How to Make Open Source Profitable

Jeff Tao
Jeff Tao
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This article was originally published in Forbes Technology Council.

I still remember the first time a notification popped on my screen informing me that TDengine, my open-source project, was ranked first on GitHub Trending. I was excited, hardly able to believe that a time-series database could gain such popularity among developers. At the same time, I was worried. While my support in the open-source community was growing by the day, my bank account was not following suit. It was time to put some serious thought into how I could pursue my goal of creating open-source software and also be able to pay my team members the salary they deserve.

Now, it’s safe to say that open-source software has become the mainstream for software development. Even once-staunch enemies like Microsoft are now engaging in open-source projects, not to mention the new generation of tech giants like Google, and Red Hat’s 2022 “The State of Enterprise Open Source” report found that 82% of enterprise leaders are more likely to select vendors that contribute to the open-source community.

However, the successes that the open-source community has seen in the development world have, for the most part, yet to be replicated in the business world. The most valuable companies and products in the tech sector remain closed-source. Even success stories like Red Hat and MySQL have yet to approach the valuation of the traditional competitors that, in the end, acquired them.

Open-source companies need to turn a profit to remain viable as businesses, but that is easier said than done when you commit to providing your own source code freely. There is only one path forward for open-source projects that want to become $100 billion companies — cloud services.

Traditional Monetization of Open-Source Products

Traditionally, open-source companies have packaged their software into enterprise or commercial editions and sold licenses to make money. For example, Red Hat’s core product is Linux, an open-source operating system that anyone can download for free. However, many companies find that Red Hat Enterprise Linux offers enough value-adds — stable packages, improved user experience and guaranteed support, among others — that they are happy to pay for licenses for their servers instead of downloading a free distribution.

Unfortunately, this business model is not suitable for the open-source companies of today. Middleware vendors find that their products need to be more complex to entice corporate customers into paying top dollar for tech support and added features when they can hire a developer to run the open-source edition. In addition, the cost of licensing can prevent startups and individual developers from purchasing the product altogether. Instead, open-source companies in 2023 need to look toward the cloud for monetization opportunities.

Learning from My Experience

I have always believed in collaboration and democratizing developers, so open-sourcing my product was a no-brainer. The reception was everything that I had hoped for, quickly earning top rankings among open-source databases on GitHub, including over 20,000 stars. However, as my product gained more support from the developer community and recognition from the industry, it still needed to improve in one area — profitability. How could I attract investment and top-tier talent while operating in the red?

Fortunately, I had prepared for the cloud from the beginning. First, I went with the AGPL as my open-source license, preventing cloud service providers from offering my product as their service. Permissive licenses like MIT and Apache, though beloved by many in the open-source community, can be business liabilities, as they could undermine the control of your product. Second, I ensured that our architecture was truly cloud-native, focusing heavily on the critical elements for cloud success: scalability, elasticity, resiliency, observability and automation.

With the release of TDengine Cloud, which transforms the time-series database into a cloud service, I have seen customer and revenue growth that I only dreamed of when selling the enterprise edition of my open-source product. There are no secret ingredients in this recipe for success; I am confident that it is reproducible by many open-source middleware providers.

Software as a Service

Open-source companies are better positioned to sell cloud services than traditional tech companies. They can easily build an active developer community and strong brand with their open-source activities, and it’s only natural that developers will gravitate toward open-source products when selecting cloud services for business and personal use. By transitioning from selling licenses to selling services, open-source companies can reach a much larger customer base and enable everyone to engage with their products.

Where should open-source companies begin? R&D is critical in this transition because the most successful SaaS should take advantage of the cloud platform’s best capabilities (elastic computing, storage, network resources), which requires proper research to select the right service. Using an open-source cloud-native solution can provide high availability and reliability to meet the service level agreement promised to the users with a focus on data security.

Then, from an organizational standpoint, leaders need to set up a new team for the daily operation of the service. This team should watch several key metrics, including the number of daily registrations, daily usages, daily active users, overall system performance and system stabilities. From the metrics, the team can tell if the service meets the business goal and propose the service or product changes to the R&D team to fine-tune the service. Finally, from a marketing point of view, the service should be positioned and communicated in a way that makes sense for users to understand the benefits and why they should select it.

Modern developers are on board with the cloud, which allows them to share data more easily and take full advantage of modern data processing and analytics tools, and savvy decision-makers have realized that the elasticity of the cloud is a major factor in reducing operating costs. The market for cloud services is already here, just waiting for open-source companies to take their rightful places as its leaders.

  • Jeff Tao
    Jeff Tao

    With over three decades of hands-on experience in software development, Jeff has had the privilege of spearheading numerous ventures and initiatives in the tech realm. His passion for open source, technology, and innovation has been the driving force behind his journey.

    As one of the core developers of TDengine, he is deeply committed to pushing the boundaries of time series data platforms. His mission is crystal clear: to architect a high performance, scalable solution in this space and make it accessible, valuable and affordable for everyone, from individual developers and startups to industry giants.