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How Can Companies Profit While Giving Code Away?
An anonymous reader writes "In an almost philosophical essay replete with references to everyone from Larry Lessig and Tim Bray to to Professor Yochai Benkler, Sun Micrososystems evangelist Simon Phipps explores the metaphor of subscription (well, of course it's not just a metaphor any more from Sun's point of view) as the way that companies will make money off of deploying open source solutions. His distinction between OS developer and OS deployer is useful, but the crux is his contention that, with a "system" such as Sun has put together like the JDS, 'You don't buy the software from Sun - instead you subscribe to the editorial outlook.' It's an alluring analogy - Sun as the editor-in-chief of a 'publication' (JDS) with readers who may or may not choose to subscribe. Worth reading."
trickle-down my ass! hey, wait...
Sun preaches subscription as a opensource model.. when are they going to acknowledge and treat the gpl right in their subscription?
its kind of hypocritical to proclaim opensource when misss treating the Licneses of the code tha tyou use..
Don't Tread on OpenSource
But let's not forget newspapers make their money off the ads.
'You don't buy the software from Sun - instead you subscribe to the editorial outlook.'
Is this kind of like how Casino's give away complemetary rooms and gifts to their biggest gamblers?
People ask how we make a profit, I'll tell you...
Volume
Just use the argument for mp3's. When Sun goes on its 'tour', 'arenas' will sellout to see 'live' code
- I got my free iPod and a free Nintendo DS....why not
Seems we already have a few models of this.
The software is free but you pay for the CD it's on and tech support.
I like muppets.
Advertising. Giving code away would give software the attributes of free-to-air broadcast media. And given that software usually needs regular updates for bug fixes, downloading would be more than just a one-time affair. Free-to-air broadcast media revenue comes from advertising. And although general advertising doesn't guarantee the audience will have any interest, the type of software being downloaded will give a better idea of what kinds of ads would interest their downloading demographic.
It's very simple: nobody reads the license. I made some money by selling an open source app (of which I am the maintainer). I also sell it, and include the source code. Yes I'm actually able to sell it, even though it can be downloaded for free.
The fact is, nobody reads the license. I include the source and the GPL. The GPL only gives the user more freedom. But nobody reads the GPL! Most don't even know they're allowed to distribute it, or even resell it.
what makes the community do what they do? (what my boss always asks, even though he loves OS products).
That's how a "subscription" company makes money, but how is the community sustained through governance? I realize these are rather wide open questions, but encouraging discussion enlightens us all.
Sig it.
Simple, just follow step number 2:
???
After that, profit is inevitable!
Lot's of people talk about the subscription model and it's benefits. Often compared to a magazine subscription. The difference is that back issues of magazines still continue to work, unlike some subscriptions of software that have time-bomb unlock codes. I think the subscription model is a bad idea for consumers.
The win-win philosophy underlying the Sun statements is good; that is, it's true that Sun can make money by operating as 'editor in chief' of a suite of freeware applications. However, I don't buy into the statement that open source doesn't mainly benefit from having many hands involved. Making the best people the 'committers' of projects is important but nowhere in the article does anyone mention how much good software is created and maintained by people not previously recognized as 'best' for the job. The process doesn't work the way the Sun statement implies.
Service Providers (hosting, ASP, ISP, VoIP, etc.) can make money by charging for their services while giving code away. An open source service provider will attract more customers because they are not dealing with a black box (a white box?), they will provide better services because bugs will be fixed faster, they will have more loyal customers, especially those that are actively involved with the product; And if other companies use their code and compete, better service as opposed to more obscurity will result.
If i understand them correctly i believe that Gentoo and Lin(spire|dows) are pushing the same sort of model.
The difference between Canada and the USA is that in Canada healthcare is a right and gun ownership is a privilege.
There is so much good open source software out there (my most recent find was a sweet little bookkeeping package called Lazy8 ledger) that gets very little promotion. I'd guess that there are many, many useful packages and programs that if I knew about I'd use. So I can see significant value in "editing" open source into useful groups. Also, I've long thought that it would be nice to see a "starter's" edition of Linux that reduced the choices of packages available to the "best" pieces of software. Nothing against vi and EMACS ed and the others, but does a first time user really need to choose between 12 or more text editors (or two desktop environments or three office suites, etc). I realize there are tremendous advantages to having diverse software offerings, but it's not as useful for the first time user.
Degaussing scares the bad magnetism out of the monitor and fills it with good karma.
... perhaps because that is the business model he knows best?
Posters recognized by their sig,
This model is very compelling for the commercial market -- companies know that they will both want customization and will need support for their software. They are willing to pay for expert assistance and 7x24 access to services. Enterprise software and support can sell for hundreds or thousands of dollars per seat - providing plenty of revenues to offset the labor costs of support can customization.
But the consumer market is very different. The consumer market has very low retail prices that can't support the high cost of labor - a $49.95 price point product can go from profit to loss on a single tech support call. This consumer market consists of two segments -- geeks who don't need support and the clueless who needs lots of expensive support. Currently, proprietary software makers can earn a profit, in aggregate, because they capture money from both the geek and clueless segments. They may lose money on the clueless, but that make up for it on the geeks who don't need support.
In a FOSS environment, the geeks can go for the free downloads and do-it-themselves when it comes to deployment, customization, and support of FOSS. Geeks have little reason to pay for FOSS-related services. This leaves only the labor-intensive clueless expecting to get a year of support for their $49.95. But because they are clueless, they will use more that $49.95 of support labor (even if that labor is in India).
The trick with these services models is finding people that are both willing to pay for service but that don't actually need to use the service that much. Its a very good model for corporate IT, but I don't see how the numbers can work on the consumer side. Perhaps someone in tech support has numbers for the statistical distribution of the percentages of people that use X-minutes of support.
Two wrongs don't make a right, but three lefts do.
IBM has realized this, and is building up their services business around this model, and it would be great if companies like Sun join the fray, to keep the competition there.
I also liked the portion of the essay where he talks about being able to pull together all of the components yourself, and support it yourself, or to pay someone else to support it for you. The first part of that is why I used OSS, and the 2nd part is what is currently lacking to make OSS more generally accepted. While there are people that will need support, there are some of us that just want the choice, freedom and flexibility, and OSS seems to be the best way to provide both right now.
This is not an original idea - even in the software world.
Microsoft for many years has already sold countless subscriptions to their MSDN.
Of course the OS is, itself, a subscription with 'issues' every 2-3 years..
95, 98, 2000, etc..
How to make money on 'free' software.
Charge for support.
(You want me to tell you how to use the software, then pay me).
Charge to become a member of the stearing group. (you want development to go this way then pay me).
Charge for features, and non critical bug fixes. (you want that, then pay me)
I think support should be by Open FAQ's, you have to pay to get someone to look at your problem, but as soon as the solutions posted everyone can view it.
thank God the internet isn't a human right.
Really, they're coming around to Apples's position -- given a situation where the open-source world has a lot and one's company has a little, throwing in with the crowd is a sound strategy. When the company has a lot and open-source has a little, best to keep what you have.
Meanwhile, I'd never heard of Benkler until this week, when he wrote an inane essay in Science about how research should be "open-source". If you took the most witless comments here about how if a distributed group can write software, then, logically any subject about which one knows nothing can obviously be done efficiently by a distributed group -- that's basically what it was.
What I'm listening to now on Pandora...
Let's also not forget, as someone who works for a newspaper, that it's not easy to make money in the newspaper business at all. The whole industry seems to be feeling the pinch these days.
"When I quit my job because my boss is an asshole, I called the maker of this software I know they pirated. The guy who answered the phone laughed so hard it sounded like he was going to die, then hung up. What the hell?"
*grin*
If you take a look at what Sun is currently charging for the Java Desktop, it just doesn't make financial sense at the current price point. I for one don't expect to see companies switching to a subscription model that charges $100 per system per year (granted the current pricing until December 2, 2004 is $50). To be competitive and offer the business community a truly compelling reason to switch to the Java Desktop, the price is going to need to come down just a bit more.
What might be a motivating factor for a company to purchase a product using the subscription model, support perhaps? Well they do give you 60 days of support but the remaining 305 days of the year support will cost extra.
-- Just my $0.02 worth...
The emphasis here is on incentive.
Just something to ponder. Stephan
http://stephan.sugarmotor.org
I dont think that is the only way. There was an article a while back on the different business models around OS and there were some good examples that were not advertising.
One way, which my company is doing it is by giving away source code of components that plug in to our services system. What you are really buying from us is infrastructure, management, and time.
We are expecting that many people will build their own systems but that is OK, we dont need to be a monopoly, we just have to offer value to customers such that the say its worth the money.
You know, all of your bitching about the stifling of innovation would be a lot more effective if you had some actual fact to stand on. New technologies are constantly being introduced to the market. How fast is your computer now? How fast was it 5 years ago? How much more economical are cars than they were 5 years ago?
And so on.
evil adrian
>>Sun can make money by operating as 'editor in chief' of a suite of freeware applications.
Of course, when a group of university students in Sweden or Germany or (God Forbid!) China decide that they want to work together and editor-in-chief Sun's freeware applications, for free just 'cuz, and make some great admin tools, then Sun is going to have a cattle drive (instead of just a cow).
> The process doesn't work the way the Sun statement implies.
Exactly. If I were Sun, I would give money to fledging open-source projects. It's amazing how much goodwill a $500 paypal donation will generate on a one-man project.
For example. Python operated "under the radar" for many years. Now, there's street recognition (not much, but some) but it's now too late for outside parties to influence or even buy Python.
Likewise there are many projects out there that could become just revolutionary yet are completely ignored by Sun and the like. The people in these projects toil in darkness, stressing about money and relationships, gritting their teeth as their pre-alpha api takes shape on their sub-par hardware. If a company or three came and said: We believe in what you are doing, and here's a $1,000, keep up the good work and post progress to your blog, we'll check it out regularly; then said developer would remember said company as an early benefactor and would just have a warm feeling for them for years to come.
BTW, Johnathan Schwartz' weblog is interesting, except maybe a little paternalistic.
"Piter, too, is dead."
I still get an uneasy feeling from parts of this essay. The link between community governance and control of the commit authority is played up a little too much for my comfort. Open source has a fallback mechanism for users/customers who are unhappy: the code fork. This is one way in which the analogy with newspapers is a bit week. A newspaper is ephemeral, the stories change every day. A "fork" doesn't make sense. Sure you can make your own by going to base news sources, but you can't re-use the mechanical bits that make up the NYTimes layout or the website. If you tried to my a MYTimes that re-cycled the NYTimes content directly, you would certainly be violating their terms of use and copyright.
This article gives me the impression that Sun is still clinging to control of the commit mechanism as a way to exercise ultimate authority over the community. In contrast, if you read interviews with Linus Torvalds, he is usually very careful to express how limited his control is, downplaying the fact that he holds the ulimate "commit" keys, and emphasizing that his true power comes from the amount of respect he has earned (and is able to sustain) from his fellow kernel developers.
Our company, profits selling hardware, while most of our engineering effort goes towards our open source software, SlimServer. The open source part of our business has helped us build an great community of users. Some of our users don't buy the hardware but contribute nonetheless, making our hardware, Squeezebox, more useful and valuable to the folks who do buy. It's a business model that's working for us right now.
Software companies are not the only companies which write software. I defy anyone to show me a company with over 50 employees which doesn't use some kind of home-brewed software somewhere in its operations (and, yes, I mean other than HTML content). This is especially the case in scientific research, where if the budget's tight and a needed tool is either nonexistent or too expensive, the answer is "Write your own." I work for the bioinformatics department of a biotech firm, where I am paid to write free software.
Up until recently, that's been free as in beer; we have a suite of DNA development apps that we provide as web services, so our clients are doing their research with our cycles instead of shelling out $4000 a seat for a closed-source solution. Lately, however, I've been working on a tool (for site-directed mutagenesis, if anyone really cares) which will be both integrated into the web toolkit and released as a stand-alone GPLed app. The legal department's behind it. I am stoked beyond comprehension.
But does this work? Oh hell yeah, if you go by the bottom line and by the number of calls my boss gets every week from bioinfo startups trying to convince him to provide 45-day free-trial downloads of their software on our site. (Use our bandwidth to promote your closed-source code? I don't think so, bitch.) Obviously, people could visit the site (the tool suite doesn't require registration or anything like that), design a primer, then order it from one of our competitors, and I'm sure some people do; but why bother when there's a convenient, unobtrusive "Order now" button just below your results? I'm sure we could sell our software, but in the long run, the customer goodwill we build up (along with the increased orders) by providing this for free is more important to the CEO than whatever short-term quick bucks we could squeeze out by hawking SciTools. In the end, providing free software is the game-winning solution.
I'm sure this can't be the only example of a situation where this tactic works, though I haven't given a lot of thought to where else it would be appropriate. Hmm, maybe I should post this as an Ask Slashdot.
Dance like nobody's watching. Sing like you're in the shower. Fuck like you're being filmed.
Lacking in this common phrase is a sense that money is being earned. Lacking is a sense of exchange of some tangible goods or valuable service in exchange for the money. Often even an expectation of work performed for or responsibility to customers is absent. Money will simple be made "off of" something... usually intangible intellectual property.
So, dear reader (if you've endured my little rant so far), please keep an eye out for this phrase. Is it usually used in a context devoid of striving to satisfy customers? Or am I just reading to much into it? If so, I'm sure you'll reply to let me know :-)
PJRC: Electronic Projects, 8051 Microcontroller Tools
Yes, I would pay for a free software subscription. I even occasionally click on google ads while searching to buy a particular item. But it would be a long time before I spend $299 that I might pay for a complex app that really meets my needs. Yes you can make money from side business if software itself is free, but probably not enough to cover writting software in the first place. Perhaps enough to cover distribution and minor bug fixes.
Of course support can be expensive, but that's only for corporate customers, and even then many free apps can be "supported" by googling for info. What kind of questions about Firefox are worth $100 a pop?
Let's just accept that most free software is written as a hobby, as an academic project or for personal use. Linus didn't set out to make great riches, and as far as I know he didn't. If you are trying to make money off either free or pay software that other people are willing to write and maintain as a hobby, well you should have known better.
Does this essay seem like probing to anyone else?
By that I mean, it's like the essay was written to see exactly how much we're willing to spend on software. Further it seems to want us to answer in what method we prefer the pricing to be structured.
Anyway, for my two cents on profiting while giving the code away:
scott king
I wrote something similar yesterday...
Sometime in the 1940's Nestle approached Mrs. Ruth Wakefield, the inventor of the chocolate chip cookie, and purchased her recipe. After purchasing it, they gave it away by printing it on every bag of chocolate chips.
Why would they do this? They PAID for that recipe! Why would they turn it around and GIVE it away?
Nestle was not in the business of selling cookbooks, and they were not a restraunt. They are (among other things) in the business of selling chocolate.
By giving away that recipe, they gave everyone a reason to buy chocolate chips. They couldn't patent the recipe (recipes aren't patentable), but they DID trademark the name "Nestle Tollhouse Cookies". Today, that is a brand that makes a considerable amount of money selling chocolate chips, selling prefab cookie dough, and selling cookies in shopping malls.
Why would someone pay a dollar for a cookie at a store in the mall whenthey could make that same cookie for 20 cents? Convenience.
So, people make money off of open source by providing the goods necessary to USE the open source, by providing services around the open source product, AND by turning it into a recognizable BRAND (ala Red Hat).
This is not a new business model - it is actually very old. People just think of it as new because of the huge impact it has had in recent history in a new market.
what makes the community do what they do?
Because that's how they get the tools they want.
The company I work for provides specialized web services (intranet sites, etc.) The software we use is GPL'ed. Both my employer and I have contributed code to this software.
It costs nothing to contribute (we would have written the code anyway), and we get back *way* more than we put into it. That's why we do what we do - because we get something back (better software.)
The bottom line is, they often won't. Businesses just don't want to muck around getting a free piece of software and then finding someone to configure it. They want black box solutions as a rule, particularly if the price is quite cheap.
For some reason, this article made me think of the pie selling contest in Revenge of the Nerds. Where they put a special surprise underneath the pie.
Same way Gillette and Shick do. Give away the razor and sell people the blades. In software, sell the support (or the updates, or whatever).
Say 100 companies all chip in a percentage of what they would've paid on license fees to improving OpenOffice with features they want. Yes, it costs them some money and yes, some other companies will get the benefit of those improvements for free. But they still save a ton of $$ and don't have to keep paying and paying and paying like you do with Microcrapware.
That's our life, the big wheel of shit. - The Fat Man, Blue Tango Salvage
Way I look at this is GOOD. However some of the socialists here will probably believe otherwise.
...time passes...
-Insecure gives out program to scan networks with multiple methods.
-Hacker types either trying to secure, or breaking security, use the tool
-When tool breaks, they report bugs
-Bigger companies realise that this tool would save X thousand hours of work and debugging
-Big company pays insecure to use said tool in closed project. Insecure gets paid big bucks
-Because Insecure now has income, they can MAINTAIN development on tool, nearly guaranteeing stability
Who wins? If you hate profit, the 'people' have lost. If youre glad to see such a good product stay free, everybody has won.
Not only "not all developers work for software companies" - the MAJORITY of developers don't work for software companies.
The VAST VAST majority of software is written by in-house (or contracted) IT staff supporting some other sort of business - banking, manufacturing, transportation etc etc etc. The people writing software for direct sale are far and away the minority.
With the possible exception of games, the whole concept of "software for sale" is an abberation that FOSS is (slowly but inexorably) correcting.
DG
Want to learn about race cars? Read my Book
The model works always, as long as you provide a useful service to the customer at a price he's willing to afford.
Sorry but Raffaello's point, "This model only works if there is no competition in your tiny market niche", is correct. I can take you GPL'd code and offer to maintain and support it for less. And I should always be able to undercut you. I only need to cover my support costs while you need to cover both support and the initial development. Thank you for researching the market, establishing the market, and building the market to an interesting size.
It is neither capitalism nor corporations that are the problem. Rather it is *monopoly* capitalism that is the problem. The freer the markets to all comers, the better overall for society. Too much concentration of wealth or power is always a Bad Thing. How much is too much? I can't define it but I know it when I see it.
--Slashdot: News for Turds. Stuff that Splatters.
Since it doesn't actually exist.
"Reality is that which, when you stop believing in it, it doesn't go away." - Philip K. Dick
To make a profit you have to make an income greater than your expenses. Your total gross earnings must exceed your costs.
There are many ways to make money as a GPL using company. You can:
a) Sell the software in a box on a store shelf.
b) Sell the software on CD from an online order form.
c) Sell the software or ask for donations online via PayPal, Visa/MC, etc.
d) Offer commercial customization options online so anyone who uses your software can purchase enhancements.
e) Offer support services so anyone who uses your software can get support.
f) Sell documentation.
g) Sell certification.
h) Sell training.
i) Sell merchandise using the software and your accomplishments as advertisement. A simple contribute/donation option and a url link are much more pleasant than a full screen flashing advertisement from the perspective of the customer.
j) Sell systems designed to run your software.
k) Sell yourselves, offer money in exchange for your time on interviews, presentations, implementation/contracting, analysis/design, review/benchmarking with news and mass media, etc.
l) Ask for donation (politely) from other F/OSS organizations if they are using your software.
m) Be evil and try to make your customers pay by only offering the software for sale on your website, for very high prices, with marketting fluff and very little internal information so your customers can't tell what you do (if anything) to your software behind the scenes, then only give your source code modifications to the people who ask for it and only if it is required because you borrowed your source code from someone else because you were too [slow|stupid|lazy|greedy|cheap] to do it yourself, but unfortunately (for you) they were smart enough to release it with a GPL style license. So now you claim they don't exist and threaten to sue everyone who uses any copies of this software that you didn't authorize, build up your army of lawyers and plan to take over the world.
Give away code including bugs and all for free but charge for those bug fix/patch releases. ;-)