4. Strip Mining
We have already encountered this issue when discussing cloud providers. The open source definition guarantees freedom 0, the "freedom to run the program as you wish, for any purpose" and at no cost. The open source community edition of an open core software can be used by cloud providers to offer it as SaaS. We have already discussed that large cloud providers are likely to have a market advantage over the vendor in delivering the software as SaaS. As a result, these cloud providers can out-compete the vendor and benefit from the vendor's development efforts without any legal obligation to give back. And they typically do not contribute money or code in proportion to the revenue they generate from the software.
Cloud Licenses
Some vendors view this behavior by cloud providers as unfair exploitation of their work, also known as "strip mining" or "free riding". In response, they take legal action to force cloud providers to give back. A popular approach to solving this problem while remaining committed to open source is "Delayed Open Source Publishing", or DOSP for short. The type of license we're interested in is a fairly open DOSP license, let's just call them "cloud licenses" and the associated software edition licensed under them "Cloud Edition". They are quite close to open source licenses in terms of the freedoms they grant, but with two key differences:
- Restricted Freedom of Use: The freedom of use, or freedom 0, is restricted so that cloud providers are not allowed to offer the cloud-licensed edition or any competing product based on it. Because of this freedom restriction, cloud licenses do not meet the open source definition and are therefore proprietary licenses. This approach allows vendors to host the cloud edition themselves as SaaS without being outcompeted by cloud providers. Alternatively, vendors can allow cloud providers to host the Cloud Edition for a fee. This gives the vendor revenue that they would not get with an open source edition. These restrictions do not apply to users who do not directly monetize the Cloud Edition as a service. Personal use or indirect monetization as part of the backend of a larger product is free. The source code is publicly available - modification and redistribution are still allowed.
- Delayed Open Source Licensing: There is a delay after which the software is relicensed as open source. A popular cloud license is the Business Source License (BSL), which has a delay of 4 years. However, some argue that this delay is too long and prefer the Functional Source License (FSL), which has a delay of only 2 years.
This licensing strategy gives vendors an incentive to invest in developing the Cloud Edition because it generates revenue. This is in contrast to the proprietary edition model, where investment in the community edition can reduce revenue because improving the community edition means making the enterprise edition more attractive in comparison. In practice, this means that users can host and use the software for free, as long as it is not a directly competing product. For example, a cloud-licensed database can be freely used in the backend of a commercial application because the database is not publicly available and the application does not compete with the database as SaaS. However, if users pay a cloud provider to host the Cloud Edition, they must pay an additional fee to the cloud provider, which the cloud provider must pass on to the vendor as a royalty. Thus, the additional revenue to the vendor is paid by users who have the Cloud Edition hosted by a cloud provider.
In other words, to maximize revenue while remaining committed to contributing to open source, you might adopt a hybrid model consisting of:
- A partially commercial Cloud Edition, which becomes open source after a specifc delay
- A commercial proprietary Enterprise Edition