Why open core will replace proprietary software as the default
Open core companies are outcompeting closed software. For example, open source dominates the infrastructure software industry:
- The linux kernel runs 85% of all smartphones.
- Apache powers some of the world’s most popular websites: Adobe, Dropbox, Shopify, Booking, and Walgreens, to name a few.
- MySQL and PostgresSQL have captured the majority of market share in their category.
While Red Hat was once the exception, open source and open core software companies are eating up funding and market share in the enterprise software market. Closed software companies are feeling the pressure to get involved in open source in some way: Red Hat’s 2022 enterprise open source report found that 82% of IT leaders are more likely to choose a vendor who contributes to the open source community. Better security and the ability to influence the development roadmap were two of the top five reasons listed.
These findings reinforce open core will replace proprietary software as the default. In the future, 80% of venture-funded software companies will be open core. The trust factor and faster innovation are the primary reasons driving the shift. While no single model is perfect, the open core model is a better default because it provides more value to more people than the proprietary model does. It facilitates trust through transparency and gives users more autonomy over their security, data, and use of the software.
Open core trust factors
Today, most software is copyrighted and closed-source, meaning you can’t look at the code. Sometimes you don’t even have the compiled version because it runs in a cloud and is used as a service. There’s no visibility into the codebase, so users can’t inspect how secure it is and can’t make modifications. If the company producing the software closes tomorrow, the user is more or less out of luck. For example, Microsoft ceases support for tons of products each year. The proprietary model requires users to place a high level of trust in a company without knowing what their software does, how secure it is, or its longevity.
On the other end of the spectrum is open source software which can be inspected, modified, and maintained by anyone. Commercial use of open source software has become ubiquitous and continues to grow. In a 2022 state of open source survey done by OpenLogic, 77% of the respondents indicated that they increased their open source software use, and 36% said the increase was significant. Open source is largely driving progress in tech: access to innovation and the latest technologies was the number one reason for using open source software, according to the survey. It’s encouraging to see open source software continue to grow in popularity, and the shift from proprietary to open core as the default supports this trend.
In the middle is open core software: partially open source and completely source-available. It’s a business model that monetizes some features while continuing to improve the open source base. While the entire codebase isn’t modifiable, anyone can inspect it to see how it works. Any open core business worth its salt has a significant portion of its codebase licensed as open source, so someone can pick up the reins if the company were to go under.
Open core is the medium between open source and closed-source proprietary software. It typically has more resources than open source software thanks to monetization strategies and it is more transparent than proprietary, closed-source alternatives. Security, longevity, modifiability, and R&D velocity are the main reasons the trend toward open core continues to rise.
Security
At least 80% of organizations running in the cloud experienced a security incident in 2022. With cyber security risks becoming more and more prevalent, today’s users want to be able to inspect the code. They want to know: what does the software actually do? Are there any flaws in it? They want to be able to make an informed opinion on how secure the code is and see when the codebase was last updated. Similarly, organizations want the option to control their own data by self-hosting the software. They want to run it in their own private cloud and control the data it generates.
Longevity
Then there’s the issue of longevity. What happens when a closed-source proprietary software company goes away? With an open core model, users can continue using, accessing, and even updating the software. A new company can come along and become the new stewards of the codebase. With proprietary software you need a complicated escrow agreement to guarantee that. With open core, it’s almost trivial.
Finally, there’s the risk of vendor lock-in. If an open core company isn’t a great project steward, someone can take the open source core and make a new version. While it’s become trendy for proprietary software vendors to claim they aren’t trying to lock in their users, it’s central to their business model.
Modifiability
With closed source software you’re dependent on the vendor to make improvements. They might never make the changes you need, it might take a long time, and it might be costly. With an open project core you can help yourself. If something is crucial to your business you can make changes in hours and days. Sometimes you might decide to share the improvement with the rest of the world, leading to the next advantage, R&D velocity.
R&D velocity
Unlike traditional proprietary software companies, maintaining an open source project is vital to the open core business model. While some proprietary software companies may contribute to open source, it’s not central to their business model. Open core companies maintain a robust open source core while building proprietary features on top and even the proprietary code is source available. The model is set up to benefit from the speed of open source innovation.
When all of the code is available, and the majority is open source and easily modifiable, improvements happen faster. Anyone can inspect the code and submit bug fixes, improvements, or new features. With a solely proprietary, closed-source model, only those working for the company can see and work on the code. This means if a user submits an issue, only a handful of people can work on it. And if the request isn’t a business priority, it may never be addressed. For paper-cut issues, the people impacted are usually the most motivated to contribute a solution—why wouldn’t you want them to be able to do so?
With the open core model, there are four types of contributors: community, customer, user (non-paying), and even competitors. Anyone in the world can work on the code. The company can seed issues for the community to work on, and contributors can submit ideas. It’s the network effect at its best.
The trust factor and R&D velocity are the two reasons why open core will replace closed-source proprietary models. In the future, people won’t trust closed-source software companies when there are open core alternatives. Furthermore, the velocity of open source will continue to beat closed-source companies in bringing new and better innovations to the market, faster.