This sort of company can be divided into several categories:
* Mixed Open Source and proprietary licensing model.
* A core Open Source program with proprietary software accessories.
* Pure Open Source plus services model.
Mixed Open Source and Proprietary Licensing Model
Examples of this sort of company are MySQL AB and Sleepycat Software, which produce databases, and Trolltech, which produces the Qt graphical user interface toolkit. This sort of company vends the same software under two different licenses: an Open Source license and a commercial license.
The Open Source license chosen, often the GPL, includes a "poison pill" meant to make production of proprietary derivative works commercially untenable. Since the GPL requires that all derivative works must be distributed in source-code form under the GPL or a GPL-compatible license, this would remove the business differentiation from any software to which it is applied.
To escape the poison pill and preserve business differentiation, the producer of a proprietary derivative work must purchase a commercial license for the same product. This provides the producer of the Open Source software a direct revenue capture for unit sales of software to creators of proprietary derivative works.
This model works only for software that will be combined into derivative works, such as a software library. It generally isn't usable for applications.
The future viability of this model is in question, because a programmer can make a "server" of a software library and export all of its functionality to another program without creating something that would be considered a derivative work under copyright law or the definitions in Open Source licenses. In Unix parlance, servers are referred to as "daemons", and thus the practice of embedding software in a daemon in order to avoid creating a derivative work is called daemonization. It is possible that a future Open Source license could restrict this practice.
Today, it is possible to make use of the MySQL database server in a proprietary application without a commercial license, by using the MySQL database engine as a server (its usual mode) and making use of a special variant of the MySQL client library that is under appropriate licensing terms for proprietary applications. Of course, MySQL AB doesn't support that client library.
This sort of company generally supplements its commercial licensing revenue with additional revenue from training and software development services.
The main customer of this sort of company is the enterprise user, in the case of MySQL. Trolltech's main customers are embedded device developers and software application developers. The funds used to purchase these products come from cost-centers within IT and software development departments.
A Core Open Source Program With Proprietary Software Accessories
Eric Raymond calls this model Widget Frosting and discusses it in detail. Sendmail Inc. is an example of this sort of participant. Sendmail Inc. has created a constellation of proprietary products around the Open Source sendmail email server. This funds ongoing maintenance of the core Open Source product. Some of the Linux distribution companies also intend to operate using this model, and some of IBM's business is under this model: for example their sales of the proprietary DB2 database on Linux. This sort of company essentially operates as if it were a proprietary software business. The funds used to purchase its products come from IT department cost-centers.
Specialization In One Open Source Program Plus Services Mode
This model was proposed to be an important one in Eric Raymond's paper, but has not performed as well as was expected so far. Many Open Source developers supplement their income by providing services upon the software that they develop, and there are a number of new companies pursuing this model - some with sizable venture funding. Some of these new companies seem to be operating a certification model, servicing a particular version of the software that they certify, perhaps in the manner of the proprietary open source business model at some of the Linux distribution companies.
Some small and medium-sized companies have been able to produce sustainable revenue while developing Open Source software as their major business focus and providing services on that Open Source as their only profit-center. But many have failed, some spectacularly like VA Linux Systems and Linuxcare. Companies that would be support customers seem to prefer to do their Open Source support inside, or through a vendor with whom they already have an existing relationship or whom can service more than one program. There may also have been an early-adopter problem. Early-adopters in general do not want the hand-holding of a service company. Time will tell if this model can perform effectively.
The funds for services provided by this sort of company come from IT department cost-centers.
