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Open Source Economics and Why IBM Is Winning
driehle writes "In an article published in IEEE Computer magazine I recently looked at the economics of open source. I argue that large system integrators will do best and that open source startups will keep struggling. For developers, open source creates independence and new career paths as committers, while non-committers will fall on hard times. The race is on!"
I came across Dirk Riehle's excellent article: "The Economic Motivation of Open Source Software: Stakeholder Perspectives" while reading the April issue of Computer on the train this morning. Thankfully, he's also put it online.
While there's certainly some truth in the example of how loyalties are shifting - and individuals might stay loyal to a project (or set of projects) across employers, just as IT professionals have always carried skillsets, language preferences, etc. across employers - I don't think this necessarily means more movement in this direction, for a few reasons:
1. Developers get involved in multiple projects. Core open source folks might start as contributors and become committers on a single project, but that is more a reflection of their interest in being involved than it is of their interest in that specific project - if the employment environment (quick Optaros plug here?) is explicitly supportive of that engagement across projects developers might discover new loyalty.
2. If the employer can uncover enough opportunities for developers to get paid to use their favorite project - for example, keep a developer busy working on Drupal based applications - they might accept the variety of new projects as compensation for the single employer. The joys of systems integration and consulting work is that if you change client projects frequently enough that it can be like changing jobs without all the paperwork.
3. How much of the whole "employees becoming 'free agents'" thing is really voluntary to begin with, at least on the IT side? Maybe a better way to look at this is to say that Open Source increases the level of portability of the knowledge an IT worker gains over time with any single employer, or decreases the barriers to leveraging that existing knowledge in a new firm.
Regardless it's a very good read for business stakeholders who struggle to understand why anyone wants to open source an in-house project or contribute to an existing open source project.
Please mod me only (+) Underrated or (-) Troll
Substitute restaurants, or retailers, and the situation is the same ... most smaller ones fold within 5 years, some extyablish a niche, some grow, and some get bought out.
This is so pre-dot-com and so obvious that its not even funny. What next: 2+2=4?
MSFT doesn't look like a losing company, does it?
Whoever commits to OS projects is likely more involved in the whole process than an outsider who simply tries to skim off some of the profit. As a customer I'd rather spend my money on a company that is involved in committing to what I pay for. After all developers tend to know best what they have done so far.
For a really useful and insightfult article on Open Source Economics, I thought Bruce Perens' article was the best.... no catchy graphs, tables and colours, but still very thoughtful and well-researched.
0 07/computer-2007-article.html
http://www.riehle.org/computer-science/research/2
IBM has nothing to do with the origins of 'Open Source' or Free software for that matter.. they just tagged along.
If you keep throwing chairs, one day you'll break windows....
No, actually, I think Stallman is a good counter-balance to the 'earn money at all costs' types out there. His extremism balances out the other extreme and let's us normal people see both sides of the equation more clearly.
I may not like the man, and I may not like his zealotry, but when looked at as a piece of the whole, he needs to be there.
"If you make people think they're thinking, they'll love you; But if you really make them think, they'll hate you." - DM
Cool, the perfect first post. Blessedly free of insight, whilst at the same time vaguely insulting. That and moderated to troll within ten seconds.
I've never managed that before, another slashdot first for me.
In other news : alea jacta est
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I'm not too keen on Stallmans ongoing political agenda, but I cannot imagine an open source world without his keystone contributions.
His implementation of Lint (Splint) has reduced me to nervous wreck on more than one occasion, but it did improve my C coding skills.
About the only thing he wrote that I don't use is Emacs. I can appreciate its quality, and have taught its usage in the classroom, but I prefer Vim.
Thing is, politics aside, the guy is one awesome hacker, with few equals and fewer betters. Ok most of those achievements are in the past, but that can't be used against him unless the person making the argument has first exceeded his output.
If it's this splint, then it's not Stallman's work
You replied to your own post like that!?
Here, have an ego cookie...
heh
Millions of people and businesses all buying the same software is economic insanity. It's not at all the same thing as millions of people all buying the same kind of car. A car has intrinsic value related to the cost of the components, software doesn't. Software sunk costs are incurred during development. Once complete the only ongoing costs, outside maintenance, are for distribution and the media. You don't have any intrinsic value of metal and parts in software.
Instead of paying money to buy software, a company can instead choose to pay less money to modify an open source project to meet their needs and leverage the contributions other companies have made modifying the same project to their needs. It's game theory in action. Five companies all pay a little to modify an open source project instead of all five paying a lot for some big box software solution. Collaborate with competitors in the same field for the common product they all need, then compete in pursuit of their market. Game theory.
What was needed for the theory to become disruptive to reality was a base of open source software to start with. We've had that for a while. All the pieces are there. And, as the author pointed out, it presents an opportunity for integrators.
Software really does fit the utility economic model better than a manufacturing model. Which is one of the things that really scares me about the US shipping manufacturing capability overseas and relying on a brain share economy.
That's our life, the big wheel of shit. - The Fat Man, Blue Tango Salvage
Look at his name...
It's not exactly rocket surgery.
IBM is winning because IBM sell hardware, and since you can't copy hardware...well you are forced to buy at the price asked if you need something from them....
Open Source is only a solution for IBM to maximize its margin by lowering the cost developpement by shifting cost to other companies or naives individuals.
and of course, open source still offers NO guarantee of working.
but well at least, you can have it for free.....
First of all, there is a lot of money spent on Open Source (distros, hardware vendors, service providers, people who would've otherwise paid for s/w, but now produce stuff with free tools, etc). We are talking about millions of $$ which would be enough to give $10k to every oss project out there.
:)
From all this money a tiny 1% actually reaches OSS developers and it is usually only for mainstream projects. The cash flow is broken. Sure, OSS people give away their work for free, but if money is made from it, it would be good if the people who've put effort on something can get a fair contribution back.
Now they tell you, "do your best and maybe you'll be hired in one of those 100K/year jobs".
But should you contribute high quality software to an industry that doesn't pay back?
You can write software that is not suitable for commercial distros, yet people can download it and use it instead of commercial alternatives.
It is a different mantra. "Fund us or we'll put you out of business"
oh? Was it Lint he worked on then? I'm confused, I always thought it was him who worked on Splint
MSFT also has very "innovative" pricing schemes. In one instance, paying a flat fee per every computer owned by the univ, whether or not it has Office installed, was cheaper than paying per copy of Office. Effect of such pricing is that, there is no incremental cost to a dept to run Office. To use any other software, the dept head has to budget for it and justify the cost to the bean counters.
All I know is this, MSFT is far more sophisticated in playing Corporate pricing games, budget games and such things than any simple model used for research purposes by Open Source advocates.
My most common grouse is that the key is Open Standards, not Open Source. If MSOffice and OS products conform to a open standard and anyone can develop applications that cleanly interoperate with them, the playing field will be level. There will be many vendors, some playing at the Open Sources and some in Free Software, some closed and for-profit players. Without leveling the playing field one can not see how Open Source is going to win. But what do I know.
If I am so smart why am I coding for a living instead of smooching with the bean counters in the country clubs?
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
We are a web development company in India and we prefer open source like php to something like asp.net.
This is complete rubbish. I work for an open source company with good links with IBM and you probably work for an IBM customer which explains why you think IBM is the only option.
Let's look at their hardware business:
1) Laptops & PC's - er, no, not anymore.
2) xSeries - Intel x86 commodity hardware. But, most people seem to be going to HP or Dell...
3) iSeries - backend with good presence in retail, logistics, manufacturing, insurance. Yes you can run some open source stuff on it like Apache, MySQL and PHP and they are trying to promote this, but many customers are just running x86 commodity servers and hooking them up to connect to the DB2 databases running on these machines. More hardware sales? Probably not loads.
4) zSeries - Mainframes - some zLinux. Most people thinking of running Linux on Mainframe? Not loads.
IBM is winning because IBM sell hardware
Hate to burst your bubble, but IBM only makes a bit more on hardware than it does on software. IBM is winning because they sell services. Have a look at their 10-Q
In millions:
Hardware: 5,583
Software: 4,406
Services: 12,017
"While this explains some of the volunteer work, it doesn't explain why companies today employ people who contribute to open source projects on company time."
Maybe it is because the company sees the open source project as a strategic component to its product or service offerings and its in their best interest that the project succeeds and they can influence its direction?
"Il-Horn Hann and colleagues found that the salaries of Apache Software Foundation project contributors correlated positively with the contributor's rank in the Apache organization [6]. They therefore concluded that employers use a developer's rank within the foundation as a measure of productive capabilities."
For me, that is not right conclusion, or at least not the only one. It is often the case that people contributing to open source on company time only started contributing because they were told to by their employers. A developer salary at his company and their rank within the open source project are both determined by his technical skills and teamwork abilities.
oh, I forgot pSeries - their PowerPC based servers, which is OK because most other people have too...
I was not telling IBM was succesful 'because' of hardware, I was telling the only use to IBM for OSS is for their hardware branch (to get rid of AIX that is costly to maintain).
They don't give a shit if it is closed or open source in their Services branch anyway.
Neither the article nor the summary mentions IBM.
I've been waiting for trained economists to attack problems such as open source and wikis, file sharing and digital piracy, brand knockoffs, online classifieds, offshore IT employment, and reality TV w/o either lapsing into platitutes or ideologic diatribes on one hand, or presenting a scholarly tract dense with footnotes but meager in insight. This article coins a useful phrase "commercial open source" (well, I'm sure he wasn't the very first, but nobody ever is as Google reminds us) and even has supply and demand curves!
I hope to read an expanded verion from the author as he continues to research this subject.
well of course Open Source is only going to help mega-corporations.
It's a lot like slavery: who is going to see the most benefit from owning slaves- a guy who only has one or two to work a small farm, or a wealthy plantation owner who has hundreds of acres and hundreds of slaves? It's the simple economics of scale, and the bigger you are, the more you save.
Welcome to the future, Open Source Serfs!
theres latin grammar police in slashdot too now eh ?
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I especially liked: "Every dollar a system integrator saves on license costs paid to a software firm is a dollar gained that the customer might spend on services."
My vision for the future (from an independent consultant's viewpoint) is the development of such a rich open source ecosystem that the cost of building unique applications is drastically reduced. As development projects become less expensive, companies and organizations will fund more projects because the cost to benefit ratio gets lower - and "fringe" projects start to get funded.
how will your third post et modded down?
I vote for "redundant"
being vague is almost as cool as doing that other thing...
While I can stomach Perens in that he is not an FSF loon and at least recognizes the economic justification for proprietary software as a competitive differentiator, his assumptions seem a bit off base in order to support his theories.
Example: IBM is a hardware company.
Fact: IBM's 2006 revenues:
HW: 24.2%
Services: 53.2%
Software: 20%
Other: 2.6%
Collaborate with competitors in the same field for the common product they all need, then compete in pursuit of their market.
Why would any company willingly give up any competitive advantage? That's business suicide.
Why would I, as a business owner, give my good, custom, closed software away to competitors that don't have anything like it, just in the hopes that my software will be marginally improved? In the meantime, assuming that my competition CAN improve my software, I'm giving my competition a huge advantage they didn't previously have. It's a LOT of risk, with minimal reward, for people who already have a software advantage.
I don't respond to AC's.
Probably depends on ones language origin... Growing up in Germany I have always saw it with the "j".
Agree completely. Their services branch will recommend and implement Windows as your corporate desktop, and whatever else proprietary as your business tools.
well, you were right. I'd have gone for redundant as well, but only because there's no tag 'dorkish'
what can I say, it's been a year and I've never deviated from excellent karma. Time for a change.
It's really hard work though, I've been at it all day, and not a change in sight.
against seats. front row, middle row, rear row, i accept them as they are.
Read radical news here
If you are primarily selling services, software that you need to provide those services is a cost. If you commoditize software, you create more opportunity to make money from services. Those fancy four-color graphs are simply restating something Joel On Software said a while back in words.
You're forgetting one thing. Most people don't need 100% of the features in an application like AutoCad and it's often possible to bootstrap other applications.
...[you get the picture]...
Here's one approach you could duplicate AutoCad:
1) Modify Blender (or some such 3D modelling app that's more appropriate) to save and load AutoCAD-compatible files. Yes Blender is a pain if you want to do AutoCAD-type work, but at least it allows you to get the job done.
2) Add the most important (missing) AutoCad features to Blender.
3) Add component libraries to Blender to include as many as the AutoCAD libraries as possible.
4) Add AutoCad-type scripting to Blender
5) Improve the user interface of Blender to be more like AutoCAD
6)
It may take a few releases and a few years, but an AutoCAD-capable clone should be possible.
Dude. If you have nothing better to do than fuck with your karma on Slashdot, move out of your mom's basement and find a real job.
My blog. Good stuff (when I remember to update it). Read it.
> Why would any company willingly give up any competitive advantage? That's business suicide.
Not really. The key phrase you're forgetting is "core competencies". Companies collaborate outside their core competencies all the time. It's a great way of lowering costs without giving their competitors the edge (since their competitive advantage is not being shared).
Here are some examples where collaborating outside your core competencies makes sense:
1) Software companies to collaborate an a common installer. The installer is important but no-one buys software because the "installer is cool", so collaborating with your competitors is a no-brainer.
2) Integration consultants collaborating on making open source software more flexible. Integration consultants, by definition, write very little software. Their skill is in their head and being able to tie software together. The more software they can tie together, the more business they get and the less software they can tie together the more likely one of their clients will want to buy a prepackages solution or build from scratch. Collaboration makes sense here too.
3) Your farming business wastes a lot of money getting water from a river ten kilometers away. There are seven competitors between you and the stream. You have two choices -- go it alone or collaborate. If you go it alone (assuming it's possible), you'd spend a bundle and take a lot of time and but not gain much competitive advantage over the competitor closest to the river. If you collaborate, you can spend less and use the savings to improve your farming efficiency. Which would you choose?
"Most people don't need 100% of the features in an application like AutoCad and it's often possible to bootstrap other applications."
Yes I'm sure there's a lot of non-architects who don't need the power of an application like AutoCad. For them there's already a number of $20-$50 packages that will do the trick, no additional development is required.
But IBM software's profit margins are something like an order of magnitude larger than their service profit margins.
That is, what is the economic impact of being able to 1) see and study and understand the software via its sources, and 2) the ability to make changes without having to wait for vendor schedules, or argue for getting the enhancement at all?
What is the economic impact of de-facto open standards that arise because the reference implementation is widely used? (like, lots of Java developers in the job market)
Well, I know it's run by the *EVIL* Novell corporation, but there's always the option of ASP.Net through mono. In fact there was a huge push to extend ASP.Net 2.0 support in mono for the recent Race To Linux contest. It's well supported, with applications making way into the default install for several Linux distros, including Ubuntu.. I mean it's not like any major site is using it...
Michael J. Ryan - tracker1.info
You sir, are very correct.
I cannot deny that it's sad that I do this. However I am indeed stuck without a job for the next year while I write up, and I'm bored.
I view friday and saturday as 'have fun on slashdot' nights. because I can't afford much else. What's irritating is that I keep making comments that get modded up because, dammit, slashdot has such interesting debates.
IBM is winning because IBM sell hardware, and since you can't copy hardware...well you are forced to buy at the price asked if you need something from them.... Open Source is only a solution for IBM to maximize its margin by lowering the cost developpement by shifting cost to other companies or naives individuals.
But if you are a purchaser of hardware, an open source solution guarantees a few things that closed source doesn't:
No conflict of interest features in the software-- such as software lock-in mechanisms, licensing limits, subscription limits, needless bloatware, useless features, new incompatibilities evolved in to force an upgrade (because upgrades are how money is made), incompatibilities designed to bar compatibility with competitors, proprietary enhancements to standards, etc.
The ability to port the software to new hardware (or the availablility of compatible hardware from other vendors) constitutes significant business security. Any app you run on IBM hardware under Linux has a pretty good chance of running without much problem on other hardware that also runs Linux, should IBM hardware go in a direction you don't want (such as more expensive, or should they phase-out the product line and change their mind about open source). If you have some issues in moving to Vista, sorry bud, you're stuck with it, unless you can keep your WS2003 and XP machines running forever.
U gotta be looney 2 spend ur time doin 4 others 4 nothin
If u dont want 2 b paid ur a nutcase 4sure
Maybe trying to prove some point about a shortcoming of the moderation system. Wouldn't be the first time, would it?
...the future crusty old bastards are already drinking the Kool-Aid.
Stop discriminating against grammatically challenged !
Read radical news here
It's news because some idiots will tell you there's not business model that will work at all. To them, and many others, the fact that small and large businesses are not only possible but exist and are thriving is the kind of news that contradicts previous lies.
DMCA, Hollings, Palladium. What might have sounded like paranoia is now common sense.
Look, you should never do an Open Source project to get hired somewhere. You should do it because you enjoy doing it and it's your hobby.
Sure, but replace "an Open Source project" with "ANYTHING".
Do a master's degree in nanorobotics because you enjoy doing it. Spend your evenings reading about compiler theory and language design because you enjoy doing it.
I think Stallman is a good counter-balance to the 'earn money at all costs' types out there.
You might have noticed that big and small companies are earning lots of money without taking away your software freedom, so this is no longer a business discussion it's a moral one. It is now cheaper and more profitable to develop, use and vend free software than it is to do the same with non free software. The biggest clue for you is the collapse of the non free software world to a small number of very large and abusive companies.
Freedom + slavery = slavery, you can't balance a little of one with the other. This is the message the FSF is trying to get through to people. You have the right to use their computer as you see fit, it's as simple as that. As the big publishers try to push digital restrictions down your throat, the goals of non free software are more obvious than ever.
DMCA, Hollings, Palladium. What might have sounded like paranoia is now common sense.
the development of such a rich open source ecosystem that the cost of building unique applications is drastically reduced
My experience is that a rich ecosystem is not always what you want to reduce the cost of building applications... because a rich ecosystem includes mosquitos and malaria and rabies and gangrene. It doesn't matter whether it's a proprietary or an open source "ecosystem", either: the ability to cherry-pick the good stuff and run from the bad like it was a swarm of radioactive bees is already a marketable skill.
I mean, I dare you to follow the crusty dried-out spaghetti inheritence in the Mozilla source tree far enough to tell us exactly how proxy handling is done. I gave up.
An AC directs me to the rotten.com article on Bill Gates. Thanks, AC, that's a very funny page. Oh yeah, it's also more reliable than anything from M$.
DMCA, Hollings, Palladium. What might have sounded like paranoia is now common sense.
IBM appears to be winning because they did the appserver better than Weblogic. This graph is a little old but still relevant -
s Dejanews.png
http://www.realmeme.com/Main/miner/java/AppServer
I've been a Websphere bigot for the past seven years but cost issues moved me into the JBoss space this year and I've got to say...
I can see serious issues with IBM's profit margins in the near future.
You turds trolled the BRLUG and got this. Ha ha, I missed that one, thanks again.
DMCA, Hollings, Palladium. What might have sounded like paranoia is now common sense.
that I found on Gutenberg - right after reading most of the comments in this discussion - titled "The Man of Letters as a Man of Business" http://www.gutenberg.org/etext/3388/ by William Dean Howells/ certainly resonates with my own felings and observations - from what I have read thus far - on the entire realm that this discussion addresses.
http://en.wikipedia.org/wiki/William_Dean_Howells
From the book:
"Literature is Business as well as Art."
"Public whose taste is so crude that they cannot enjoy the best."
MRH
SARAVA!
Hardware revenue of $5,583M less hardware costs of $3,481 nets $2,102M.
Services revenue of $12,017M less services costs of $8,676 nets $3,341M.
Software revenue of $4,406M less software costs of $647M nets $3,759M.
So software is still the biggest contributor to net income, with services a close second.
and of course, open source still offers NO guarantee of working.
well, you know, almost NO software licence contract provide any kind of guarantee of working, and buy that I include Microsoft & all others "desktop" software.
Not sure who the 5, Troll is who posted this, but it (the comment) is copied directly from my blog post of April 10th - Economic Motivation of Open Source Software" - without attribution. Lame. John
"This work is licensed under a Creative Commons Attribution 2.5 License." :D
5T
. . . which is exactly why I said "without attribution." Happy to see the content spread just surprised to see it without attribution.
Welp, now it has been attributed. Sorry, I'll make sure to do it in the original post next time. 5T