You Don’t Have To Be Red Hat To Monetize From Open Source

Open Source is a powerful software development and collaboration model; it’s not a business model. While many projects are backed by a commercial entity, there are projects that are run by developers in their free time. A developer can do only so much in their free time; the longevity and quality of such projects are always at risk. In fact, there are critical projects like the Gnu Privacy Guard that is run by a single developer who struggles to keep the lights on.

It’s not a very reassuring realization for companies running their empires on open source technologies. Large companies can afford to hire maintainers of the projects they rely on to ensure the code-base is well maintained. But a typical stack involves hundreds of open source packages and realistically it’s impossible for any company to hire maintainers for all of those projects.

Realistically, it’s not possible for such companies to deal with hundreds of projects they are using. Maintainers don’t have a mechanism to accept payments from consumers, except for ‘goodwill’ donations. But those donations are not sustainable. Even if companies donate, they don’t receive professional grade contractual assurance from developers that the code will be maintained.

One can contribute to open source in many ways – it could be through code contribution (which also includes things like documentation) or through currency (which means monetary contributions). Many consumers of open source don’t have enough developer resources to give back to the projects they rely on.  At the same time, they can’t just randomly donate to a few projects. On the project side, due to the lack of a model to build a bridge between maintainers and consumers, projects don’t receive direct financial contribution from their consumers.

Sometimes the amount of code used, or the functionality a project offers, is so small that paying a full-time salary is not ideal. Can there be an open-source-like revenue generation model – not donation model –  that ensures some accountability, quality, and sustainability of these projects?

Tidelift has found one.

The company, founded by open source veterans like Donald Fischer has created a model that brings assurance to users and a stream of revenue for maintainers.

“Several of us were part of the team that built the original open source subscription model at Red Hat, and we have been part of many open source successes in the time since, so we deeply understand how open source economics work,” said Donald Fischer, co-founder and CEO. “We see Tidelift as a new business model innovation for open source. One where the benefits go directly to the creators and maintainers of the software. At the same time, this model provides a necessary benefit for professional developers that is largely absent in the market today.”

In less than one year of its existence, Tidelift has reached a major milestone. The company has surpassed the $1 million mark committed to paying open source software maintainers. Some of the top open source packages that benefit from Tidelift include  Vue, Material-UI, Babel, Gulp, Fabric, Active Admin, Doctrine, and StandardJS.

How does it work?

Finding a model to build sustainable revenue generation model for open source projects, without compromising their sovereignty, is very complex. Tidelift has taken the model of Airbnb and applied it to open source software development.

Tidelift has a subscription model for users. Customers using open source code-base in their products and services can sign-up for a Tidelift subscription. Tidelift scans the open source stacksof the customer to all packages and their dependencies.

Maintainers are called ‘lifters’ at Tidelift. The jargon for taking up the maintenance of a project is called ‘lifting’.  Maintainers of open source projects who want to join the program can search for the package to see if it’s eligible and it’s potential income.

“Right now, we have the most subscription revenue share available for packages in the Javascript, Java, Ruby, Python, and PHP ecosystems because that is where we are seeing early customer demand. In fact, many packages in these ecosystems may already have payouts of up to $10,000 available for them on the platform.

By joining Tidelift, maintainers don’t give up control over their project, they don’t become employees of the subscribers. They don’t start taking phone calls. All they have to do is ensure that the project is mature and well maintained for enterprise customers. Lifters also need to ensure that they provide accurate, machine-readable license information. If needed they also need to work with Tidelift to resolve potential licensing issues. They also need to provide information about security vulnerabilities and commit to responsible disclosure practices.

A project becomes eligible to be lifted once it has enough subscribers to justify a monthly share of subscription revenue, which increases with subscribers. If a lifter finds the income worthwhile, they can take up the project and start getting paid.

“When you apply to lift a package, we’ll review together whether we’re weighing it properly. We’d like to know about and adjust for duplicate copies of the code, auto generated code, vendor code, test-only code, and so on. This review may change our income estimate,” explained Fischer.

The maintainers of a package decide who gets paid, it could be a corporate entity or an individual. If a package has multiple co-maintainers, then they need to agree as a group. However, by default, the first lifter for a package configures the bank account for 100% of the package’s earnings, but if needed it could be split it up among lifters.

There’s no cap on how much a package earns. However, if the payment computation arrives at a trivial total for a package, the money is reassigned to other packages. “It’s impractical to pay very low amounts because there’s some administrative overhead for us to pay and for you to lift,” said Fischer.

Tidelift takes each subscriber’s fees for that month and splits them up among the packages they use, also allocating a share to Tidelift.

“We split up each package’s share among that package’s lifters, using a percentage split those lifters have agreed to.

If a lifter lifts more than one package, we combine the shares from those packages. We send each lifter’s share to their account on our payment processing site (Hyperwallet),” explained Fischer.

Tidelift estimates project payouts based on current and future expected demand from subscribers.

“As part of our announcement this week, we offered guaranteed payouts to select packages of up to $10,000. Several projects are earning even more than that. And the beautiful thing is that because these amounts are based on subscription revenues, as we add subscribers for a package, these numbers will grow, with no cap on earnings,” said Fischer.

The rising tide lifts….

Has Tidelift finally cracked the code of finding a sustainable ‘open source’ business model for open source software? It appears so. “Tidelift is essentially building on the success of the same open source business model that has worked for companies like Red Hat (now a $3B revenue and $25B+ market capitalization company, by the way), Cloudera, and MongoDB: providing necessary security, maintenance, and licensing assurances for professional users of open source software,” said Fischer.

What’s even more interesting is that the problem and solution have always been in plain sight. The amount of open source being using in enterprise space is beyond imagination. Which also means there is a huge market to offer support around open source. Yes, there are Red Hat, SUSE, Hortonworks…a few pure-play open source companies that offer a stack of open source software. But there is much more software out there which is not controlled by any corporate entity. In fact, most open source should not be controlled by the single corporate entity.

Tidelift has come very close to bring the perfect open source like business model to an open source development model.  Is it the distributed, open source business model we were looking for? Is it sustainable? Time will tell.

All I can say is, a rising tide lifts all boats!