Open Source Business Models: "Dual Licensing" and "Quid Pro Quo" Explained

For anyone wondering, how the “Dual Licensing” business model of MySQL works, they have briefly explained it in a news posting:

As second-generation open source vendors, MySQL AB, Sleepycat Software and Trolltech AS make the majority of their revenue from selling software licenses. This license-based business model offers higher margins than services-based businesses. Historically, most open source companies have tried to make money by selling services and support.

The guiding principle behind dual licensing is “quid pro quo,” or a fair exchange. Under this model, vendors offer their products under both an open source license and a commercial license. This allows open source projects to use the software at no cost, which contributes to widespread use and testing of the software and the fast growth of a large installed user base. Companies redistributing the software as part of commercial products can also get the benefits of the open source software by purchasing a commercial license, which releases them from requirements to publish their source code. Commercially-licensed customers generate revenue for the open source vendors, which contributes to the rapid development of high-quality software.

I thought about the term “fair exchange” and came to the conclusion that the Dual Licensing business model is based on three crucial factors: knowledge, time, money.

This means: If you’re a FOSS software developer, you might have a basic understanding of which licenses are compatible and which are not. If you’re a software developer in a company that has never dealt with FOSS licensing issues but would like to use MySQL for example, you could either consult one or more lawyers that analyse the situation for you. The other option would be to pay the costs for a commercial MySQL license, which are marginal compared to what the lawyers would charge.

Seen from that perspective, the Dual Licensing model is fair in terms of how much the software user knows about the topic: If you do not have money, but time to investigate and inform yourself about FOSS licensing and you produce FOSS software yourself, you can do your work without any financial burdon. On the other hand, if you have money and you’re short on time analysing the whole issue, simply pay the fee for a commercial license.

The revenue of companies like MySQL is based on the three crucial factors “knowledge”, “time”, “money”. Dual Licensing shows that software companies who in fact produce true knowledge goods, can make money based on these factors and behave fair as well as profitable in a knowledge economy. It is also important to understand that there are two kinds of revenue they make: financial revenue from commercial licenses and revenue in terms of knowledge and lower development costs. The later is what MySQL gets back from a FOSS community that might not buy commercial licenses, but do testing, bug fixing, APIs, etc.

In a knowledge economy, “knowledge” is a good that gains value the more you have of it – other then the industrial economy, where goods usually loose value if the market is saturated. The Dual Licensing business model somehow plays industrial if you want to combine FOSS software with non-FOSS software, i.e. if you do not adhere to the standards of a community of open knowledge transfer. Then you will have to pay for the software aka knowledge good, just as if it were a car. On the other hand, if you are part of the open knowledge transfer aka a free community (“free” as in “freedom of speach”), you can use for example a GPLed software for free (“free” like in “free lunch”).

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