From our homepage (
http://artefactual.com):
"How our open-source business works...
Artefactual Systems is not a software vendor. We do not sell software licenses. Artefactual Systems is a technical service provider specializing in open-source software and technology strategies for archives and libraries. We sell our time to develop, enhance, fix, install, integrate, host or provide training for free and open-source software. Any software or documentation that Artefactual creates as part of any of our technical services are released under free and open-source license. Artefactual has an established and well-respected reputation for promoting the use of open-source in the archives and library community as a way to reduce costs, facilitate collaboration, improve standards adoption, and raise professional capacity."
In short, we pay the bills using the bounty model. Firstly, to develop the core apps (http://ica-atom.org and http://archivematica.org). Secondly, to enhance, integrate, host them, etc. Early on I based much of our business model and community building philosophy on Drupal service providers.
This is a relatively small niche market. We're not getting rich but managing to pay the bills on a break-even basis and being a positive influence in the archives and library community. Since 2006 we've gone from 1 full-time to 8 full-time staff.
As for challenges, our projects are taking off worldwide right now so one of our main issues is juggling a growing demand for free community technical support with putting in the time necessary to hit deliverable milestones on paid client contracts. It's also difficult (impossible?) for us to get external private or public funding to accelerate development/marketing/training because "you don't have any intellectual property. What's to stop a former employee or competitor from stealing your business?" (the answer, of course, is 'our reputation and expertise')
One of our other main challenges is that we usually get organizations to sponsor new features but it is very difficult to get funding for bug fixes, enhancements and any critical core re-factoring. We bite the bullet on those because we need to stay competitive. The leap of faith you make with implementing an open-source business model is that the goodwill is paid forward. If 100 organizations download our software and five come back to us for support services we continue to move forward. This is working for us. For the past 4 years we have solid contract work booked at least 6 months in advance.