IndiaFOSS is an annual conference for open source enthusiasts in India, organised by FOSS United. This year, I was invited to participate in a panel discussion to share my view on open-source sustainability. This was both exciting and unnerving. Apart from Frappe’s journey of sustainability, it was a topic I didn’t have much to share about with conviction. I later learnt that I would be sharing stage with Kailash Nadh, CTO at Zerodha and Chad Whitecre, Head of Open Source at Sentry, both of whom are open source advocates. I started wondering what are the learnings from Frappe’s journey?

Open source is not just a business model

I joined Frappe because ERPNext is a great product and everyone wants to work in a company that has got the product right. In the early days, I could see multiple pathways to build a good business around Frappe products. All the business playbooks and investor reports made open source read like a great business model using which companies like Red Hat, MongoDB, Plausible, Ghost and many others have built a successful business model. Open source sounded like a hot and interesting business model which can be monetised via open core, enterprise support services or easy to use SaaS versions. Reading all this, I was convinced Frappe has an amazing future one way or another. The hard work was already done before I joined — we had good products, a developer platform, and a big community of developers, customers and partners who loved our products. We had organic leadgen from around the world without spending a penny on marketing. It was only a matter of time till someone “milks” the business out of what was already built.

Little did I know that I was about to discover a different perspective about open source. My curiosity led me to speak to customers and partners, and attend FOSS conferences, to understand what drove them to open-source. Understanding this was important for me to play my part in scaling Frappe. These discussions sounded nothing like the business books that made open source sound like just another business model. I came across stories about entrepreneurs building services around open source technologies and earn a livelihood, innovators building solutions to solve problems, grassroots applications of FOSS that are making the world a better place. I spoke to young developers, who had fun, and experienced pride to put their work out there (on GitHub) as a badge of honour, and contribution. These stories helped me see the larger good possible with open source software. This changed my perspective from viewing open source as a short term benefit and view it as a tool for long-term and outsized impact.

But in reality, folks at Frappe don’t want to change the world or make it better. Sure, the larger good feels nice, but that is definitely not the primary why for our developers to commit to the open source path. When what is the why?

Open by default

Frappe took the open path by default. Most engineers (including Rushabh) have learnt and built software with open source technologies like Linux, Python. So the early decision to be an open source company came naturally and kinda by default. And turns out, many engineers have a principled approach to building open source software. During many debates about why we should continue to stick to open source principles, there is a shared belief that OSS has the potential to create a significantly larger impact than licensed software. Even though we’re losing short term benefits, it allows us to be ambitious and delusional about the long term possibilities. Frappe has stuck with this path. Even when it was the most inconvenient option. As Rushabh articulates it sometimes, “We’re not building a faster car, we are building a highway for cars to go faster”.

Journey from sustainability to profitability

Building an open source ERP business is hard

ERPs is a mission-critical software. Decision makers are risk averse. They trust a brand like SAP. Even if the decision is made to go for an open-source (and superior) alternative, the success rate of implementing an ERP aren’t high. Most incumbents such as NetSuite, Microsoft Dynamics, etc, took over 20 years to get the sizeable recognition and adoption. It takes a long time and change management to adopt any ERP. Sure the cycle is faster with a user friendly and flexible product, but still much longer compared to a CRM/Support desk. The business requires an ecosystem to support implementation and services, which takes time to build. All of these complications was a big reason for the slow growth we increased in the initial years.

Great products win, open source or not

“Open-source is not the reason we will win, we will win only if we build the best damn product.” is a phrase I’ve heard far too many times at Frappe. And is one of the reasons I love working here. Inspiration is infectious.

In the early journey, this meant making ERPNext self-serve, feature-rich, stable and reliable. But today these values reflect in everything we do. We believe best product will lead to good ecosystem and happy customers, and that will add to our marketing. There has been no magic formula / playbook / million dollar business idea. Simply, the intent to build a good product. I think this pursuit of excellence is the biggest contributor to Frappe’s sustainability and success.

Revenue from services and SaaS funded product innovation for over a decade

For almost a decade, Frappe’s revenue came from implementation, customisations, training and support services around ERPNext. Additionally, there was some recurring revenue from ERPNext SaaS version that made it easy to signup, pay and use it for non-developers. But the latter didn't work very well as most customers preferred self-hosting. Services and SaaS model (per user) became our primary revenue models for sustenance. Once in a while, we received money from generous sponsors. We also hosted bounty programs that allowed users to pay us to prioritise their feature requests on GitHub. This revenue was mostly invested back into product innovation, with a vision to make ERPNext self-serve, feature-rich and better.

Open core?

Open core is probably the fastest path to revenue growth for most hyper-growth open-source companies. But isn’t that a freemium business model? Open core businesses often mislead users by calling themselves “free and open-source” (coughs, Odoo). They forget to mention the *conditions applied to let their users know that they eventually need to buy licenses. But compared to these businesses, Frappe has chosen the truly open source path.

The best funding is the kind you don’t need for survival — even better when it comes from a customer-turned-investor

Over the years, our products kept improving steadily. But the growth (adoption, community and revenue) was still slow. Around this time Zerodha came onboard as our customer and invested $1.2Mn as seed capital in 2020. This helped boost confidence and gave us insurance to take bolder bets — our team size doubled, services revenue grew and we started investing in something we called “Frappe labs” — a team that started building for future. This was when some of our new products were born, like FrappeCRM, HelpDesk, Learning, Insights. Today the count of these new apps is over 20. This could not have been possible without the confidence and insurance of Zerodha’s capital.

Rise of Frappe Cloud hosting, a predictable revenue engine

Many customers preferred self-hosting over our SaaS (per user) model as it provided flexibility and freedom. Under the SaaS model, they had to reach our team for everything — from upgrades, to backups, to fixing scalability issues etc. Users wanted more control, ability to deploy custom apps, ability to troubleshoot and fix scalability on their own. They needed a full service hosting instead of a SaaS product. A question we asked ourselves was - can we build a hosting service that gives full service cloud hosting capabilities in the hands of our customers?

What started out as an experiment has now become a compounding revenue engine and became our largest revenue source in Nov 2023. Around this time our partner ecosystem grew enough for us to exit services (and drop the operational burden).

Today Frappe Cloud gives offers the servicing capabilities in the hands of our users. While we handle uptime, support and provide supported upgrades, a lot of actions are available directly to the customers. They can upgrade apps, backup, monitor compute usage, deploy custom apps, troubleshoot performance issues, deploy multiple instances and easily manage the complexities around multi-tenancy, all on their own. FC has customers in almost every corner of the world.

Another pivotal decision was to make Frappe Cloud open source. This idea was resisted by many people rightfully so. After all, why should our core revenue engine be open source? What gives us a competitive advantage?

The role of community

Most successful open source projects have grown because of a community, be it Linux, WordPress or Wikipedia. Today we have 500+ code contributors, 20,000+ developers and 200 partners who have contributed to the sustenance and growth of Frappe. The community forum discuss.frappe.io provides prompt and quality support by the community.

The community helped us in many direct and indirect ways. Building adjacent apps that are critical of adopting ERPNext, like compliance, taxes, industry specialisation. Take Resilent Tech for example and how two brothers from Vadodara discovered ERPNext, implemented it and even built an India Compliance app to manage E-invoicing, GST and all othe needs that is used by thousands of India businesses. We often see community members conduct events and meet-ups in cities and regions (we can’t reach) to grow awareness of Frappe products. All of these have played a big role in our growth and sustenance.

Profitability = self-sustenance

Last year, we became seriously profitable for the first time ever. I didn’t realise that this has put us among the league of very few businesses that have achieved this feat, especially with the open-source approach.

Future: “Everything everywhere all at once”

Currently it seems like we’re doing everything, everywhere all at once. We’re like an infant Microsoft with our own apps, developer platform and even a cloud.

One of the reasons we’re doing everything at once is because we operate with a core value of “Freedom”. This means sometimes engineers can switch products and start building something else. Apart from flagship products like ERPNext, Frappe Cloud and support teams, we have high turnover of employees switching teams to find their Ikigai. And guess what, 80% of the new products are a result of this freedom. Freedom is the reason ERPNext has almost every industry fitment built by engineers who took interest in solving domain specific challenges for healthcare, education, fintech, etc. Freedom helped bring out the best in our teams leading to very high ownership and allowed each individual to add their vision to the overall vision of Frappe.

The freedom factory churning out promising tech

Take Frappe Insights for example. I have used many BI tools including Tableau, Alteryx, Metabase but I simply love Insights. I don’t think something as awesome as Insights could have been planned by anyone in Frappe. It was Saqib Ansari’s vision and execution and patience of over 2 years. The new products we’re building are much faster because of the underlying developer platform Frappe Framework, and shared learnings in building user-friendly products learnt over many years. Some of these products are already flying off the shelf. Below is the chart of active users for 4 of our most promising apps over last 4 months, the adoption has doubled in just 4 months, which is insane!

Trend of active sites for new apps

As ERPNext and FrappeHR have been around for over 18 years, the community around them have evolved. Today ERPNext has over 650+ contributors on GitHub. Our engineers focus on building enterprise features and work with a community to build compliance apps and industry vertical apps, that can extend ERPNext to wider use cases.

We're investing in building an excellent developer platform. Frappe Framework is the “OG” of no-code low-code platforms. But apart from Frappe Framework, we’re building Frappe UI library, Frappe Studio (a visual app builder), Frappe Builder (a snappy website builder) and so on. As my colleague Faris believes, most of the open source applications out there suck at UI, and Frappe is trying to change that. We believe these developer tools will let the community create hundreds of world-class apps for their customers at lightning fast speed.

People ask us our AI vision. We feel AI has good potential to unlock efficiency. For instance, our AI bot Otto enabled our own support team to save time by resolving 40% tickets. These AI features unlock productivity and reduce manual and mundane work. These are promising areas we will continue to invest in.

The panel discussion on open source sustainability

During the panel discussion

The panel discussion at India FOSS revolved around sustaining open-source projects through sponsorships. Both Kailash and Chad spoke from the “sponsor” point of view. I shared about Frappe’s journey to becoming a self-sustaining and profitable company.

I honestly wasn’t aware of the taboo associated with offering money or sponsorships to open-source builders. The conversation turned intense when we discussed large billion- and trillion-dollar companies that adopt open-source technologies but rarely contribute back — financially or otherwise. Both Kailash and Chad felt these companies deserved to be called out.

In retrospect, though, the panel lacked a counterpoint: that open-source software is open by choice. In principle, there is no obligation for sponsorship or money from those who use it. Take the recent Automattic vs WP Engine lawsuit, for example. While following that debate closely, I initially sided with Matt’s argument. But I later discovered a large community of open-source builders who, despite their own sustainability struggles, still uphold the values of openness without expectation or obligation.

Although the debate for supporting open-source projects holds merit for technologies that aren’t easy to monetise, but that is not true for Frappe. We at Frappe have grown to be okay with our software adopted by non-paying users. As a matter of fact we love it, and encourage it. We even offer support on onprem deployments for those who need it. The business of open source is not about maximising our share of pie, but about growing the pie, which will automatically grow our share of the pie. And that doesn't sit well with conventional business models that exist solely to maximise short term profits. We believe Frappe adoption will spread on it’s own merit, and as long as we continue to offer reliable hosting, exceptional support and consulting around our products, the community will build itself out, and we will get our well deserved share of pie.

Open source is the business of growing the pie