This post identifies and explores many widely-held misconceptions and contradictions on the topic of COSS — that is, commercial open source companies… COSS as an acronym refers to a specific type of company, not a type of open source (FOSS).
Misconception: “Open core is trying to replace open source!”
False. Open source (a type of technology development model) is distinct from Open core (a type of company development model — another phrase for COSS… given all COSS companies are open core companies).
Misconception: “Isn’t open source the same as freemium?”
No. Freemium is distinct from Open source. Many investors and founders conflate these two things. Such conflation is a gross and material error that makes it highly difficulty to properly understand the fundamentals of each approach. Freemium is properly applied in the context of a proprietary product with a free/non-paid (yet proprietary) version of functionality, from which those unpaid users can be quantitatively converted towards the paid version of a product. With open source, the fundamentals are effectively the opposite — it is impossible to “convert” open source users given they are unknown, unmeasured, invisible and in many cases anonymous/pseudonymous. This reality cannot be changed.
Misconception: “Open source is adopted, not sold.”
Incorrect. One cannot “sell” open source. Therefore, open source projects are not “products”, as many mistakenly think. Applying this thinking will serve to only yield what pressing a square peg in a round hole will yield — friction and frustration.
Misconception: “Open source is a business model.”
Incorrect. It is a technology development model. There is no such thing as an “Open source company”, even though this phrase rolls off the tongue and sounds nice, it is fundamentally impossible. As far as I know, there is no company that publicly shares its bank transactions in real time, all changes to their core product and technology stack and all details of their business model, in the same way that open source projects do for the source code they are applied to. For this reason, we proposed (with increasing use in the industry) a new acronym to refer to a distinct type of software company built around an open source core technology project… COSS — a commercial open source company. Like SaaS in 2000, when the rise of selling software as a subscription service was beginning to pickup steam, the SaaS terminology stack and set of phrases and acronyms served to better understand and lubricate the language used in industry to discuss and better understand this approach. Thus, when a fundamentally new approach emerges, new language and terminology must be invented / proposed to better encapsulate and articulate the most important aspects of the new approach.
Misconception: “Open core / COSS companies can work, but they are all smaller than closed-core proprietary companies given that all they do is commoditize a given market, and have less pricing power, less differentiation, and therefore less market cap.”
Incorrect. This is highly flawed and lazy conclusion-making. COSS companies fundamentally change the market dynamics in a given area (category disruption) and introduce new dynamics in new areas (category creation) — very much in the same way that Uber/Lyft fundamentally changed the market dynamics of the taxi industry and captured + created more monetary value (for drivers and shareholders in their respective cap tables) than the entire taxi industry did before they existed, surpassing any early projection by many fold. The same is true with COSS — it fundamentally changes the development and consumption paradigms of bringing a given technology to a given market. To-date, given that the COSS category is still at a nascent phase of growth ($400B~ in total market cap across 1,000~ public and private companies, where > 90% of this value has materialized over the last decade alone), we have yet to see how these market dynamics can play out over a sufficient time frame.
Contradiction: “COSS companies are both capitalistic and socialistic.”
Why? The crust/frosting/wrapping (IP) around the open source core is capitalistic — paywalled, charged, not free to use. The open source core is the opposite — free for anyone to use, modify, contribute to, commercialize and so on. This property is unique to COSS companies.
Misconception: “COSS companies are bad for the open source community given they all undermine the pure philosophy of the projects they are built on by focusing all energy on capitalism and zero sum behavior.”
This is very far from the truth. The best COSS companies Primarily focus the majority of their energy (time and capital) on growing and contributing to the success of their open source core technology, exclusively in service of that community and its positive impact on the world. Secondarily, they focus on building products and services for customers (a tiny % of the billions of humans in the world — most people do not realize that the vast majority of software companies go public / IPO with < 2,000 paying customers). The worst COSS companies do the opposite, and die quickly.