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Often when I see open source companies I notice one of their sources of funding is crowd funding? My question is why is this?

Are there not any better methods of income that they could use?

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    I'm voting to close this question as off-topic because it makes an unsubstantiated claim, and then seeks opinions based on that. The claim, as far as I can tell, is false, making the remainder of the opinions meaningless. – rolfl Jun 26 '15 at 19:55
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    @rolfl I have to disagree. The claim may be unsubstantiated, but it certainly makes no difference to the question: it could easily ask "why might open source companies use crown funding" without the example, and be the same question. – ArtOfCode Jun 26 '15 at 20:16
  • I think the point is that most (almost all?) open source companies earn money from a support program, and for charging for premium/closed content. I don't know of any significant open source companies that are funded from crowd-funding.... it's a backwards question. – rolfl Jun 26 '15 at 20:19
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Why is crowdsourcing used? It works pretty well. Open sourcing something nearly always means a community that is interested in it. So it can work that the community is enthusiastic enough to fund the open sourced thing through crowdfunding.

But there are a lot of other methods for making money. My examples for these methods are non-companies, but companies can make money with these methods as organization or persons can.

Most open source projects have a donate button or something similar. That is not far from actual organized crowdfunding. Some project make fundraisers at some times, Wikipedia does from time to time for instance.

Some classic open source projects release the open sourced software, but offer paid services around it: support, documentation, installation and configuration help and so on.

Some projects sell premium versions of the product. That is common for open books or music, digital is free, a printed version or a CD cost something. A way Cory Doctorow makes his money.

Merchandise is another way of income for an open-source-project. Selling coffee-cups, T-shirts, Posters, mousepads and so on with the logo of the project can bring a lot of money. XKCD finances itself mostly with merchandise.

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    Downvoted for two reasons: 1. the question was edited (by you) and now the answer does not answer the question. 2. the answer makes unsubstantiated claims about "most", and so on, which in my experience is not true. Also, most open source projects fail, and have no community. Second, most open source projects never become companies. Third, most open source companies don't get their money from donations or crowd-funding, but from advertising, support contracts, and corporate sponsorship. – rolfl Jun 26 '15 at 20:23
  • XKCD is not a company... and is not a good example. Anyone can make money by having a "store", that does not make them a company. – rolfl Jun 26 '15 at 20:24
  • I edited the answer to reflect XKCD isn't a company. Also it doesn't matter in my book, as everything to make money XKCD and Doctorow can do, a company can do too. – Mnementh Jun 26 '15 at 20:32
  • everything to make money XKCD and Doctorow can do, a company can do too ... is not strictly true. Companies are required to report any 'donations', it has regulatory filings, it cannot pretend to be "non profit", etc. – rolfl Jun 26 '15 at 22:20
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Why might open source companies use crowd funding?

1. Open Source company

First, what is an open source company? In this context, I presume it means a company that develops and distributes open source software. Red Hat is considered to be a well know Open Source company, right? Canonical (of ubuntu fame) is another. But, does it end there? Google is an open source company by that definition (android, angular, and thousands of other things are open source... right?) So is IBM (eclipse, OSGi, parts of Java, parts of it's Z-OS code, IBM donated much code to Apache, etc.). Microsoft is Open Source - it's opening the .net platform, etc.

I presume, at this point, that you are starting to disagree with me.... how can Oracle be an open source company - it does own MySQL and distribute it, though... so, it qualifies - even Java is open - and that's Oracle.

This concept of an open source company is broken.

Should the concept be narrowed? An open source company cannot sell closed-source products? Well, there goes RedHat, Pentaho, Mandriva, SuSE, Canonical, etc. All the posterchilds are gone... leaving things like.... Apache, Eclipse, hmmm, not much else.

Then again, those are not companies, they are non-profits, or foundations...

2. Crowd Funding

What is crowd funding? Kickstarting is crowd-funding, but, it is actually an investment, and a contract. A kickstart campaign is a pre-order with a specified delivery, and a penalty if it fails. It is not exactly a donation. This sort of seed money is a common thing to do, and is a form of distributed venture-capital. A lot of people invest, and they have preferential returns on that investment (early/cheap access to cool things).

Kickstarting is crowdfunding, but it is almost always associated with something tangible, a book, a device, a bowl-of-soup, or whatever. Not software.

Further, companies have complicated rules about accepting donations (but not so complicated when accepting investments or pre-orders). Companies are not charitable organisations, so they can't just say "donate here" without first making it clear that they are "for profit", and they cannot (in the US, at least) issue tax benefits, etc.

On the other hand, individuals, and not-for-profit charitable organizations can accept donations (like Mediawiki, EFF, OSI, Apache, Eclipse, etc.). Then again, they are not companies.

3. The Common case

Most companies who's primary business is related to open source software distribution (like RedHat, Pentaho, SuSE, Canonica, Elastic, etc.) make their money (and profits) from value-add - whether it be support, a premium experience, an enhanced management system, better scalability, or whatever.

Where they don't make their money primarily from that, they make it from advertising, selling space on their pages.

4. So, who does use crowd-funding for software?

Individuals and non-profits. It is easy to throw up a "donate" paypal button. But, you should be aware, that most of those people get good value from advertising too, and also from esoteric things like "wishlists", commissions, contract-work, and so on. If you are the lead developer on an open source project, you will likely be the person contracted to apply a custom hack for some company, or train people, etc. It is not a direct payment, but indirect.

Or, you become an "evangelist" at Google, etc.

5. Conclusion

No company makes significant money from crowd funding.

Individuals and non-profits may, but there is no reason to believe it is significant... the bulk of value comes in from being able to put it on your resume, and selling your knowledge and skills, not your product.

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