
Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.
In today's technology landscape, many successful software companies operate with a foot in two worlds: open source and commercial offerings. This dual approach presents both unique opportunities and complex challenges, especially when it comes to pricing strategy. For SaaS executives navigating this terrain, finding the right balance between open source contributions and commercial revenue models is critical for sustainable growth.
Open source software has evolved from a purely community-driven endeavor to a sophisticated business strategy. According to GitHub's 2023 State of the Octoverse report, enterprise contributions to open source projects increased by 28% year-over-year, demonstrating how commercial entities increasingly view open source as a strategic asset rather than just an ideological commitment.
For SaaS companies, an open source strategy offers several advantages:
However, the fundamental question remains: how do you monetize effectively when part of your offering is free and open?
One of the most common strategies is the "open core" model, where a company offers a free and open source version of its product while reserving premium features for paying customers. Companies like Elastic, GitLab, and MongoDB have successfully implemented this approach.
GitLab's strategy is particularly instructive. They maintain an open source Community Edition while offering Enterprise Editions with additional features focused on security, compliance, and scalability. According to GitLab's public financial reports, this model has helped them achieve an impressive 69% year-over-year revenue growth in 2022.
Dual licensing presents another viable strategy, where companies offer the same software under both an open source license and a commercial license. This approach works particularly well for infrastructure or embedded software.
MySQL (now owned by Oracle) pioneered this approach by offering their database under both the GPL license for open source users and a commercial license for those wishing to incorporate the software into proprietary products without adhering to GPL requirements.
The key to effective dual licensing is identifying which license restrictions would drive commercial adoption while still fostering open source engagement.
With the rise of cloud computing, many open source companies have shifted toward offering their software as a managed service. This "open source software, closed source service" model allows companies to keep their core technology open while generating revenue through hosting, support, and operational expertise.
Redis Labs (now Redis Inc.) exemplifies this approach, maintaining Redis as an open source database while offering Redis Enterprise as a fully-managed cloud service with additional proprietary features. According to DB-Engines, Redis remains one of the most popular databases globally, with the company's commercial offerings driving over $100 million in annual recurring revenue.
For executives pursuing a hybrid open source/commercial approach, several pricing considerations should shape your strategy:
The primary challenge in pricing a commercial offering alongside an open source version is clearly articulating the value difference. According to a survey by OpenLogic, 67% of organizations that pay for commercial open source cite enhanced support as the primary driver, followed by additional features (56%) and compliance/security benefits (48%).
Your pricing structure must reflect this value hierarchy while remaining competitive against both proprietary alternatives and the "free option" of your open source offering.
Identify where your company uniquely adds value beyond the open source offering:
HashiCorp demonstrates this approach effectively by offering features like single sign-on, audit logging, and access controls in their Enterprise versions of Terraform, Vault, and Consul – addressing specific enterprise pain points that justify premium pricing.
Different customer segments have varying needs and willingness to pay. A thoughtful approach involves tiered pricing that aligns with specific customer profiles:
According to Gartner research, companies that effectively segment their pricing in this manner can realize 10-15% higher revenue compared to those with simpler pricing models.
One significant risk in the open source business model is large cloud providers offering managed services based on your open source technology – effectively competing with your commercial offering without contributing to your core development.
Companies have responded to this challenge in various ways:
License changes: Some companies like MongoDB (with their Server Side Public License) and Elastic (with the Elastic License) have modified their licenses to prevent cloud providers from offering commercial services based on their open source code.
Rapid innovation: Others focus on maintaining such a significant feature and innovation advantage that cloud provider offerings remain less attractive.
Cloud partnerships: Some companies partner with major cloud providers to offer official, co-developed managed services that provide revenue to both parties.
Maintaining a healthy relationship with the open source community while pursuing commercial objectives requires careful management. According to the 2022 Open Source Survey by the Linux Foundation, 82% of companies that successfully monetize open source maintain dedicated community management resources.
Transparency about your business model and clear communication about the boundaries between open source and commercial features are essential. Companies like Hashicorp and GitLab have succeeded by being explicit about which features belong to which tier and why, reducing community friction around commercial decisions.
Confluent, the company behind Apache Kafka, provides an excellent case study in balancing open source with commercial offerings. Founded by the original creators of Kafka at LinkedIn, Confluent has maintained strong contributions to the open source project while building a commercial business currently valued at over $7 billion.
Their journey illustrates key principles:
Start with pure open source value: Kafka gained adoption based on technical merit, not commercial push.
Add commercial value around, not inside: Confluent initially focused on tools, monitoring, and management around Kafka rather than limiting core Kafka functionality.
Evolve toward cloud services: Confluent Cloud now represents their fastest-growing segment, offering a fully-managed Kafka service.
Maintain community credibility: Despite commercial growth, Confluent continues significant open source contributions, maintaining trust with the developer community.
According to Confluent's public financial reporting, this balanced approach has resulted in over 50% year-over-year growth rates and a successful transition to a predominantly subscription-based revenue model.
For SaaS executives developing or refining their open source strategy, consider these steps:
Audit your technology stack to determine which components should remain open source versus commercial based on value creation and competitive differentiation.
Map customer segments to understand willingness to pay for different features and support levels.
Design a clear, simple differentiation between open source and commercial offerings that customers can easily understand.
Invest in community management as a core business function, not an afterthought.
Develop metrics that track both open source community health and commercial conversion rates.
The most successful companies in this space view open source and commercial elements not as competing concerns but as complementary components of a unified business strategy. By thoughtfully balancing community contribution with commercial value capture, SaaS companies can build sustainable businesses while participating in the broader open source ecosystem.
Finding the right equilibrium between open source commitment and commercial viability isn't just a technical or licensing challenge – it's a fundamental strategic decision that shapes everything from your development priorities to your customer relationships. The companies that establish this balance effectively will continue to capture disproportionate value in an increasingly software-defined world.
Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.