OS Business Models
Sep 29, 2023

Notes from Open Source does not win by being cheaper by Anh-Tho Chuong.

  • profit is important even for open source projects to grow: it enabled hiring, running services and sustaining product development.
  • don’t cater to the people looking for the cheapest option. They typically will just run your free/self hosted version.
  • big companies don’t have an issue with SaaS as another line item, but you will have to earn a right to their budget and as long as you aren’t a top 3 line item, contract negotiation is not going to be a huge challenge.
  • Wins can comes form focusing on transparency, extensibility or product market quality gaps.
    • transparency: for sensitive data, open source gives trust through audit and it’s open nature.
    • extensibility: open up your system to other orgs to build out specific niche needs while focusing on the core platform.
    • quality: be better than the current solutions, but consider making this a closed moat business, if there’s truly a gap.

Notes: Open Source does not win by being cheaper

Original post here: Open Source does not win by being cheaper.

Open Source does not win by being cheaper. … Excluding non-profit projects that are sponsored by donations or parent organizations, a typical open-source business needs profit to be the ultimate north star. … Profit is what allows the company to hire employees, grow, and sustain itself—it is quite literally what funds ongoing development.

Catering to the price-conscious is a losing battle.

larger companies aren’t worried about going out of business because _______ is too expensive. They might be price-conscious in terms of negotiating a contract in context of their budget, but most SaaS software is just a line item at the end of the day. What matters more is that the solution is (a) a good solution, (b) around for the long haul, and (c) easy to manage. And, unfortunately, deploying an open-source solution can be tricky to manage.

The caveat is if the solution is a massive cost on the overall budget, then a corporation may seek out a more price-friendly solution; there are plenty of companies that needed to kick Oracle when their database costs skyrocketed due to usage. But most open-source solutions aren’t replacing a top-three line item, and therefore price isn’t the north star deciding factor.

Open Source Problems to Solve


A great case for an open-source solution is when a transparency problem is present. What is a transparency problem? It’s when a solution being closed source creates distrust between the client and vendor.

Even if the most privacy-conscious technique is to self-host the open-source solution (which often leads to no revenue for the developer), many companies will still opt for a hosted model. But they do so now with assurances of how the software works—line by line—and the process of migrating to a self-hosted model in the future if necessary. It’s not that open-source companies win by preventing the need for a third party; they win by allowing for the open audit of how it works.


One of the big benefits of open source is that it opens the development of niche features to the community. While the core product is typically maintained by a central engineering team, integrations or plugins are often built by community developers and then occasionally merged into the main branch. Conversely, closed-source solutions struggle with this because they rely on their engineering team.

Be Better

Open-source projects—not just commercial open source—have served as a critical driver for the improvement of products for decades. However, some software is going to remain closed source. It’s just the nature of first-mover advantage. But when transparency and extensibility are an issue, an open-source successor becomes a real threat.

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