Open Source Business Potential: A Look at Odoo’s Open Core Model

Open source software (OSS) has long been a cornerstone of the IT industry. But how can money be made with freely available software? This article by our expert Matthias Stürmer from the Public Sector Transformation Institute sheds light on the business potential of open source and takes a look at the open core model that Odoo successfully uses. We debunk common myths and show how open source is conquering the business world today

Open Source Software (OSS) is known to everyone in the IT industry today. The term has been around for 25 years, because in 1998 the Open Source Initiative (OSI) introduced the “Open Source Definition” of OSS licences, which is still valid today. Nevertheless, there are always misunderstandings: Some people think that only hobby programmers develop OSS or that open source programmes cannot be commercial. The following article addresses such myths and shows how the open source environment has recently gained massive business relevance

Big Business with Open Source

It all started in the 1980s with Richard Stallman‘s “Free Software” movement . His motivation was and is idealistic: software should be freely accessible to all. With the term “Open Source Software” introduced by the OSI, however, there was a paradigm shift: even if, in terms of content, free software is the same as OSS, the focus of the latter is on the open source code and the commercial possibilities. Consequently, OSS today is no longer reserved for intrinsically motivated people, but often clear business interests are now involved

This became clear when Microsoft bought GitHub for $7.5 billion in 2018. GitHub was then (and still is) the largest platform for the development and publication of OSS applications and components. Currently, there are over 90 million active software developers on GitHub, an important target group for Microsoft’s recruiting. Also in 2018, IBM boughtthe OSSmanufacturer Red Hat for an incredible 34 billion dollars – until then the largest software company acquisition worldwide. IBM wanted to secure access to the cloud and middleware market around Java. Also monetarily driven is the venture capital firm OSS Capital, which invests exclusively in early-stage OSS start-ups. For example, OSS Capital has a stake in stability.ai, which is developing Stable Diffusion, one of the leading OSS technologies for generative artificial intelligence (AI). The last financing round in October 2022 increased stability.ai ‘s market valueto around 1 billion dollars, and further cash injections could follow. Even more recent and bigger at the moment is Hugging Face: the French-American company has spent the last three years building a platform that offers hundreds of thousands of OSS AI models and data collections for machine learning. As of the end of August 2023, Google, Amazon, Nvidia, Intel, AMD, IBM, Salesforce and other large companies have invested over$230 million in Hugging Face, so it is now valued at over $4 billion

Open Source Business Models

The commercial potential of OSS is thus obvious. But how can you actually earn money with free software? The business model with OSS is basically relatively simple: since no licence fees can be charged for the software itself (because the programmes including source code are available for free on the internet), the focus is on paid services for OSS. These are, firstly, consulting, installation, configuration, training, specific customisations, etc. Swiss OSS service providers such as Adfinis, Camptocamp or Snowflake offer their know-how for well-known OSS products such as Linux, Odoo or TYPO3. With their competent staff, they can offer professional services of all kinds

Secondly, there are business models around the secure and reliable operation of OSS. Companies likePuzzle ITC offer a “cloud” version of their OSS address management application Hitobito. Thus, customers receive a customised instance of Hitobito on servers from Puzzle as a “software-as-a-service” service. Alternatively, customers canalso install Hitobito on their own servers if they have in-house IT specialists – digital sovereignty is thus guaranteed. Even Puzzle’s competitors can offer competing Hitobito offerings if they collaborate with Puzzle and active customers on further development in thecommunity on GitHub

A third variation of business with OSS concerns enterprise versions and subscriptions. Large companies like Red Hat (IBM) and SUSE, among others, develop the Linux distributions “Red Hat Enterprise Linux” (RHEL) and “SUSE Linux Enterprise Server” (SLES) and offer maintenance and support as well as guarantees and warranties for them. They can do this because they have employed so-called “core developers” of Linux. This internal expertise allows the providers to react reliably when a security update (security patch) is needed quickly because of a discovered gap or when the backporting of an upgrade to an older version is necessary

The German company Nextcloud, which develops an OSS variant of Dropbox, Microsoft OneDrive or Google Drive and offers so-called subscriptions for companies, authorities, schools, etc., works in a similar way. With such number-of-users-dependent software subscriptions, Nextcloud customers can keep their data on their own servers, but the responsibility for updates and further development of the software is transferred to the Nextcloud company. Generally, with this business model, customers pay for long-term further development and stable operation, which is especially important for business-critical systems. Nevertheless, even with this classic subscription model, all features of the software are available to customers as OSS source code

Odoo Open Core Model

A somewhat different business model is pursued by companies that apply the so-called “Open Core” principle. As the name suggests, with “Open Core” only the core of the software is freely available under an OSS licence. The “Community Edition” is provided free of charge and is executable, but offers a limited range of functions. Only with the “Enterprise Edition”, for which a fee is charged, can proprietary features with source code that is kept locked away also be used

A well-known Open Core product is Odoo from the Belgian company of the same name. Odoo is considered the most widely usedOSS solution in the ERP environment. The company was founded in 2005 byFabienPinckaers with the product TinyERP. He later renamed the software OpenERP and finally “Odoo” in 2014. Through the Open Core model, only the core ERP application is available as OSS code on GitHub at Odoo. This core application can be extended to a full-fledged ERP either through the many modules maintained by thecommunity or with the enterprise version maintained by Odoo. While the pure use of community modules allows operation with little dependence on the Odoo company, the enterprise version offers the advantages of a professionally maintained and continuously developed system. Also, the more than 2000 Odoo partner companies worldwide can develop their own extensions (apps) and distribute them as OSS plug-ins or also as proprietary components. Today, in Switzerland, Camptocamp, Abilium and over 30 other Swiss companies offer professional services for Odoo and can boast hundreds ofsuccessful Odoo integrations

Platforms and networking concerning open source software

Besides Odoo, there are many other OSS business applications available today. The OSS Directory provides an overview of the numerous Swiss companies that offer services for specific OSS products and can demonstrate successful success stories. On AlternativeTo, thousands of OSS alternatives to proprietary products are portrayed. And for the continuous exchange of information on OSS trends and technologies, the CH Open association networks leaders and experts in Switzerland. Numerous business events, the freely usable open source video conferencing platform BigBlueButton or the Swiss Open Source Study are some of the activities CH Open is responsible for with its more than 300 members

This article was previously published in Topsoft Magazine.