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Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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In the competitive landscape of SaaS businesses, choosing the right open source license isn't just a legal formality—it's a strategic business decision that can significantly impact your company's growth trajectory and protection against competitors. With the rise of commercial open source software (COSS) companies, understanding which license aligns with your SaaS business model has become increasingly critical.
The Strategic Importance of License Selection
When building a SaaS business with open source components, your license selection directly affects how others can use, modify, and potentially commercialize your code. The right license creates a delicate balance: fostering community engagement while preventing competitors from simply taking your code and launching competing services.
According to a 2022 OpenLogic survey, 80% of organizations now use open source software, making license strategy a front-and-center concern for SaaS founders. The challenge is finding a license that encourages adoption while protecting your ability to monetize.
Common Open Source Licenses for SaaS Companies
Permissive Licenses: Maximum Adoption, Minimum Protection
MIT, Apache 2.0, and BSD licenses are extremely permissive, allowing anyone to use your code with minimal restrictions. They enable:
- Widespread adoption and community contributions
- Use in both proprietary and open source projects
- Simple compliance requirements
However, these licenses provide virtually no protection against competitors using your code to compete directly against you. Companies like Elastic and MongoDB initially used permissive licenses, only to face competition from larger cloud providers who offered their software as a service.
Copyleft Licenses: The Traditional Protective Approach
GPL, AGPL, and LGPL licenses require that derivative works be distributed under the same license terms:
- AGPL is particularly relevant to SaaS, as it considers providing access over a network as distribution
- Strong protection against competitors using your code in closed-source projects
- Can discourage commercial adoption due to "viral" nature
Red Hat built a successful business model around GPL-licensed software, but many SaaS companies find these licenses too restrictive for building partner ecosystems.
The Rise of Business Source License (BSL)
The Business Source License, pioneered by MariaDB and adopted by companies like Sentry, Cockroach Labs, and Hashicorp, represents a middle ground specifically designed for SaaS business models:
- Time-limited commercial restrictions: Code automatically converts to a more permissive license (often MIT) after a set period (typically 3-4 years)
- Specific competitive use limitations: Prevents direct competition while allowing most commercial uses
- Clear monetization path: Enables companies to offer commercial licenses alongside the BSL version
According to GitHub's 2023 Open Source Economy Report, BSL and similar licenses saw a 47% increase in adoption among venture-backed open source startups in the past two years.
Elastic License and MongoDB SSPL: Custom Protective Licensing
Some companies have created custom licenses to specifically address cloud service provider competition:
- Elastic License 2.0: Prohibits offering the software as a managed service while permitting most other uses
- MongoDB's Server Side Public License (SSPL): Requires service providers to open source their entire stack if they offer MongoDB as a service
These protective licensing approaches were direct responses to AWS and other cloud providers offering competing services based on their open source software.
Making the Right License Decision for Your SaaS Business
Consider these factors when developing your license strategy:
Business model alignment: How do you plan to monetize? Through support, hosted services, or proprietary extensions?
Community growth goals: More restrictive licenses typically result in smaller communities
Competitive landscape: Are large cloud providers likely to offer competing services?
Investor expectations: VCs increasingly understand the strategic importance of licensing, but have varying perspectives on restrictive approaches
Future-proofing: Your licensing needs may evolve as your business grows
Case Study: HashiCorp's License Transition
In 2023, HashiCorp transitioned its core products from MPL 2.0 to BSL 1.1, citing competitive pressures from cloud providers. This move preserved their ability to offer commercial cloud services while maintaining an open source development model. While the community reaction was mixed, HashiCorp's stock price stabilized following the announcement, suggesting investor confidence in the protective licensing approach.
Conclusion: There's No One-Size-Fits-All Solution
The optimal open source license for your SaaS business depends on your specific business model, competitive landscape, and growth strategy. Increasingly, SaaS companies are moving away from purely permissive licenses toward more nuanced approaches like BSL that balance openness with business protection.
Remember that your license strategy should evolve with your business. Many successful open source companies have changed their licensing approach as they've grown and faced new competitive challenges.
Before making your decision, consult with legal experts specialized in open source licensing and study the paths taken by companies with similar business models. The right license doesn't just protect your code—it protects your entire business strategy.