Paid support (e.g., Red Hat and JBoss) — If you follow open source at all, you are probably familiar with the Red Hat and JBoss models, where most of their revenue derives not from selling software, but from varying levels of support packages.
Dual license (e.g., MySQL) — The approach taken by the popular open source database company MySQL offers the software under the General Public License (GPL) for open source developers. The catch with the GPL license is that if you bind closely to GPL code in your application, you must also GPL your code. For companies that decide they want to sell their application that incorporates MySQL, the organization offers a traditional paid license. Visit their site for a detailed explanation.
Upgrade to proprietary software (e.g., SourceFire and Sun) — I’m most familiar with this approach, as Sun uses this model with its tools line, offering an entry point with the open source IDE NetBeans. From there, if developers want all the bells and whistles, they can move up to Java Studio Creator or Java Studio Enterprise. The same holds true for OpenOffice.org; users who want support and advanced features buy StarOffice.
Offer a hosted service (e.g., SugarCRM) — Skok [“David Skok, a partner at VC firm Matrix“] noted that not long ago he’d felt application software would not be a likely area for open source to prosper, but he now feels that this startup may be onto something, with its hybrid model.
Open source software represents a new model in production: the fruits of the central productive activity are given away free. The dynamics that characterize software development, and give rise to open source communities, cannot help but spread to other areas of production, as software development is increasingly important everywhere.