Published on
March 4, 2026
How Open Source Companies Actually Make Money
In this guide, we break down OSS business models, monetization strategy, and draw a roadmap for turning open source adoption into revenue.
Isha Srivastava
Marketing @Reo.Dev
In this guide, we break down OSS business models, monetization strategy, and draw a roadmap for turning open source adoption into revenue.
Monetizing open source software is one of the hardest challenges for developer-first companies. Open source distribution drives adoption, community goodwill, and developer trust, but GitHub stars don’t automatically translate into revenue.
So how do open source companies actually make money without alienating their community or triggering backlash around licensing changes?
In this guide, we break down the most common OSS business models, monetization strategy, and draw a roadmap for turning open source adoption into sustainable revenue. Whether you're considering open core, SaaS hosting, dual licensing, services, or sponsorships, this article will help you choose the right path based on your product, buyer, and governance structure.
Open-sourcing your developer tool does make it easier for you to gain market share and gain goodwill within the community, but it does bring with it the risk of copycats.
If you do decide to monetize your open source project down the line, you might run into a situation where a much larger competitor simply forks your repository and starts their own project, putting you at a disadvantage. Bryan Cantrill called it the “open-source software midlife crisis”. Monetization attempts via relicensing have historically not gone down well with the developer community either, as is evident with the reaction to MongoDB, Elastic and CockroachDB. Even if you do have a paid, hosted option separate to your free, open-source product, a subset of your audience will believe that you are making the open-source version worse intentionally.
Open-source projects offer the code for free, and some people expect the support to be free as well. Maintainers might end up burning out while trying to deal with the flood of support requests without the necessary resources at hand, putting the project’s sustainability at serious danger.
So, you do need to monetize your product in some capacity if you’d like to continue serving the community. And as a bonus, you can also invest additional resources to keep improving your product, instead of relying on personal funds to keep going.
But, can you actually monetize open source software without alienating your audience or running the risk of IP theft?
Turns out you can. There’s 7 OSS business models you can keep in mind when trying to monetize your product.
There are no one-size-fits-all open source monetization model sadly. So, to understand which of the 7 strategies is the right fit for you, you need to keep the following factors in mind:
For developer tools, your user and buyer might not be the same person. Your monetization model needs to be picked by keeping your buyer in mind. So, if developers are your buyers, SaaS subscriptions are the way to go. If the buyer of your software are larger enterprises, it makes sense to go with enterprise contracts. If the enterprises also need hand-holding, you can layer on a support/services model.
Take a look at how your customers are using your product. Evaluate their compute needs, hosting and customer infrastructure access requirements, and operational burden for say clustering or observability. So, for instance, if your product is a modular, pluggable architecture, monetizing through marketplace add-ons would be ideal. Similarly, tools with deep kernel or infrastructure dependencies would require enterprise or service models to support them.
Your team size will actually determine if you can deliver on your promises. For an enterprise open-core monetization model, you would need a team of sales engineers, account executives, and customer success reps to close the deals. If you have a very small team with no SRE skills, SaaS might not be a great fit to begin with. You could try opting for donations/sponsorships instead, and as you expand, transition to a different model.
It is crucial to understand what you are going up against. This will give you a fair idea of what you need to do to position yourself in the market that differentiates you from the competition while providing the table stakes features. So, if your competitors are resorting to a SaaS model, a hosted, integrated cloud offering might be expected when you go looking for customers. If the category is pretty niche or emerging, using a services-led model to take your customers to their “aha” moment with your product could monetize your early adopters effectively.
Developers care a lot about the openness of an open-source product/project, which means your licensing philosophy would limit the monetization models you can actually use. There’s 4 open source license types you need to be familiar with:
Some products have the capability to grow ecosystems, while others might be monolithic. So, if you have significant ecosystem traction, marketplace-based models are the way to go.
To understand your customer’s willingness to pay, you need to ask yourself a couple of questions:
Your governance structure will restrict what monetization models are allowed and acceptable. So, let’s say your open-source software is governed by a foundation like CNCF or Apache. The monetization models most suited for you would be sponsorships, services, or through marketplaces cause foundation-governed OSS rarely support open-core or proprietary enterprise features. If the project is controlled by a single vendor, you have the flexibility to pick the model of your choice. On the other hand, if external contributors are major stakeholders in your software, you might have to rely on market-based ecosystems or donations.
The most common pattern for successful OSS companies is to combine an open-core model with hosting and services/marketplace as secondary and tertiary revenue streams. But, that doesn’t necessarily mean that your product should opt for the same structure. Pick one that fits your use case right now, and as you keep growing, see what other models you can stack on top of your initial model to continue growing. To get started, you can use the following table as a reference:
Before you monetize your project, you need a community that cares about your product and a painful problem that your product solves.
Also called the project-community fit, key indicators that your OSS project is gaining strong interest among developers include GitHub stars, the number of collaborators, and the number of pull requests.
To achieve project-community fit, you need high touch engagement and continual recognition of the developer community, according to a16z. The best project leaders would focus on making clear decisions to provide project direction while making sure everyone’s voices are heard and their contributions are recognized. This balance ensures healthy growth of the project and attract more people to contribute to and distribute the project.
Once you have a project leader in charge of leading the OSS project and an active group of collaborators, you then need to understand product-market fit. By having a thorough understanding of the problems your OSS solves, your target audience, existing alternatives, you’ll start seeing organic adoption of your software within your community, which can be measured by the number of downloads.
A common pitfall that a lot of OSS products run into is not figuring out what they’d like to commercialize in the future. Without a concrete plan to deliver value that someone might be willing to pay for and giving it all away for free, there’s no room for a natural extension that can drive revenue. So, when you do try to monetize your product down the line, you’re gonna have to gate features that were previously free, which is bound to be met with pushback from the community.
Value-market fit focuses on what customers care about and are willing to pay for. This would help you decide the monetization strategy you can pick:
If you notice that your target audience consists of companies who lack the time, expertise, or inclination to deploy, use, maintain, or upgrade your software by themselves, you can provide them value by opting for this model. While popular in the open-source 1.0 era, this model has since dwindled over the years, primarily due to its lower margins.
Utilizing proprietary code on top of your OSS can be a good model to choose for on-premise software. The biggest issues companies face when opting for this model is alienating the community by not being transparent with them, which is why it’s so crucial to think of a clear demarcation between what you plan on monetizing and what you would want to keep free when building up your community.
Convert your product into a SaaS, which is a good pick if your value and competitive edge lies in the operational excellence of your software. Since SaaS tends to revolve around cloud hosting, opting for this model might put you in direct competition with the larger public clouds, which tends to get really murky.
Your open source community would serve as the top-of-the-funnel leads for your value-added software products/services. After they’ve entered the funnel, your next goal tends to be maximizing developer and user love, value, and adoption, turning those free users into paid subscribers.
But, the usual marketing/sales strategies don’t usually work as well with developers, and any attempt to make unprompted contact with them in their self-serve journey might end up with them ghosting you. So, understanding the actual developer buyer/user funnel would be essential to understand the stages where marketing and sales can offer the most value and gently nudge them further in their journey.
Once you start incorporating sales and marketing activities to spread the word about your product and converting free users to paid subscribers, you should also incorporate product analytics to help you understand what percentage of OSS users will end up converting to buyers. It will also give you an idea whether your monetization model is actually working, or you need to pivot or layer on an additional model to get the desired results.
So, an ideal infrastructure to help you get the most out of your marketing, DevRel, and sales activities should include a developer intent signal tool that lets you track developer activity across key product pages, open source communities, and other relevant telemetry signals like Reo.dev and a product analytics tool like PostHog, Amplitude, or Mixpanel.
For an open-source software, community tends to be the most important lever of growth. One of the biggest risks that come with trying to monetize your software is alienating your developer community, who tend to be extremely wary of ‘bait and switch’ tactics, where a relicensing takes place to maximize monetization. While a lot of companies claim the relicensing move was required for company survival, the developer community still tends to feel a sense of betrayal, with the fear of impending vendor lock-in.
Here’s a list of common licenses adopted by developer tools today:
Most often, relicensing involves moving away from permissive free and open source licenses to more restrictive “source available” licenses, that allow access to the source code but impose restrictions on commercial use.
MongoDB, initially released under the AGPL license, started being used and offered as a service by a large number of cloud providers. MongoDB’s CTO and co-founder Elliot Horowitz felt that once open-source projects gained traction, it became way too easy for cloud vendors who hadn’t developed the software to capture all of the value while contributing little back to the community. As a response, MongoDB created the SSPL license and submitted it to the Open Source Initiative for approval, stating that the SSPL license builds on the spirit of the AGPL license, but under the SSPL any organization attempting to exploit MongoDB as a service needs to open source the software used to offer such a service.
The Open Source Initiative clarified that SSPL is not an open source license, stating quite clearly that software claiming that the software has all the benefits and promises of open source under such a license is “deception, plain and simple”. The community didn’t take MongoDB’s move too kindly either.
Redis also went through something similar, trying to prevent larger cloud providers from profiting off of its product, and relicensing from the more permissive BSD license to the Commons Clause for a portion of their product. A strong negative reaction from the audience caused them to retire the Commons Clause in favor of a new RSAL (Redis Source Available License) in 2019.
The story seems to run along similar lines for Elasticsearch and CockroachDB as well.
Trying to prevent larger players from profiting off of their IP without paying a dime was something everyone understood, but where the community seems to have drawn the line was the companies trying to pass of these new “source-available” licenses as open-source/free software.
They demand transparency. If you want to prevent others from exploiting your hard work, then feel free to go with a proprietary license, but pretending that a proprietary license is open-source brings certain expectations with it (including being okay with people using it as they see fit, as defined under the guidelines for free and open-source software licenses).
Here’s how GitLab managed to maintain community trust while relicensing their software:
We discussed the most common open source monetization models, but there’s no perfect strategy out there. It always boils down to a process of trial and error. Use the factors we listed in this article to understand what’s the best model for your product right now. You need to understand that this is still just a starting point. As your product and company evolves, so will the monetization model. For most of the products discussed in this article, they have a hybrid model that relies on a combination of the models we’ve discussed (open-core + SaaS hosting, freemium +community sponsorships/donations, to name a few).
But as long as you are transparent with your community and continue building your product while keeping them at the center of it, your community should be fine with you monetizing the product, which is crucial if you want to keep the OSS project going.
P.S. This blog post was written by our friend Isha from Reo.dev, an amazing young developer marketer who is not a part of the Literally.dev team.
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