How far can you stretch an open-source business model until it breaks?

The Big Story

Bend it till it breaks

It's hard to imagine enterprise software over the last decade without open-source software and the companies that brought those ideas to life. It's also getting harder to see how pure open-source software companies will play the same role over the next decade of enterprise software.

Elastic took a bold position on the future of open source. Founded in 2012 around the Elasticsearch open-source project and now worth almost $14 billion, it has been one of the more prominent companies to shift its open-source strategy in the face of what it believes is unfair competition from cloud providers, namely AWS. Last month, the company raised the stakes in its ongoing dispute with AWS by making life harder for anyone not using its commercial software.

• In a little-noticed GitHub thread, Elastic cut off access to programming language libraries for developers building Python apps around the AWS-led OpenSearch fork of its Elasticsearch project.
• It also shut off connections to the libraries for Python and several other languages for developers who are building apps around older versions of the Elasticsearch open-source project but aren't using the current version of Elasticsearch's paid commercial product.
• Those libraries make it possible for developers to build applications in their preferred programming language that can connect to Elasticsearch databases, which are used for internal site search and infrastructure logging, among other things.
• There are workarounds, and AWS said it would build versions of those client libraries for OpenSearch users, but it's the kind of move that needlessly antagonizes developers who might otherwise sympathize with Elastic's quixotic battle against AWS.

Elastic also shut down any discussion of the matter on that GitHub thread over the weekend, although it was a hot topic on Hacker News earlier this week.

• "We're trying to protect our users by preventing unexpected runtime failures when using the Amazon Elasticsearch Service or OpenSearch with these checks," Elastic CEO Shay Banon told Protocol in a statement, noting the company had announced the forthcoming changes in June.

Backing away from the open-source community raises questions (again) about the future of open-source software business models in the cloud era. Does it still make sense to launch (or fund) a company around an open-source project?

• Good open-source software takes off in the enterprise for many reasons, and one is that it's relatively easy to experiment with the code in applications and adjust it to work with specific business needs.
• Adopters, however, generally wind up willing to pay for technical support to help them maintain those applications over time.
• In Elastic's worldview, the ease with which cloud providers can offer paid support services built around popular and permissively licensed open-source projects — without compensating the creators of those projects — will stifle incentives for anyone but deep-pocketed megavendors to build open-source software.
• Others point out that Elastic's own commercial managed service, built around the open-source project, is doing quite well in the marketplace against Big Cloud: Sales of Elastic's subscription SaaS products were up 77% last quarter.

The primary business model right now for companies that grew around open source but are rethinking their approach is the "open core" philosophy. The thinking is that the main code is open and available to anyone, but adopters have to pay to use code that unlocks special features, as well as for support.

• This approach was useful for companies that managed their own servers and software, but one of the main selling points of the cloud is freedom from patching and updating software on a regular basis.
• Cloud customers are interested in using open-source software, but they're less interested in managing the details on their own.
• Managed cloud services make it easier to run open-source software, and they allow both cloud providers and companies like Elastic to enjoy recurring revenue streams.

Decisions like Elastic's send a strong signal to both developers and users that contributions made under different terms only served as a vehicle to make someone else rich. Yet there are no easy answers here.

• Open-source enterprise software ended a world in the early days of the internet when a small number of companies controlled the entire enterprise market at exorbitant prices.
• And there are lots of reasons why open-source software remains attractive to businesses, ranging from their ability to impact the future direction of the project to a genuine desire to help move the industry forward in the tradition of the last 15 years.
• But as we've noted several times over the last year, the value in enterprise software is shifting from the code itself to the ability to operate that code at scale as a service, and nobody does that better than the big cloud providers.

There are still ways to build a business around open-source software that can drive revenue while remaining true to the spirit of the open-source philosophy. Companies that plan to sell professional services or distributions of open-source software that are easier for customers to implement are just one example.

• But all companies must answer to their investors at some point.
• Elastic has clearly decided that it's more important to get people using its paid products than using the open-source project that vaulted it to prominence, and that it is willing to burn goodwill with its community to get revenue.
• And anyone thinking about launching an enterprise software startup right now has some hard decisions to make about the degree to which they embrace open-source software.

— Tom Krazit

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Around the Enterprise

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