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How to make your first billion--with free software

Open source offers an exceptional development and distribution model, but as a business model, it may need a little help from proprietary software.

In 2006, RedMonk analyst Stephen O'Grady questioned whether any open-source vendor would crack $1 billion in revenues. This week, fellow RedMonk analyst Michael Cote offered a blueprint for how open-source companies can breach that barrier.

The secret? Proprietary software.

Open source will never go away as a method of production or a business model. In fact, you'd be insane not to use it as a core part of your software business model now-a-days....Indeed, as..."small" (open-source) outfits have shown, you can build a fine business of "pure open source." It's those "highly scalable, highly monetizable business" (that) are a tougher nut to crack, and a little help from closed source can look like a big mallet.

I agree (though for a long time I was on the other side of the issue). While it's true that open source will eventually hit all areas of software, whether niche or mainstream, it's equally true that a too-rigid stance on open source can hurt one's customers and community.

That's why I've argued for a phased approach to open-source licensing, one that allows for different licensing models based on an open-source company's stage of development.

The problem with a 100 percent open-source model is that it's tough to scale, as Cote points out, in part because it doesn't convert enough users into customers. In an effort to maintain open-source virtue and scale at the same time, such a model pushes vendors into awkward positions, vis-a-vis their communities, that a little proprietary software actually erases.

Red Hat is not an exception to this rule, much as I'm a fan of Red Hat's model. If anything, Red Hat is an example of the rule and, I believe, the farther it gets from the complexity of the operating system, the more it will have to alter its model to make the proprietary components more obvious.

In an interview I conducted with Red Hat CTO Brian Stevens, he, too, suggested that he wasn't sure how much mileage the Red Hat model would have in applications, for example.

In sum, the first billion-dollar open-source company will likely attain this milepost with the help of proprietary software. In fact, I'd go so far as to declare it an absolute certainty. This doesn't mean that such a company will operate like Microsoft or IBM, but rather that it will use proprietary components to accelerate buying decisions, not to lock in customers. Yes, there is a difference between the two.

Follow me on Twitter at mjasay.