Making money with open source

I had a conversation with a new media student, and was surprised to hear that the curriculum of the Medialab of the University of Art and Design of Helsinki does not include anything about business and open source.
So here’s the 101 of open source business models:
Provide something that has a demand: This applies to business in general, in all fields. Do something that has enough value for others, and make them aware of what you’re offering.
Bits are free: Charging for digital data doesn’t work, since most people consider bits to be free (as in beer). This means that you can’t make your business model about selling software packages, or selling digital content (like music, images, or whatever). Many companies of course try, and do so with mixed success. It is, however, a battle they’re losing, since more and more software and content is becoming free (as in beer and as in speech), so as customers find their needs satisfied with freer alternatives, they stop coming to you. Of course, it’s a very lucrative thought to just develop software once and then keep on selling it – free money, you may think. And yes, it is. This is what Microsoft is doing with its software. But now that the free alternatives are becoming good enough (a disruptive innovation), Microsoft’s business model is in trouble.
Nobody owns the software: Since the software is open source, no-one owns it. Well, of course someone has copyright on it (or parts of it), but being free/libre open source software, you (or anyone) has the right to make any changes to it (with the possible exception of the license and list of authors) and publish and distribute the changed version. This has some wide-ranging consequences, which give new possibilities for businesses.
Marketing by word-of-mouth: In addition or instead of traditional marketing ways, providers of valuable contributions around an open source product gain fame. This is why Linus Torvalds gets paid (quite well, I imagine) just for hacking the Linux kernel, even though much of what Linus does doesn’t directly benefit Linus’s employer. This is why open source gurus don’t need other jobs in addition to hacking the code and travelling around the world in conferences (and, again, getting paid quite nicely). The catch here is that they have shown that they know what they’re doing – by providing open and free stuff, that anyone can see. If they provided closed, commercial stuff, no-one would bother paying just to see whether the content is any good. But free content gets you a huge audience, and if you do a good job, everyone will see it. And suddenly the door is open to all those “expert” possibilities, like conference keynote speaking and consulting.
Services are always needed: While software may be free, people still need services around them. The traditional services are things like installation services, tech support, and maintenance. But open source (since you also have the source, and the license to change it) provides other possibilities as well:

• Localization: Some customer may be ready to pay for you to provide a translation of the software’s user interface and/or the manual into their language. Of course, after the localization is complete, it will be available for anyone else for free. But whoever wants it the most needs to do it themselves, or pay for someone else to do it. That someone else could be you.
• Documentation: Most open source projects don’t have very good documentation, but the customers need good documentation. Someone could make a business out of providing it. Of course, you don’t need to license your manual (if you’ve done it from scratch) as open, so you get to charge everyone who wants to use it. Or you could operate in the spirit of open content and license it under a Creative Commons license, meaning you get paid only once. There are other, fairer ways, of getting extra revenue for a good manual: you can print it as a book and sell that – it’s surprising how many people actually want a printed book in addition to a free online version. But maybe the best reason of putting all “finished bits” available for free is this: as a known producer of high quality content (software patches, documentation, whatever), you gain fame. And fame gets you places.
• Training: Even printed manuals aren’t enough – most companies want training for their staff in using a new system. You need some fame to be considered a valid trainer (read: provide quality content that build up your fame as an expert on the system in question). Training is a good business, since even if the training material is freely available, the trainer is always needed.
• Software development / consulting: If the customer need to integrate their new open system with other systems, or make major customizations to it, they need a consultant to their development team, or an entire software development team, to do the required modifications. This works brings very good revenue, but you need lots of fame to be considered a worthy partner.

Summary: It’s about the services, not the bits. Provide services around the software that the customers need. Take advantage of the freedoms that open source grants you: you’re not limited to just providing services around the software, but you can modify, localise, customize, and improve the software to fit your customers’ needs. Build up fame by putting everything you do openly available, and do only high-quality stuff. Leverage that fame as a free marketing tool to get even more opportunities to use your expertise in your business.
Finally, a nice example: www.openoffice.fi. It’s a Finnish company that was built around providing services around OpenOffice.org (OpenOffice in Finnish). They have a good domain so customers can find them. They provide manuals, FAQs, and a help desk. All manuals, templates, patches, and instructions that they’ve produced are openly available for anyone (which gives the company a lot of good karma in the eyes of all Finnish people who want to use OpenOffice in their homes), but commercial support with e-mail and phone help desks is also available, and that’s what’s producing the revenue. Many people are familiar with the company’s templates and manuals, including CEOs (and families of CEOs) of companies that are considering switching MS Office to OpenOffice.org. So when the switch becomes imminent, there’s a high probability that the company will at least consider OpenOffice.fi as a partner. Fame gives you business opportunities.