Before Open Source software became popular, the prevalent model was compiled software. This method still exists today although Open Source is rapidly claiming market share.
It is not a common practice to modify compiled programs. In this type of software, the source code is run though a compiler which produces an executable program, which can be used “as is”. Obvious examples of these are operating systems such as Microsoft Windows, Apple OS and applications like Adobe Creative Suite, Microsoft Office and AutoCAD. This software enables the user to complete their tasks but does not allow them to customize features or increase their functionality. Compiled software is the intellectual property of the company and therefore is sold at the price decided by the company. Rarely, if ever, is it offered free.
Open Source software is the opposite of Compiled software. The application or operating system is offered along with the source code for the user to manipulate and customize. To qualify as Open Source, the software must meet certain criteria. It should be freely distributed, source code should be attached, modifiable by anyone, be compatible with other software and modified versions should be distributable as well. This was done under the premise that software should be free for everyone and that the usefulness of the software can be improved by giving it away free while being modifiable.
Warranty and technical support are a concern and are addressed by a different method. Open source software can be sold if the modifications warrant support from the developer. Hence, Red Hat sells their version of the popular Linux OS with a view towards financing the technical support offered.