Open core is a hybrid software development and licensing model that includes open source and proprietary software. It typically consists of an open source core with proprietary features and functionality built around it. The open core model provides a path for commercializing open source projects. All of the code is source-available, allowing everyone to contribute to the whole, but you must pay to use certain parts of the software. An open core company must have proprietary intellectual property to monetize.
Open core requirements
Open core leverages an existing open source project and builds a commercial version with proprietary features around it. Think of the open source core as a distribution and R&D strategy, and the commercial, proprietary features as a monetization arm. Software companies that meet the following three criteria are considered open core.
- Build on open source. The open source version is actively developed alongside a commercial product.
- Add proprietary IP. Open core companies must have proprietary IP to monetize.
- Make all code source-available. Users can contribute to and modify the proprietary code in addition to the open source code, but must pay a licensing fee or subscription to use it.
Open core is not a support and services model. Support and services-based COSS companies (Red Hat) only produce open source code but charge subscriptions for support, training, and implementation services. OCV does not start support and services-based COSS companies.
Advantages of open core
Commercial open source software (COSS) companies outperform closed-source software companies. Companies built around open source software raise more money, faster, and at higher valuations than solely proprietary software companies. Open core companies benefit from:
- Early signals of PMF. Open core companies come with a pre-packaged community, making it easier to find early customers and hire passionate employees. Product adoption is faster because people can use it for free, and the free version works.
- Faster R&D. Building with open source has the benefit of a direct line of communication with the community. The community accelerates improvements through feedback, feature requests, and code.
- Greater user trust. As OSS proliferates the market, users expect to be able to inspect, modify, and contribute to the software they use, disadvantaging closed-source software companies. Proprietary code in an open core product is source-available.
Open core concerns
Some people believe the open core model exploits open source. We believe open core is a way to sustain open source by allowing passionate creators to monetize their efforts. Open source users benefit when a company backs an open source project via an open core business model because dedicated resources are allocated toward supporting the open source version. Contributors can get paid to work on the project.
OCV’s perspective on common open core concerns
- Self-competition. A common concern is that open core companies are competing against themselves. In our experience, the opposite happens: Developing an open source version of the product accelerates adoption and acts as an on-ramp to the paid version.
- Pirating. There is a risk of increased piracy when making proprietary code source-available. The risk is generally low and outweighed by the community contributions and customer trust you will receive in exchange for providing access to the code. Those willing to pirate software are unlikely to pay for software regardless. Most companies do not pirate software.
- Hyperscalers service-wrapping. Open core companies do face the risk of service-wrapping from the hyper clouds. Freedom to create and compete is part of the open source ethos. An open core company indeed opens itself to more competitive risk than a closed-source product. The benefit of building with open source is innovation speed and the tradeoff is allowing direct competition. In the end, the users determine which product is best. The best way to manage this risk includes developing application software and adopting a buyer-based pricing model.
Infrastructure software (MongoDB, Confluent, Redis) | Application Software (Wordpress, GitLab) | Fork & Commoditize Resistance |
Application Programming Interface (API) | Graphical User Interface (GUI) | GUI is more complex to replicate than API |
Single-tenancy | Multi-tenancy | Hyper clouds are better at running single-tenant software |
Needs lots of compute power | Needs little compute power | Hyper clouds are in the business of selling compute and storage. Applicaiton software tends to drive less compute. |
Open core is a sustainability model for open source
Open source software underpins modern software, but the industry’s lack of monetary support for creators and contributors has created a sustainability problem. As a project grows in popularity, many maintainers find they can’t support the “weight” of support, feature, security, and other requests. As projects become more popular, a cycle of growth emerges:
- OSS creators/maintainers make something awesome
- Early adopters arrive and contribute, work with minimal documentation, and help the project out
- Late adopters come on the scene but are less likely to contribute, expect better docs, are more likely to ask questions
- Mainstream adopters show up and expect backward compatibility, consistent performance, security, and requested features to be present
For successful projects, the software lifecycle represents an increasing level of time and effort. Almost all successful projects will feel this pain. How they react is the difference between happy maintainers and burnout, and the line between sustainable and unsustainable software. At OCV, we think open core will be the most common way to make open source projects sustainable.
Origins of open core
Andrew Lampitt coined the term in 2008 after he noticed there was confusion in the industry around dual licensing strategies, and as a result, they were getting a bad rap due to what was perceived as bait-and-switch tactics. The problem, he argued, was that dual licensing doesn’t accurately describe the approach as an emerging business model. Open core does not claim to be open source—it is a business model that builds alongside an open source project.