This post has come about through my thoughts of how open source programs make money. It is a bit of a rant as I am only seeing one side of the coin here, so if you can then please enlighten me.

Yesterday I read a post on 37signals which spoke about how to make money twice. To me the best part of the post was in the first paragraph.

It said: “A good portion of this industry is still trying to figure out how to make money for the first time (hint: charge people).” What I loved about it was simple, “hint: charge people”. Brilliant.

Why is it brilliant? Well because it seems that the trend of Web 2.0 is not only glossy buttons but also Open Source and Free Software, it is driving me mad. “Take it, it’s FREE!”. This is awesome for the end user, they can get a great service at no charge.

But how is the person who is making the program going to put the food on the table? “Venture Capital.” Well, if have ever visited Tech Crunch you will have noticed that it is no longer about just getting ‘some venture capital’ so that you can focus on making your program. You now have stages A, B, C, Z. Each time the amount needed increases 10 fold, venture A cost $1mil, venture C cost $100mil. Eventually it will run out, it has too. That bubble will burst, especially now that the US is been smashed by an economic crisis of note.

Cape Town recently played host to WordCamp. The star guest was Mr WordPress himself, Matt Mullenweg. One of the first slides in his presentation said the following: “Selling software is dead.” He proceeded to list four blue chip IT companies and pointed out that only one of them was charging for their software, the other 3 gave it away.

I find it incredibly difficult to put a huge amount of work into a project and then just give it away with a smile on my face. There must be some kind of plan to make money off it. If companies like Adobe and 37Signals continue to charge good money for their software I see no reason as to why you should be giving yours away.

I strongly believe that if your product is good enough then people will be willing to pay for it. By doing so there are no favours, the stress and effort is justified, it becomes sustainable plus you are having fun AND making money at the same time. Who said you can’t have the cake and eat it?

There is the option of giving away your product and then charging for a service. WordPress gives away their blogging engine but then charges for services such as more bandwidth or modifiable themes. It is a great idea but the problem with that is that you need to build up a huge user base before you can start making money. Matt admitted that very few people actually upgrade their accounts on WordPress, this interested me because I thought that a user base of over 3 million would have at least 20% – 25% of its users on upgraded accounts. To me this only weakens the call for free projects.

“But”, I hear you say, “by being free, the community can get involved and help improve your product.” I say, that if you are earning money then you can invest that back into your community and pay people to improve it, this can create more loyalty than someone who does it for free.

The other issue I have is that if you have a free product someone who is clever enough can piggy back off your project and make money off it themselves. So while you are slaving away, someone else out there is taking your work and cashing in. I don’t see anything wrong with that method, as long as they obey the relevant rules of Open Source, but wouldn’t you like to at least be getting something back for giving something away?

So to end, I don’t agree with Matt, selling your software is not dead. Selling your software will outlast free software and if it is good enough then people may even drop the free item and buy your one. You just have to look at WooThemes to realise it, there are tonnes of free themes out there but WooThemes is now a sustainable business because it is better. The reason they are better is because they could afford to pay for it to be better, and the reason they could afford it is because they charge for it.

So instead of racking your brain about how you will make money out of your new app, keep it simple… “charge people.”