What Is Open-Core Business Model?

The open-core business model blends free open-source software with premium, paid features or services. It allows companies to build a community around the open-source core while generating revenue through proprietary add-ons, support, or enterprise tools.

Key Points:

• Definition: Open-core offers a free, open-source base with paid premium features under a commercial license.
• Market Growth: The open-source software market grew from $11.4B in 2017 to $32.95B in 2022, projected to hit $50B by 2026.
• Examples: Companies like GitLab, Elastic, and MySQL use open-core to offer free tools while charging for advanced features or support.
• Revenue Sources: Common income streams include enterprise tools, consulting, and premium support.
• Comparison: Open-core balances community engagement (like open-source) with monetization (like SaaS).

Quick Comparison:

This model is ideal for businesses seeking to balance open-source community benefits with sustainable revenue. Let's dive into the details.

Core Elements of Open-Core Model

The open-core model is built on three key pillars that support sustainable business growth.

License Types and Structure

At the heart of the open-core model is dual licensing. Companies typically offer an open-source license for the core product (e.g., GNU GPL, Apache 2.0) and a proprietary license for premium features. Here's how a few companies approach this:

This dual licensing strategy allows businesses to tap into multiple revenue streams while maintaining a balance between open-source accessibility and proprietary innovation.

Revenue Sources

Open-core businesses have several revenue channels that help them monetize their offerings effectively:

• Enterprise-level security and compliance tools
• Scalable solutions tailored to large organizations
• Professional support and consulting services
• Custom integrations for specific business needs
• High-availability features for critical systems

Many companies adopt frameworks like Buyer-Based Open Core (BBOC), which ensures that core contributor tools remain free while advanced management features are reserved for paying customers.

Community and Business Balance

Striking the right balance between community engagement and commercial goals is essential. A great example is Smallstep, which, by January 30, 2025, achieved:

• Millions of open-source downloads
• Over 100 commercial customers
• Deals ranging from six to seven figures ^[4]

Sid Sijbrandij, a key advocate of the model, explains its potential:

"Open core isn't a replacement for open source or trying to kill open source. I expect it to replace proprietary software as the default. There are many advantages of creating open core software, even the source-available code (code is available to inspect, modify, and contribute to) has more trust, security, and R&D velocity than closed-source, proprietary software." – Sid Sijbrandij ^[2]

Maintaining this balance requires deliberate effort:

• Offer a robust and fully functional open-source version.
• Avoid moving free features into paid tiers.
• Be transparent about which features are free and which are paid.
• Provide value to the community beyond just the product itself.
• Encourage creativity and active participation from contributors.

This approach not only strengthens community trust but also ensures long-term business viability.

Business Model Comparisons

Let’s dive into how the open-core model stacks up against full open-source and SaaS approaches. Each has its own strengths and trade-offs, making them suitable for different goals and audiences.

Open-Core vs Full Open-Source

The key distinction between open-core and full open-source lies in how they handle code accessibility. Open-core provides limited free access, focusing on core features, while full open-source allows unrestricted access to the entire codebase ^[5].

For instance, WordPress operates as an open-source platform but monetizes through premium, proprietary add-ons. Similarly, Redis Inc. shifted its strategy by adopting an open-core model, relicensing Redis Modules to balance community access and revenue generation ^[6].

Open-Core vs SaaS Differences

When comparing open-core and SaaS models, IPO data reveals that both can achieve similar valuations, but their operational dynamics differ significantly ^[7]. Here are some examples:

• Mulesoft (Open-Core): $2.9B IPO valuation, $188M in annual revenue, with an average deal size of $143K.
• Elastic (Open-Core): $2.5B IPO valuation, $227M in annual revenue, and an average deal size of $38K.
• Anaplan (SaaS): $1.4B IPO valuation, $219M in annual revenue, with an average deal size of $193K.

Model Comparison Chart

Here’s a side-by-side look at how open-core compares to other models like open-source, SaaS, and closed source:

"Open Core does not claim to be open source – it is a business model that builds alongside an open source project." ^[1]

Each model has its own advantages, depending on priorities like cost, customization, or control. Open-core, for instance, strikes a balance between accessibility and revenue, while SaaS leans heavily on vendor-managed convenience.

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Common Problems and Solutions

Open-core implementations come with their own set of challenges, but these hurdles can be tackled effectively with the right strategies and insights from the industry.

Avoiding Lock-In

One of the biggest worries for businesses adopting open-core solutions is vendor lock-in. Companies like Smallstep have shown how to address this concern by offering an open-source core, which has helped them secure multiple seven-figure deals ^[4].

Here are some ways to reduce lock-in risks:

These approaches not only minimize dependence on a single vendor but also help foster a stronger, more engaged community around the open-core project.

Building Community Support

Creating a thriving community is just as important as solving technical issues. Balancing community engagement with monetization efforts is a delicate but necessary task.

Here are some effective ways to strengthen community support:

"It's a crash course in everything from product management, to customer service, to design, to DevOps… you really have to be ready to do all these things or recruit and engage people that can."
– Max Howell, Creator of Homebrew ^[9]

When both technical and community aspects are handled effectively, the next step is addressing legal requirements.

Managing Legal Requirements

Legal compliance is a cornerstone of any open-core project. A 2023 study found that 96% of analyzed codebases included open-source components, emphasizing the importance of proper licensing management ^[11].

Here’s how some companies have navigated this landscape:

1. Redis's Approach
   Redis adopted a dual-license structure (SSPL and RSALv2) in March 2024. This move allowed them to protect their business interests while still providing access to the community ^[12].

2. Elastic's Strategy
   Elastic took a triple-licensing route, adding AGPLv3 to their existing SSPL and Elastic License 2.0. This approach balanced their proprietary needs with community involvement ^[12].

"It's important not to orphan a community codebase… It can be hard to define what that means, but it's disruptive to withdraw code from a public repository and then change the license. The challenge is to ensure a commitment to the community as ownership interests change over time. You need protective provisions, so companies don't abandon their open source roots."
– Heather Meeker, General Partner at OSS Capital ^[10]

Key legal considerations include:

Balancing intellectual property protection with community trust is critical. Companies must clearly outline the boundaries between open-source and proprietary features to maintain credibility and avoid alienating their user base ^[10].

Conclusion

Blending open-source principles with smart monetization strategies offers clear advantages for software companies. It's no surprise that 99% of Fortune 500 companies now use open-source software ^[8], showcasing just how widely this model has been embraced.

Key Benefits

Here’s why this approach works so well:

These benefits highlight the potential of an open-core model, but success requires thoughtful evaluation.

Deciding If Open-Core Is Right for You

To determine if this approach aligns with your business goals, consider these critical factors:

"Companies cannot be great at one and not the other [foundation for strong adoption and solving meaningful use cases]." – Tony Liu ^[13]

An example of success in this space is GitLab’s "buyer-based open core" model, which strategically places features across tiers. This approach has driven a 5x increase in revenue potential ^[14]. The key takeaway? A solid open-source foundation is essential for sustainable growth.

When executed thoughtfully, an open-core strategy can provide both growth and stability for your business.

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