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The Business of Open Source

Open source has evolved from a philosophical movement into a go-to-market strategy. The largest software acquisition in history was an open source company. Venture capitalists have poured billions into open source startups. And some of the most controversial debates in the industry center on companies changing open source licenses to protect their revenue. Understanding the business of open source means understanding how value is created, captured, and sometimes fought over.

Companies Built on Open Source

Red Hat

Red Hat is the most successful open source business story. Founded in 1993, Red Hat built its business on Red Hat Enterprise Linux (RHEL), a commercially supported distribution of Linux. Red Hat never owned Linux. It packaged it, tested it, certified it, supported it, and sold subscriptions.

Red Hat business model:
- Linux is free
- Red Hat Enterprise Linux is a tested, certified, supported version
- Companies pay for the subscription, not the software
- Subscription includes security patches, support, and certification
- Revenue in 2018: $3.4 billion
- Acquired by IBM in 2019 for $34 billion

The $34 billion acquisition proved that open source businesses could generate massive returns. Red Hat demonstrated that support, certification, and enterprise trust could be worth more than the software itself.

Elastic

Elastic created Elasticsearch, an open source search and analytics engine. The company went public in 2018 and grew rapidly. But Elastic's story also illustrates the tension between open source and business.

AWS launched Amazon OpenSearch Service (originally Amazon Elasticsearch Service), a managed version of Elasticsearch. Elastic argued that AWS was profiting from their work without contributing back. In 2021, Elastic changed the Elasticsearch license from Apache 2.0 to the Server Side Public License (SSPL) and the Elastic License, both of which restrict cloud providers from offering the software as a service.

The community reaction was split. Some supported Elastic's right to protect its business. Others viewed the license change as a betrayal of the open source promise. AWS forked the last Apache-licensed version as OpenSearch.

HashiCorp

HashiCorp built Terraform, Vault, Consul, and Nomad as open source infrastructure tools. These tools became industry standards. In 2023, HashiCorp changed the license for all its products from the Mozilla Public License (MPL) to the Business Source License (BSL), a source-available license that restricts competitive use.

HashiCorp timeline:
2012: Founded, all products open source under MPL
2021: IPO, valued at $15 billion
2023: License change to BSL
2023: OpenTofu fork created by community
2024: Acquired by IBM for $6.4 billion

The community responded by forking Terraform as OpenTofu under the Linux Foundation. The fork demonstrated that while companies can change licenses, they cannot take back code already released under an open source license.

Confluent

Confluent was founded by the creators of Apache Kafka. The company built a commercial platform around Kafka with additional tools for stream processing, connectors, and management. Confluent went public in 2021.

Confluent changed some of its components from Apache 2.0 to the Confluent Community License, which restricts offering them as a competing SaaS. The pattern is the same: build adoption with open source, then restrict competition to protect revenue.

VC-Funded Open Source

Venture capital has transformed open source from a volunteer effort into a funded business category. The playbook is well-established:

The Playbook

Stage 1 - Build (Seed / Series A):
  Create open source project
  Build community
  Optimize for adoption, not revenue
  Hire maintainers
  Metrics: stars, downloads, contributors

Stage 2 - Adopt (Series B):
  Thousands of companies using the project
  Identify enterprise needs through community feedback
  Build paid features or hosted service
  Hire sales team
  Metrics: active users, enterprise deployments

Stage 3 - Land (Series C):
  Convert enterprises to paid customers
  Land with a team or department
  Prove ROI within the organization
  Metrics: paying customers, average deal size

Stage 4 - Expand (Series D+):
  Expand within existing customers
  Multiple teams, departments, business units
  Platform play: add more products
  Metrics: net revenue retention, expansion revenue

This playbook has been executed by GitLab, HashiCorp, Confluent, Elastic, MongoDB, Databricks, and dozens of others. The pattern works because open source eliminates the biggest problem in enterprise software sales: getting developers to try the product.

The VC Tension

VC funding creates a specific tension with open source values. VCs invest expecting 10x or 100x returns. This pressure pushes companies toward:

  • Restricting the open source version to drive paid conversions
  • Changing licenses to prevent competition
  • Prioritizing enterprise features over community needs
  • Eventually considering an IPO or acquisition

Some community members view VC-funded open source with skepticism. The concern is that the company will eventually betray the open source community to satisfy investor expectations. The license changes by Elastic, HashiCorp, and Redis lend credibility to this concern.

License Changes

License changes from open source to source-available have become the most controversial topic in the open source business world.

The Pattern

The license change pattern:
1. Company releases software under a permissive open source license
2. Software becomes widely adopted
3. Cloud provider offers the software as a managed service
4. Company feels threatened by cloud provider competition
5. Company changes to a restrictive license
6. Community forks the last open source version
7. Debate about who was right

Notable License Changes

MongoDB (2018): Changed from AGPL to SSPL. The SSPL requires anyone offering MongoDB as a service to open source their entire stack, which no cloud provider would do. This was explicitly designed to prevent AWS from offering managed MongoDB.

Elastic (2021): Changed from Apache 2.0 to SSPL and Elastic License. AWS forked as OpenSearch.

Redis (2024): Changed from BSD to the Redis Source Available License (RSALv2) and Server Side Public License (SSPLv1). The community forked as Valkey under the Linux Foundation.

HashiCorp (2023): Changed from MPL to BSL. The community forked Terraform as OpenTofu.

The Arguments

For license changes:
- Cloud providers extract value without contributing
- Maintainers deserve to capture value from their work
- Without revenue, the project cannot be sustained
- The alternative is the project dying

Against license changes:
- Companies benefited from open source adoption
- Contributors donated time under the original license
- Bait-and-switch undermines trust
- OSI does not recognize SSPL/BSL as open source
- Forks prove the community can sustain the project

Both sides have legitimate points. The debate reflects an unresolved tension in the open source ecosystem between the ideals of free software and the economics of software businesses.

The Future

Open source is evolving from a philosophy into a business strategy. Several trends are shaping the future:

Open Source as Go-to-Market

More companies are starting with open source not because they believe in the philosophy, but because it is the most effective way to get developers to adopt their product. Open source eliminates the "try before you buy" problem, builds trust through transparency, and creates a community that provides feedback, bug reports, and contributions.

Traditional software GTM:
  Marketing -> Demo -> Trial -> Purchase -> Use

Open source GTM:
  Developer finds project -> Uses it -> Loves it ->
  Company adopts it -> Enterprise features needed -> Purchase

The open source GTM is more efficient because the product sells itself through developer adoption.

The Source-Available Middle Ground

Some companies are adopting source-available licenses from the start, avoiding the backlash of changing licenses later. Source-available means the code is visible and modifiable, but does not meet the Open Source Initiative's definition of open source.

Examples include MariaDB's Business Source License (BSL) and the Functional Source License (FSL), which converts to open source after a set period. These licenses try to balance transparency with business protection.

Fair Source

The Fair Source movement, emerging in 2024, attempts to formalize this middle ground. Fair Source software makes its code publicly available, allows modification for internal use, and restricts competitive commercial use. It explicitly does not claim to be open source.

Corporate Open Source Programs

Large companies are institutionalizing their open source strategies. Google, Microsoft, Meta, and others have Open Source Program Offices (OSPOs) that manage contributions, compliance, and community engagement. This professionalization is making open source more sustainable by channeling corporate resources into the ecosystem.

Open Source Foundations as Business Infrastructure

Foundations like the Linux Foundation, Apache Software Foundation, and Cloud Native Computing Foundation (CNCF) play an increasingly important role in the business of open source. They provide vendor-neutral governance, legal protection, and marketing infrastructure for open source projects.

Foundation services:
- Trademark management for project names and logos
- Legal entity for accepting donations and sponsorships
- Neutral governance that no single company controls
- Marketing and events (KubeCon, ApacheCon)
- Technical infrastructure (CI/CD, hosting)
- Certification programs

For companies, donating a project to a foundation signals that the project is not a trap. Users adopt more confidently when they know a single company cannot change the license or abandon the project. For the donating company, foundation governance means shared maintenance cost and broader adoption.

The Acquisitions

Open source companies are attractive acquisition targets. Beyond Red Hat's $34 billion deal with IBM, notable acquisitions include:

Notable open source acquisitions:
- GitHub by Microsoft (2018): $7.5 billion
- Mulesoft by Salesforce (2018): $6.5 billion
- HashiCorp by IBM (2024): $6.4 billion
- Magento by Adobe (2018): $1.68 billion
- Nginx by F5 Networks (2019): $670 million

These acquisitions validate the open source business model. They also raise questions about what happens to open source projects after acquisition. Some thrive (GitHub under Microsoft). Others stagnate or change direction (MySQL under Oracle).

Common Pitfalls

  • Building a business before building a community. The business model only works if the open source project has significant adoption first. Premature monetization kills growth.
  • Assuming VC funding solves sustainability. VC funding creates growth pressure that can conflict with community health. The funding is a tool, not a solution.
  • Changing licenses without transparency. Companies that change licenses without engaging the community face backlash and forks. The community will remember.
  • Ignoring the fork risk. Any open source code released under a permissive license can be forked. License changes do not take back what was already given. Plan accordingly.
  • Confusing open source with source-available. The Open Source Initiative has specific criteria. Calling source-available software "open source" damages credibility.
  • Underestimating cloud providers. AWS, Google Cloud, and Azure have more infrastructure, more customers, and more resources than any open source company. If your product is hostable, they will host it.

Key Takeaways

  • The largest open source acquisition in history was Red Hat at $34 billion, proving that open source businesses can generate massive value.
  • The VC-funded open source playbook (adopt, land, expand) has been executed successfully by dozens of companies, but creates tension between investor expectations and community values.
  • License changes from open source to source-available (Elastic, HashiCorp, Redis, MongoDB) are the most controversial trend in the ecosystem, reflecting an unresolved tension between open ideals and business economics.
  • Cloud providers offering managed versions of open source projects are the primary threat that drives license changes.
  • Open source is increasingly used as a go-to-market strategy rather than a philosophical stance, changing the incentives and dynamics of the ecosystem.
  • The future likely involves more source-available licenses from the start, formalized through movements like Fair Source, rather than open source followed by controversial license changes.