What are business models of open source projects?

I'm thinking about developing a software library for iPhone with my friend. Our target is a developing country where the mobile phone market is still very young, compared to U.S. The problem is that I don't know much about good business models for software development. Rather than charging customers by selling our library or apps, what is a business model behind making our library an open source project? Is it really about pursuing ones' passion and being just volunteers? What's the benefit of building a community in terms of making money?

The business model usually boils down to consulting, or value add software.

More importantly, the fact that software is free and open doesn't mean it is necessarily licensed to the community at large. ...if you have a customer, and deliver free and open code, that customer is not obligated to release the code to anyone else, and neither are you.

However, in the circumstance you describe, I'm not clear how you would monetize the model. Perhaps you would form a little co-existent consultancy that would, after release of a code-base, build apps based on the base. As a practical matter, a vast library is probably best utilized by its maintainer, or someone else familiar with its intricacies.

I think that, before deciding you want to be free and open, its important to sit down and understand what the business model is. Often, if you have a model, and software freedom matters to you, you can build backwards to that goal from the business model.

Provide community support and offer a monthly subscription for access and extras.

Another (less scalable) technique is to charge for initial setup and consulting time.