There's a fundamental paradox at the heart of some of the most successful software companies today: they give away their core technology for free, then build thriving businesses on top of it. GitLab, Databricks, Elastic, and dozens of other companies have proven that open source isn't just compatible with commercial success, it's often the fastest path to it.
Yet every founder considering the open core model faces the same paralyzing questions: "If I open source my technology, won't someone just copy it and out-compete me? How can I possibly defend against companies with deeper pockets? Am I just setting myself up to be commoditized?"
The paradox runs deeper than most founders realize. The very thing that feels most risky—giving away your code—is actually what creates your strongest competitive advantages.
When conventional wisdom is wrong
Traditional business thinking suggests that competitive advantages come from secrecy and control. Build something valuable, keep it locked down (often via patents, trade secrets, IP protection contracts), and charge for access. This makes intuitive sense, which is why it's dominated business strategy for decades.
But in software, the opposite can be true. Companies that open source their core technology often end up more defensible, not less. Here's why the conventional wisdom breaks down:
Secrets don't scale. When your competitive advantage depends on keeping your technology secret, you're limited by how many people you can hire and trust. Open source companies can leverage contributions from thousands of developers worldwide.
Walls create blindness. Closed-source companies optimize for features that sound good in sales meetings. Open source companies optimize for features that actually work in production, because their users will tell them immediately when something breaks.
Control is an illusion. You think you're controlling your market by controlling your code, but you're actually limiting your addressable market to people willing to bet their infrastructure on your black box.
The Amazon fear is overblown
The most common fear among open core founders is the so-called “Amazon scenario”: the idea that a hyperscaler will take your open source project, offer it as a managed service, and siphon away your business.
This fear isn’t imaginary. It’s rooted in real market events involving companies like MongoDB, Elastic, and Redis.
But the popular retelling oversimplifies what actually occurred. Cloud providers did not “steal proprietary code.” In most cases, they either:
1. Offered managed services compatible with open source APIs (for example, Amazon’s DocumentDB is MongoDB-compatible but not based on MongoDB’s proprietary code)
2. Forked projects that were still under permissive open-source licenses (as happened when AWS created OpenSearch from the last Apache-licensed version of Elasticsearch)
These moves were commercially aggressive, but they were legally permitted under the licenses those companies had chosen.
When you zoom out, the feared outcome rarely materializes. Despite years of competition, these companies continue to grow. Cloud competition can expose weaknesses in business models (for example, differentiated value beyond the open source project), but it doesn’t automatically destroy strong ones. The best defense isn't legal protection, but execution. Stay close to your users, move faster than bureaucratic organizations can, and build features that matter to paying customers.
The price competition paradox
Another common fear: "Microsoft and Amazon can just undercut our pricing because they make money elsewhere. How do we compete against free?" This assumes you're competing on the same playing field, but open core companies have structural advantages that pure pricing can't overcome.
Specialization beats generalization. You're not trying to be everything to everyone. You're the world's expert in your specific domain, with deeper knowledge of edge cases, better support quality, and faster feature development for your use case. A hyperscaler's generic offering simply can't match this depth.
Relationship density creates switching costs. When you're not trying to serve every possible workload, you can afford to have deep, consultative relationships with customers. You understand their specific architectures, their compliance requirements, and their performance bottlenecks. This creates switching costs that pure price competition can't overcome.
Trust through transparency. This is the paradox within the paradox: by making your code visible, you actually increase customer trust. Transparency builds trust faster than marketing ever could.They can see you're not doing anything malicious, they can contribute improvements, and they know they're not locked into a black box. This trust translates into business advantages that closed-source companies struggle to replicate: shorter sales cycles, higher conversion rates, stronger word-of-mouth growth, and higher customer lifetime value.
The monetization path: from users to customers
Here's where many founders have their breakthrough moment. Instead of worrying about hypothetical competition, focus on the practical opportunity: you likely already have thousands of users. The question isn't whether there's demand but how to convert some of that usage into revenue.
Start with support. Many companies are already running your project in production. They want someone to call when things break, someone who understands the codebase deeply, someone who can help them optimize their deployments. This is immediate revenue that builds relationships and teaches you about real customer problems.
Add enterprise layers. The open source version works great for experimentation and small deployments, but enterprises need additional functionality: monitoring and observability, security and compliance features, easier deployment and management tools, integration with existing enterprise systems.
Offer hosted solutions. Not everyone wants to manage infrastructure. A hosted version of your open source project, with better performance, automated scaling, and specialized configurations, serves customers who prefer to buy outcomes rather than tools.
You're not competing against your open source version - you're building on top of it. The open source project becomes your best marketing, qualification, and onboarding engine. This model works because it aligns value with willingness to pay. It also ensures that the free version remains genuinely useful, which drives the adoption that makes everything else possible.
The execution advantage
Perhaps the most important paradox of all: open core companies often move faster than their closed source competitors, not slower.
Faster feedback loops. When thousands of users are running your software in production, you learn about problems and opportunities much faster than companies that have to wait for sales meetings and customer interviews.
Better talent acquisition. Great engineers want to work on projects that matter, that they can show off, that advance the state of the art. Open source projects attract better talent than equivalent closed source products.
Network effects in development. Every contribution makes your project more valuable, which attracts more contributors, which makes it even more valuable. Closed source companies can't access this compounding effect.
From paradox to clarity
The open core paradox resolves when you realize that in software, the traditional relationship between scarcity and value has flipped. Software is abundant - good software with strong communities around it is scarce.
By open sourcing your core technology, you're not giving away your competitive advantage, you're creating it. The code itself was never the moat. The moat is the community, the expertise, the relationships, the trust, and the execution speed that comes from building in the open.
For founders with proven open source projects, the path forward is clearer than the fears make it seem:
1. The technical risk is low (you know the software works)
2. The market risk is low (people are already using it)
3. The main question is execution risk (can you build a sustainable business?)
Most successful open core companies start simple: contribute to the open source project to build credibility, deploy a hosted version to understand operational challenges, talk to existing users about their pain points, start with support contracts to generate initial revenue, then build commercial features based on actual customer feedback.
The biggest risk isn't that someone will copy your open source project, it's that you'll spend too much time planning and not enough time building.