A very small part of our business also consists of “Support Selling” in the form of customizing existing Open applications, however in these cases we try to direct the business to the original creators of the program than preferring to do it ourselves.

PHPlib an Open Source library of PHP functions was used as the core for all the applications we developed and Dr Tarique Sani , our CTO, is one of the developers of PHPlib.

I am confused … … How does SANIsoft earn?

In one line – We earn by capitalizing our “Loss Leaders” – Many developers mistakenly believe that following an Open Source business model means that you are not going to write any closed source software!! This is wrong.

While apparently the concept of closed source itself may go against the preaching of some hardliners it is your freedom and your clients freedom to exercise it and the accepted practice. Besides there is no sense in opening source for things which may not be reused. So in developer’s language the programming of the business logic, calculations, formulae for margins etc specific to the client need not be opened. It is this, the programming of logic and the integration of our products into a single customized application that our clients are charged for.

OK! As a client why should I care?

Doing business over the Internet is based on your judgment to choose the correct team to execute your projects. Since lot of our code is open it gives you an opportunity to check our coding style and the functioning of our applications. It also gives you an opportunity to check out communication between our teams and your staff. All this can happen without any contractual obligations or even revealing your intent for business. To a lesser extent doing Open Source work also establishes our references amongst our peer developers making it easier for you to “check up” on us.

Lastly for the detractors of Open Source business let it be known that SANIsoft has been in business since 1998 using these models and the company’s growth graph has been trending upwards.

References and further readings

Setting Up Shop – Frank Hecker
The Cathedral and the Bazaar – Eric Raymond

Draft V0.9 Dec 20th 2002.