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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."
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
The code is free. The support is not.
Let's face it, most of us are scoffers. But moments before zero hour, it does not pay to take chances.
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.
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.
Then it is a support contract.
That's a different thing.
When you cancel a support contract, you lose the support, but you keep the code and get to use it.
When you cancel a software subsciption, you can't use the code anymore.
"Piter, too, is dead."
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.
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
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
When you cancel a software subsciption, you can't use the code anymore.
No, that's not how it works. You subscribe to Sun's software, and you get new releases on a quarterly basis. If you cancel you still keep the software, but you don't get anymore updates.
You're confusing subscription with "maintenance" contracts.
Javascript + Nintendo DSi = DSiCade
Right, look at Transgaming. They charge $5/month for Cedega, but you get the releases forever, even if you cancel your subscription. When you cancel, however, you miss out on support, new releases, voting rights, and the knowledge that you are helping to support its development.
WeRelate.org - wiki-based genealogy
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
Wtf?
Well, I believe you meant to say the code is free, so you always get the releases that way if you want, but without the subscription you don't get the binary releases.
Anyway, without the subscription, apart from the binary relases, you also don't get stuff that aren't open-sourced, like the safe-disc circunvention, and some DirectX/3D stuff, I believe (not sure about that one though).
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
>its kind of hypocritical to proclaim opensource when misss treating the Licneses of the code tha tyou use..
its kind of hypocritical to proclaim people are hypocritical whenever they try to make a living.
wtf are companies supposed to do? give away everything under GPL and die? give me a break.
and it is also hypocritical to support GPLization of everything while you work for an entity that either lives off the government budget or makes money selling [whatever product or service].
on a broader note, i dislike Sun and I also (to some extent) compete with their products/services, but i respect them because i know some things they do are cool.
many people here (not necessarily author of the parent post) have the lame attitude of being against everything yet bringing nothing or little to the table themselves.
have you ever heard Red Hat CEO complaining like that about Sun? Or Bill Gates? of course not
yeah, maybe they'll say some generic stuff for the press - customers, value, choice, blah blah blah - but they're essentially interested in going back to whatever they do and doing it better - they are too busy to bitch endlessly about something like some folks on this site.
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.
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).
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.