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Open Source Terminology & Licensing: A Guide for Investors

Updated: Feb 18



The open source movement has radically transformed the software industry, offering new business models, fostering innovation, and promoting collaboration on a global scale. For investors looking to explore this space, understanding the terminology and licensing associated with open source is crucial. In this article, we'll delve into the most common open source terms and concepts that every investor should be familiar with.



Open Source Software (OSS)


Open Source Software (OSS) refers to software whose source code is made available to the public, allowing anyone to view, modify, and distribute it. This contrasts with proprietary software, where the source code is kept secret and only the compiled version is distributed. Example: Linux, a widely-used operating system, is open source. This means anyone can view its code, modify it, and distribute their own versions.


Free Software


While "free software" often brings to mind software that is available at no cost, it actually refers to the freedoms associated with using, studying, redistributing, and modifying the software. The Free Software Foundation defines four essential freedoms:


  • The freedom to run the software for any purpose.

  • The freedom to study and modify the software.

  • The freedom to distribute copies.

  • The freedom to distribute modified versions.


Example: The GNU General Public License (GPL) is a popular free software license that enforces these freedoms.


Copyleft: Copyleft is a licensing strategy designed to ensure that software remains open source. Under a copyleft license, modified versions of the software must also be open source and under the same license terms. Example: The GPL is a copyleft license. If someone modifies software under the GPL, they must also distribute their modifications under the GPL.


Permissive Licenses: Permissive licenses are more lenient than copyleft licenses. They allow the software to be modified and redistributed without the obligation to keep the modifications open source. Example: The MIT License and Apache License are examples of permissive licenses.


Fork: A fork occurs when developers take the source code of an existing project and start independent development on it, creating a distinct piece of software. Example: Both the Android operating system and the Ubuntu operating system are forks of the Linux kernel.


Pull Request: A pull request (often abbreviated as PR) is a method by which a developer notifies a project's maintainers that they've made changes to the code. The maintainers can then review, discuss, and potentially merge these changes into the main project. Example: A developer fixes a bug in an open source project hosted on GitHub and submits a pull request to have their changes reviewed and integrated.


Contributor License Agreement (CLA): A CLA is a legal document that clarifies the terms under which individual contributions are made to an open source project. It often outlines intellectual property rights and ensures that contributors understand the licensing terms. Example: Before contributing to a large open source project, a developer might be required to sign a CLA to ensure both parties are protected.


Open Source Business Models


While open source software is freely available, there are several business models that companies use to generate revenue:


  • Support and services: Companies provide paid support, training, or consulting for their open source software.

  • Dual licensing: Companies offer both an open source version and a proprietary version with additional features.

  • Open core: The core software is open source, but advanced features or integrations are sold as proprietary add-ons.


Example: Red Hat, acquired by IBM, offers support and services for its open source products, generating significant revenue.


Open Source Licensing


Open source licensing is at the heart of the open source movement, ensuring that software remains freely available and setting the terms under which it can be modified and redistributed. For investors, understanding the nuances of these licenses can provide insights into the potential risks and opportunities associated with open source projects.


GNU General Public License (GPL)


  • Type: Copyleft

  • Versions: GPL v2, GPL v3

  • Overview: The GPL requires that any modifications or derived works be released under the same license, ensuring that the software remains free and open. Version 3 (GPL v3) added provisions related to patents and tivoization (restrictions on hardware that run modified versions of the software).

  • Example: The Linux kernel is licensed under GPL v2.


MIT License


  • Type: Permissive

  • Overview: One of the most straightforward licenses, the MIT License allows users to do virtually anything with the software, including modifying and selling it, provided that the original copyright notice and license text are included.

  • Example: The popular JavaScript library, jQuery, is licensed under the MIT License.


Apache License 2.0


  • Type: Permissive

  • Overview: Similar to the MIT License, the Apache License also permits free use, modification, and distribution. It additionally addresses patent rights and requires changes to be stated in modified versions.

  • Example: The Apache HTTP Server, a widely-used web server software, is licensed under the Apache License 2.0.


BSD Licenses


  • Type: Permissive

  • Variants: BSD 2-Clause, BSD 3-Clause

  • Overview: BSD licenses are a family of permissive licenses. The 2-Clause license is very simple, while the 3-Clause version adds a non-endorsement clause that prevents the use of the licensor's name to promote derived products without permission.

  • Example: The FreeBSD operating system uses the BSD License.


GNU Lesser General Public License (LGPL)


  • Type: Weak copyleft

  • Versions: LGPL v2.1, LGPL v3

  • Overview: The LGPL is similar to the GPL but with a significant difference: it allows linking to proprietary software. This makes it suitable for libraries that wish to be used in both open source and proprietary applications.

  • Example: The GTK toolkit, used in many graphical user interfaces, is licensed under the LGPL.


Mozilla Public License (MPL)


  • Type: Weak copyleft

  • Overview: The MPL allows code to be combined with files under different licenses, but modifications to MPL-licensed files must be shared under the MPL.

  • Example: The Firefox web browser is licensed under the MPL.


Affero General Public License (AGPL)


  • Type: Copyleft

  • Overview: The AGPL is similar to the GPL but adds a requirement: if you run a modified version of the software on a server and let others interact with it over a network, you must provide them with access to the source code.

  • Example: The Nextcloud file synchronization platform uses the AGPL.


Creative Commons Licenses


Creative Commons licenses are often linked to content such as images, music, and text, but they can also be relevant to software. These licenses provide different degrees of freedom and protection. For instance:


  • CC BY (Creative Commons Attribution): This is a flexible license that allows others to use the content in various ways, including for commercial purposes, as long as they give credit to the original creator.

  • CC BY-NC-ND (Creative Commons Attribution-NonCommercial-NoDerivatives): This is a more restrictive license. It requires users to give credit to the original creator, prohibits them from using the content for commercial reasons, and doesn't allow them to change the content or use it to create something new.


Open source licenses are crucial in establishing the rights and duties of developers and users. As the open source landscape continuously evolves and expands, understanding these licenses, along with the associated terminology and concepts, becomes imperative for investors. Such knowledge provides insights into the potential legal and operational challenges, as well as market opportunities open source projects may encounter. With the open source ethos influencing not only software but also various industries, its significance in the global economic framework is set to increase. These licenses, central to the essence and functionality of the open source ecosystem, will persistently play a pivotal role.

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