Open core software promises the best of two worlds for enterprise IT, but a business model based on a free code base doesn't guarantee longevity among open core vendors.
Enterprises' preference for open core software vendors is almost as pronounced as the increasingly mainstream preference for open source. Some 61% of 261 respondents to a 2017 Enterprise Strategy Group (ESG) survey on cloud systems management buying preferences said they preferred open source software to commercial proprietary products, but only 17% of respondents wanted pure upstream code. A larger proportion of respondents (21%) preferred commercial software that included open source features or commercial open source products (18%).
"Enterprises need products, and open source is not a product," said Tom Petrocelli, analyst at Amalgam Insights in Arlington, Mass. "Community support isn't going to be any good at 2 a.m. when your system is down and your customers in China are really, really mad."
Many of the major IT vendors of late are open core vendors that step in to provide support and curation for open source code. Of these, Red Hat is the most well-known. The company, which was acquired by IBM for $34 billion in 2018, first offered commercial support for the Linux operating system. And in the last decade, it added support for open source infrastructure as code, software-defined storage and container orchestration tools. Other major platform vendors, such as Docker and Mesosphere, have followed suit, as have open source application specialists, such as Elastic, Redis and MongoDB.
Pros and cons of open core software vendors
While enterprises prefer vendor support to community support, the open core business model presents problems for vendor longevity. Red Hat held its own against proprietary operating system vendors such as Microsoft, but it never grew to similar size and has now joined the ranks of open source standard-bearers swallowed by historically proprietary firms. Similarly, Oracle acquired Sun Microsystems in 2010, and Microsoft bought GitHub last year.
Legacy IT vendors, led by Microsoft and IBM, have embraced open source and the open core model much more enthusiastically in the last five years. However, there are signs that emerging open core vendors are concerned about their bottom line and that enterprise IT buyers question the longevity of open core platform businesses, such as Docker.
Open core software vendors MongoDB and Redis are in the midst of a fight with AWS about the rights to open source code and have put forth a new software license model that requires service providers such as Amazon to contribute either code or funds back to the open source community when they create services based on open source projects.
The Red Hat version of the open core business model is all but dead, said Edwin Yuen, an analyst at ESG at the time of his interview with us in January 2019, who has since taken a product marketing job at AWS.
"On every call with enterprise open source vendors, I ask what their plan is to differentiate with their business model," Yuen said. "Almost no open core companies said their business model was based on support. They're either enhancing open source software with additional features or offering a closed-source version."
Even with fresh business model approaches, a business based on a core of freely available code carries some fundamental Catch-22s, Yuen said. Companies can take open source code and not contribute back to the community, a practice known as leeching, which is the accusation against AWS. Leeching may destroy the goodwill of the open source community and lead to forked code in the open core product or service, which doesn't help long-term stability for enterprise users, Yuen said.
However, businesses can go too far in the other direction, where internal developers spend significant time on code that is contributed to the community -- and resources are focused on things other than the company's core value proposition and bottom line, Yuen said.
Among enterprise users, the balance-sheet struggles of open core vendors seem like inside baseball gossip. The open core model may present challenges, but it's more viable than the proprietary route.
"Even if Amazon eats somebody's lunch, like Redis, Mongo or Elastic, those companies have still done pretty well," said Nir Valtman, chief information security officer at fintech startup Kabbage Inc. in Atlanta. "Would they have done well if they weren't open source? That's what brought them where they are, even if AWS is bigger."
Enterprise open source recipe calls for healthy mixture
I hope open core vendors like HashiCorp stay in business a long time. But, if something happens, the code lives on.
Nir Valtmanchief information security officer, Kabbage
In the end, even if an open core software vendor fails, it's a better alternative to what users used to go through when proprietary software vendors went out of business, Valtman said.
"I hope open core vendors like HashiCorp stay in business a long time. But, if something happens, the code lives on," he said.
It can be difficult to predict whether community support will remain for a code base without a commercial champion, but it's easier to figure out how to port to something more viable with visibility into the code that's already in use.
"Closed-source vendors say their code will be kept in escrow in the event they go out of business, but then what?" said Kevin Fleming, who works with various teams across Bloomberg to help produce and support the organization's open software. "We get a huge dump of code and don't know what to do with it. That's not really insurance; that's just checking a box."
Even the license flap between open core vendors and AWS has the potential to work out in favor of enterprise users, Petrocelli said.
"Companies that thumb their noses at the social contract of open source may succeed in the short term, but I'm not so sure they'll succeed in the long term," Petrocelli said. "The romantic notion from the '80s and '90s of someone building something unique in their garage and gathering up friends to keep it going is gone, but there's value in open source ideals of giving as much as you get, even if it's a corporate affair."
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