BBC Examines Open Source Business Model

twitter writes "The BBC's David Reid attended Euro OSCon in Amsterdam and reports what he learned about the Open Source Model. He sums up the rise of non free software in the 1980s and how people and companies like IBM can make money with free software. From the article: 'The open source movement does not object to making money. The source code may be free, but there is gold in software support, training and publishing.'"

Comments

Money in support??

[Jason1729]

Do you really want to use software built on a model of the software is free but you pay for support?

There would be a huge incentive to make software hard to use, buggy, etc.

Re:Money in support??

[andymadigan]

Which is why the people writing the software and the people selling the support are usually not the same. Also, selling software that you need a lot of support for will just encourage people to switch to someone else.

Re:Money in support??

[Russ Nelson]

The parent of this isn't a troll. If it's a troll, then Keith Bostic has also been trolling over the years, and I doubt that. Yes, it does appear that there is a tension between having to do a good enough job that people like your software, but a lousy enough job that people need to buy your services. But, really, I haven't gotten all THAT much business through bugfixing. Most of my business has come from people with different requirements, e.g. it does X; that's great, but we need it to do Y on the Z platform.

For example, I had a packet driver customer who wanted to put packet drivers into an air traffic control system, but he needed to detect hardware transmission errors so that he could log hardware failure. I had another customer who was building special Ethernet hardware for operating rooms, and the existing packet driver needed changes relative to network connection detection.

The worst business I've had has been bug fixes, because, damnit, if I could have fixed the bug in the first place, I would have!
-russ

Re:Money in support??

[zaaj]

I don't know about that - think about it this way - if you write excellent code, and can sell support contracts for a product that has few if any flaws, (such as to corporate types who need that warm fuzzy of a finger to point if something goes wrong, even if it's unlikely to do so) you get your money for very little work, after you cover your initial development costs.

Re:Money in support??

[Sir Runcible Spoon]

  Do you really want to use software built on a model of the software is free but you pay for support?

Why not? If you don't like the support you are getting, move elsewhere. There is little to stop you with open source. And when you had all the support you need - stop paying. These are often no even options with closed source.

There would be a huge incentive to make software hard to use, buggy, etc.

I don't think you will find it works this way with open source. The guys writing the stuff do so because they are also using it (you have got to pay your bills after all). And if you don't fix it someone else will.

Re:Money in support??

[Jonti]

But if you can "try-before-you-buy" (so to speak, you know what I'm getting at) *why* exactly would anyone choose to use a buggy and hard-to-use product in the first place?

I think we should be told!

Re:Money in support??

[ajs318]

If you know that other people could make money supporting your buggy software, it strongly disincentivises you to make it buggy in the first place. The only time there is money to be made out of bad software is when the only people who can support that software are chosen by you. This is how the closed-source software industry works.

If there is a piece of software that people would like to be able to know does its job properly, but those people are not in a position to be able to determine for themselves how properly it does its job, then there is value in providing that assurance. As a competent programmer, you should be able to sell the service of independently auditing software that you did not write.

Re:Money in support??

[ultranova]

I specifically DID NOT a career related to CUSTOMER SERVICES and whatever. Now, a bunch of people is telling me to give away my software for FREE and charge for "SERVICES".

No one is telling you to do anything. However, quite a few people are giving software away for free, and it's pretty hard to compete with free. Therefore, a lot of people are thinking about how to get income without relying on licensing costs, and are saying that this is one possible way of doing so.

I know how to do GREAT QUALITY SOFTWARE. I know how to systematize processes, I know how to detect bottleneck processes in systems and how to help a company process using computing technology.

Good for you. Then you can do those services; that is, you can fix bugs for a price, add features for a price, write new software that interfaces with those open source programs for a price, and, oh yes, write new software for a price - in short, "service" as in "car service", not as in "phone support".

Support, in this context, does not mean answering thelephones; it means doing maintenance and modification and possibly fitting new pieces to existing systems, or plugging existing pieces to new systems. Basically, the idea is that instead of having to make do with software only somewhat suited to the particular task, companies (and rich or skilled individuals) can have the software fitted perfectly to the task.

See, if there's a bottleneck in a closed, proprietary system, that's too bad. But if there's a bottleneck in an open free system, you can say "yeah, I can fix it for a price".

Thar be gold!

[Anonymous Coward]

There's also gold in the software customization market, like a VAR would in the propriatary market.

Being able to take a free foundation and tailor it perfectly for your business model is much better than trying to wrap your company around a canned, closed source solution.

Whats good for the customer is good for the consultant.

Re:Thar be gold!

[QuantumG]

Friend of mine works for a megacorp in a non-IT field. They get all their software developed in Malaysia and no-one else in the corporation has access to the source code. So whenever they need some small customization they do shit like screen scraping and dodgee Visual Basic hacks. If they ask for a customization or a bugfix from the development team they won't get it for 6 to 12 months, if they get it all, and it won't do everything they need.

So yeah, next time you try to tell someone about the benefits of Open Source, consider the fact that most consultants in their own god damn company don't have access to custom developed software.

Re:Thar be gold!

[dido]

Having worked in this business for three years, and being the CTO of a small company in the Third World actually doing it, I can see a bit of a problem with it.

While I cannot deny that it's a profitable business, it's not profitable enough to make most people engaged in it very wealthy. The main problem boils down to the fact that it doesn't scale very well. The only way to grow this kind of business would be to get more clients to do custom work for, and pretty soon, you wind up getting lots and lots of work but not enough people to do it all (we hit this stage early on, and nobody was happy, not us nor what clients we had). Company hires more people, and profit margins shrink accordingly. That's the main problem. The same is true of doing support work. Support work needs people to do it just the same as custom development, and the more support contracts you get the bigger your support staff needs to grow to accommodate all those contracts. The bigger your staff, the lower your profit margins become. The business can be stable, but stability also means few opportunities for growth.

Of course, combine this with globalization and you get outsourcing, and that's why I'm reasonably well off here in the Third World. Labor's cheap here, and while our profit margins shrink too as we hire more people, they don't shrink as much as they would elsewhere. We pay wages the equivalent of approximately US$200 a month for entry-level programmers, and they consider themselves reasonably compensated. I doubt that such wages would even be considered survivable in places like the United States, Japan, or much of Europe.

Re:Gold in software support, training and publishi

[dalutong]

"there is gold in software support, training and publishing."

thats all well and good.. doesnt help a programmer pay the bills though.

Sure it does -- the company gets revenue through support, etc and pays programmers to make software so they have a product to support.

Curiously...

[Spy der Mann]

Today I watched a TV show on hackers. How the hacker culture formed, from the phone interventions to the computer makers. One thing that called my attention was Bill Gates' letter to the homebrew computer club, saying:

"As the majority of hobbyists must be aware, most of you steal your software. Hardware must be paid for, but software is something to share. Who cares if the people who worked on it get paid?"

It's so funny, isn't it? At the beginning, Bill Gates complained about people sharing "his" software. But now, people sharing FREE software (Linux, OpenOffice) is what's ruining his business.

Oh the irony....

Re:Curiously...

[Seumas]

I dunno. I like to think of windows as "number two".

*cough*

Re:Curiously...

[ghakko]

I don't think there's any irony here, because Gates was being sarcastic. The letter itself was bitter complaint about the majority of Altair users not paying for copies of BASIC and hence "stealing" the development effort he had put into writing it.

At the time, this was rather novel concept. The mainframe and minicomputer vendors of the era basically sold hardware, the cost of which far dwarfed that of hiring programmers to write the operating system and application software they ran. Thus, turnkey solutions were not common; institutions like universities, banks and government agencies simply hired large computer departments to support their software.

When cheap, mass-produced microprocessor-based computers appeared, a sort of upside-down market appeared. The unit cost of each computer was low enough for hobbyists to buy a computer each; each hobbyist could be separately sold software as one would boxed goods to recoup any up-front development costs.

As with selling other kinds of consumer goods, selling software like this can be very marketing intensive: so much so that today, in this age of web-based services, the shrink-wrapped cardboard box frames the wider public's perception of what software is. It's interesting to see that many newly-arrived computer graduates, having used consumer hardware all their lives, are sometimes shocked (or even offended) to see tangles of homebrew, site-specific stuff running behind the scenes in the enterprise. Surprisingly, many managers also hold similar views and believe complicated systems can always be snapped together easily (a la Lego) from off-the-shelf boxed products.

That letter was Gates on the cusp of realizing that he had a viable future business model. It looks like he really went on to change the world—whether for better or for worse, I don't really know.

Does that make it better than the alternative?

[ReformedExCon]

If you want to say that Open Source software can lead to a viable business strategy, then I don't think anyone can really argue with that. There are companies that sell bottled water and others that sell magical stones, so there's got to be some way to make money stuff that is given away for free.

But is it a better strategy than actually selling proprietary software? Perhaps, but then again, it depends on how you define "better strategy". The whole point of keeping software closed is to keep control over the product. By doing so, it is possible to make money through lucrative licensing schemes. And the best part is that you only have to write the software once in order to license it multiple times.

With Open Source software, the product is generally available for free from any number of vendors, so such a situation limits the licensing fees that can be generated. Also, because of the nature of Open Source software, customers may choose any number of other service companies to do customization work. This is not the case with Closed Source, as the company that owns the product maintains strict control over who has the ability to do customization work on it.

On top of all this, how lucrative is "Service" anyway? In general, a product-driven strategy has a better margin than a service-driven strategy. A product only has to be written once, so the costs are all up front. In a service company, each project requires a certain number of employees, and as projects increase, so does the required headcount. There is always a growing cost of payroll associated with growth in a service company, so much so that as the number of engineers increase, the profit margin falls significantly because of increased costs such as HR and "non-essential" staffing overhead.

This is not to say that there isn't money to be made here. In fact, there is a lot of money to be made by keeping projects to a minimum and keeping headcount low. However, a company with any aspirations to become large and self-sustaining must rely on a strong product base and not solely on service.

But it doesn't mean that Closed Source is better. Just different. In many ways (such as from the point of view of the customer), Open Source represents a much better solution than Closed Source offerings. However, from a business standpoint, it's hard to imagine why anyone would see OSS as a better alternative to CSS.

Re:Does that make it better than the alternative?

[Ctrl Alt De1337]

There are companies that sell bottled water... so there's got to be some way to make money stuff that is given away for free.

They give away water where you're from? Where I live it's part of my monthly utility bill ;)

But seriously, the US economy has been converting over to a service economy over teh past century. It has been quite some time since GDP was more products than services. Products can be made anywhere, and with software the transportation cost is nearly $0. If you rely on software products then you had better be sure that you're the best or else because lower-cost software can be made in India and China.

Services can go either way. The call center may be in Bangalore, but if you need someone to come to your business in Topeka either for training or an on-site service call, there's definitely not going to be someone coming from New Delhi to do the job. Services are a great hedge against the future, which is probably why IBM is shifting focus away from solely producing their international business machines to providing consulting service. Plus, it's perfectly in line with where the US economy has been headed for decades.

Re:Gold in software support, training and publishi

[Russ Nelson]

doesnt help a programmer pay the bills though.

I've managed to pay my bills selling support for the last 14 years. First for packet drivers, then for qmail.
-russ

Re:Gold in software support, training and publishi

[Cave_Monster]

Not every company that offers training, support, documentation etc actually produce the product(s) in their service. For instance you could have a company that builds and deploys computers running RedHat and then offer support to their customers as an added extra. Because this company doesnt also need to pay the salaries of programmers, they may be able to offer a lower support cost. Granted this wouldn't be official RedHat support, but hey, when grandma can't work out that the reason she can't copy a file onto her hard drive because her disk is full, official support isn't really necessary.

Note: RedHat was just an example and they have worked their business model pretty well, but I can't see it working for everyone.

I beg to differ.

[Bruce Perens]

I do not believe that businesses with a product that is related to Open Source will be, or are, the main driver of Open Source software development. The companies that use Open Source software to get a job done, and that have a product that has nothing to do with Open Source, are the most important ones. If you trace the money that pays for software to its source, those folks are it - software vendors just work for them. All of those companies devote some money to writing non-differentiating, cost-center software. They can distribute the cost and risk of such development by using Open Source for all enabling, non-differentiating technology. I've written a paper that goes into this. You can read it here.

Bruce

Re:I beg to differ.

[Ctrl Alt De1337]

The part of what I have read so far that jumps out at me was this:

Is the greatest economic effect of Microsoft the fact that they have enabled a great many businesses - their customers - to do business more efficiently, and to have businesses that they could not operate at all without the software that enables them? Yes, that is the biggest economic impact of Microsoft.

Microsoft is a tool-maker, and the effect of the tool-maker on the economy is tiny next to the economic effect of all of the people who are enabled by the maker's tools.

It's like my marketing (shriek! yes, marketing) professor says: when people buy a 1/4 drill, they're not really buying a 1/4 inch drill, they're buying 1/4 inch holes. The product itself is not as important as what it does and how it benefits the consumers.

I think this is an area that open source could use some work on. It's not necessarily that the drill has to be shinier, fancier, or even more featureful than Microsoft's/Adobe's/any other propreitary software maker's drill, rather it must drill better holes more reliably at a lesser cost. Then, we can can worry about what kind of finish is used to make it gleam under lights.

Case in point: KDE and Gnome both put a lot of work into eye candy, and justifiably so, but neither can give me a list of all the wireless networks around my computer in just 2 clicks in a default setup - but Windows can. I'd imagine OS X probably could too. It's these kinds of things that I'm talking about. Supporting wifi isn't enough - that's a drill that leaves jagged stuff around the 1/4 inch hole instead of making it clean all the way through.

Re:I beg to differ.

[Bruce Perens]

One of our main differentiators is control. Rather than sell 1/4 inch holes, we're selling the ability to drill the size of hole you want, and not be limited to the drill sizes they have at the store.

Bruce

Re:I beg to differ.

[Bruce Perens]

Isn't a compiler essentially the ultimate tool of control?

Yes, if you want to sustain all of the cost and risk of development all by yourself. One of the main points of Open Source is that you can distribute that cost and risk among many parties.

Is "control" a euphemism for "incomplete"?

We have lots of finished software. And the world has square holes and round pegs. The people who finished that software never dreamed of a square hole.

As an example, I once met a Divinity Ph.D. who was using the Debian Linux distribution as a research tool. You can be darned sure that we had not planned on a divinity-friendly system when we made that release.

Sure, software can have scripting features that make it customizable. We used to believe that we could make "software ICs" using object-oriented programming and connect software stacks together as black boxes. But object-oriented programming did not achieve the level of reuse that people thought it would, because we never design the object for all possible needs. So, we need Open Source so that people can get at the pieces that need changing.

Bruce

Re:Gold in software support, training and publishi

[Bronster]

The company paying the salaries of the programmers also has a much better insight into the product, and hence can support it to a much deeper level, as well as produce fixes or customisations in a shorter timeframe than a support company that doesn't have anyone inhouse who knows the codebase inside-out.

The small-time operator helping grandma do monkey tasks and being paid peanuts for it - well, there's room in the ecosystem for them, and they free up the programmers at Redhat et al from having to deal with the grandma level issues.

This only works if...

[Animaether]

This only works if the company that's providing this support/documentation/etc. is

1. the same company producing the software
and
2. is producing support/documentation/etc. that is qualitatively / quantitatively better than freely available resources.

For practically all open source products available there exist publically available Forums where anybody can ask a question and get a reasonably quality or even high quality reply.
In addition, for the majority of open source products there are many resources available with regards to documentation, tutorials, etc.

So the only way you're going to make money off of support/etc. is if you can 'beat' those freely available resources - and I'm not entirely convinced that works for 'any' open source software. I feel like that is reserved to some of the larger and more 'difficult' open source projects such as Apache (plenty of free resources out there, but also plenty of companies providing dedicated support/etc. for it).

--

And of course with regards to #1... if you code a piece of open source software, and you try and sell it, and it's not selling.. and you don't have the time/resources to even try to make money off of support/etc. then you're still not going to make money off of your open source software - but others might.

Re:This only works if...

[ortholattice]

So the only way you're going to make money off of support/etc. is if you can 'beat' those freely available resources - and I'm not entirely convinced that works for 'any' open source software.

Why you think your theory is somehow limited to open source software? Windows support information is also "freely" available on Microsoft's site and various forums. How would you explain how all the MCSEs etc. earn their keep?

The fact is that only a tiny percent of IT professionals earn their keep producing software for commercial sale. The vast majority customize software for in-house use and provide support, both in-house and as consultants. They are hired by people who don't have the time, skill, or experience to look up the "free" information and determine what's relevant. Medical information is available for free, too, so why bother going to the doctor?

Customization is arguably easier with open source, since you have the source code, and far safer for a company's financial health from a long-term point of view, since you are not at the mercy of a vendor who will make their base software obsolete and unsupported (yet who still won't provide the source code).

Parent is NOT troll

[Anonymous Coward]

Parent should not be modded "Troll". He brings up a valid point: if someone offered me a free car and said they would offer "service and support" for a fee, I would immediatly assume the car must be prone to having problems.

It's similar to a week or so ago when an article on slashdot brought up Microsoft entering the anti-virus/security market. It seems like a conflict of interest when part (or all) of your revenue comes from fixing your own company's mistakes.

With that said, I am still an avid supporter of open source and roughly 50% of the computers where I work run Redhat Enterprise Linux.

Re:Parent is NOT troll

[LDoggg_]

Parent should not be modded "Troll". He brings up a valid point: if someone offered me a free car and said they would offer "service and support" for a fee, I would immediatly assume the car must be prone to having problems.

The problem with that analogy is that support is never free. Vendors of proprietary closed source software also charge for service and support.

Re:Parent is NOT troll

[mattjb0010]

The problem with that analogy is that support is never free.

Tell that to my Mum.

Re:Parent is NOT troll

[FireFury03]

and it's too easy to break a program and not know how you broke it.

I get this problem with _all_ systems. The difference is that (as a techie) it's easier for me to debug a problem under linux because I don't have to deal with a black box where it's impossible to see what's going on in the middle. Very often with closed systems, if something breaks there's very little you can do to debug it and you probably end up wiping the system and starting from scratch.

For instance, I have had a Windows PC since around 1998. I have never ever had to actually call a support line on software issues other than problems registering shareware.

Congratulations - I've been using Linux for about the same length of time and have never called a support line.

Even on the server side, things like IIS are not that difficult to configure. SQLServer is more of a pain, but that's true of all database systems.

I'm not wholly sure what your point is - Apache is dead easy to configure, as is Postgres.

These are issues that Microsoft are trying to use as ammo against the total-cost-of-ownership estimates between Linux and Windows.

And it's notable that pretty much the only TCO reports which come out in favor of Windows are the ones funded by Microsoft...

In my experience, whilest on any system you may end up spending a long time figuring out how to solve a problem or get it to do something non-trivial, under a FOSS system you usually come out with a solution (even if this involves modifying the software) whereas under a closed system you often come out with the realisation that what you were trying to do isn't possible with that system.

Certainly, debugging a problem is a lot easier if you can look at what's _actually_ happening inside some software (or indeed the kernel) rather than just having some spec (if that) which says what's _supposed_ to be happening. Additionally, Linux has a lot more tools available for debugging problems.

There's more than support

[max born]

Damien Conway, who trains programmers through his business Thoughtstream, said: "I think the most successful of those is definitely licensing support; providing the software and then saying: 'if you want to buy a support contract, here's what it will cost you on an ongoing basis'.

There's more than just support:

There's also building and designing systems using open source. Like backup and mail systems, for example. It can sometimes be a lot cheaper (in savings on proprietory licenses) for a company to hire someone to implement an open source solution.

Then there's customization. Sendmail does X and Y but some company wants it to also do Z. They hire a programmer to write an add-on or a module. Again it can be less than buying proprietory licenses.

I've been implementing Linux systems for nearly 10 years doing just this and I've made a lot of money by helping companies save money.

Sell Improvements

[queenb**ch]

I cannot tell you the times I've ripped down an open source package that was oooo, ever so close to what I really wanted. If the source code happens to be in a language I know, I usually felt pretty free to modfy it to suit my purposes - namely the pursuit of world domination.

All kidding aside, this business model already exists. I've seen a lot of web shops that run this way now. They get ahold of some open source portal product, learn to tweak it, and then they sell it to all their customers with a specific set of tweaks for each customer. Heck, if more people knew they were running on Mambo, they'd be on the phone yelling at their web guys for charging them umpty-thousand dollars for "a custom portal application".

2 cents,

Queen B

The Open Source Model Just Makes Sense

[quadra23]

These are programmers building great technology to help their peers to build software to solve customer problems.

Let's face it, the Open Source Model is more focused on meeting the needs of its user community for the sake of the community. In contrast, the closed-source for-profit model typically works on the basis of, "Is this good for company? Will this help us sell more product?". When your concerned 100% about the community your mentality behind development is far more focused on the solution and how the product can be improved, with no extra baggage like the requirement of turning a profit by giving focus on things that would simply sell a product (the changes in closed-source could be good or bad, since the focus is a sell not product improvement). I know it's been said before but it can not be overstated, for-profit companies can easily disappear and no promise that any sort of support is available in the future. The Open Source Model is so flexible that as long as people still use the software it can still be improved and developed. Essentially it's quite hard when using Open Source to lose any time investment (unless the software was that poorly used to begin with), while with closed-source model you can lose both time and money when the company that provided you the product disappears as well as the product support to never re-surface again.

In Open Source there is little room for added restrictions now and later that would require another license for using the software, while for-profit will always say the EULA is subject to change and can later lock you into paying continually more. The real gold in the Open Source Model is the flexibility it gives in use of the software. The protection from a lot of the stupid restrictions (i.e. paying based on number of concurrent users of the software) that we see in closed-source software almost practically pays you back in peace of mind and saves people from features in closed-source software that are specifically designed to lock you into their products.

Re:Gold in software support, training and publishi

[ghakko]

"Support" can mean:

1. Customization/enhancement work.
2. Migration and deployment.
3. User support.

For example, many of Red Hat's larger customers have service contracts where they pay for 1 and 2. People who buy their shrink-wrapped product pay for a bit of 3.

Flocking obvious, BBC!

[Anonymous Coward]

One very recent open source innovation is Flock, a browser that integrates next-generation web technologies such as RSS, blogs, bookmarks and photo sharing.

That would be the same Flock I downloaded the preview of last week - the one that is a build of Firefox with a new skin, a mildly different methodology for bookmarking (meh, tags) and er... er... it has a pop up editor for your blog that er... is not quite as good the one you can get by er... going to your blog and er... creating a new post... oh and a really shonky clipboard feature...

Oh and Next-gen web technologies? Hmm, my first blog (and I was slow to get on that bandwagon) er... 2001... so four years ago, practically neolithic in IT terms. RSS, hmm, played with that in 2002 for the first time professionally. Bookmarks, they've been around at least a decade in web browsers and the prior art must stretch back to the dawn of computing. Oh and photo sharing... has been around since a tech first realised he could digitise a pair of breasts and then display them on a teletype and then send it to his mate at the next terminal*

* and I'll bet there are some suggestive punched cards out there as well...

Re:Gold in software support, training and publishi

[bm_luethke]

That's a personal problem, the last job I had I made plenty through doing software support, training and publishing in the software I wrote. I knew it better than anyone else so mine tended to be the more in-depth stuff. I suspect that my next job will do so also.

It's pretty common, look how many tutorials and papers at places like Ottowa Linux Symposium, Supercomputing, and other large conferences are written by the programmers. Even in some semi-canned software (Autocad for one) I've been put in touch with the programmers for support.

It's not code monkey work if that's all you want, it takes more discipline and knowledge, but it can be very rewarding. But then if all you want to be is a code monkey you shouldn't be complaining about this in the first place - you are limiting yourself in both your position and salary.

Re:Obviously

[spuzzzzzzz]

But is that relevant in the context of this article? If the software they were selling was open, you could buy support from whoever you wanted. This destroys the incentive to produce buggy software because the writer of the software never knows whether they will be the one paid to fix it.

One more important option.

[Vo0k]

Selling THE software.
Not "licenses to use", not "support+media+manual" packs, but THE software, that is binaries+source+specs+tools+IP+support+customizati ons+... so the buyer becomes actual OWNER of the software, not just a licensee, "person permitted to use our package".
Sure that won't work in case of simple, tiny generic apps, but for specialised software - the government commissions a countrywide tax system, vote counting system, car registration index, health care accounting software, portals for government institutions and such. It's not likely the company would sell more than one (countrywide) license anyway, and profits from access to the sources, API, specs, ability to release the userspace tools for people for free, while making them possible to be modified to fit existing systems, it's all very important.
People paid to create software, pay for work, not pay for item. People paid to modify the software, audit the sources, add features, keep it bug-free (not pay per bug, but pay per month of bugfixing support service), people writing manuals, how-tos, guides - lots and lots of opportunities to get paid for work on common, publically accessible code base. And of course getting paid to create the code base in the first place.