Is Open Source Software a Race To Zero?

gozunda writes "My company is an open source software vendor/developer. We maintain a popular open source project and keep ourselves afloat by producing commercial products derived from or extending the value of the core project. Over time we've seen our business model eroding as other open source projects produce free versions of the same extensions and utilities that are our bread and butter. Something that was worth $5K last year is suddenly worth $0 because the free version is just as good as the paid. This same cycle is obviously having an impact on pure-play commercial software vendors. Is open source ultimately a race to zero? In ten years will there be any cost associated with commodity (non-custom) software? If not, will there still be a 'software industry' as it exists today, or will software simply be a by-product of the operation of other industries? Is that a good thing or a bad thing? As a professional developer, do I need to fear this or feed it?"

Comments

Yes, and there's nothing new with that

[KingSkippus]

Is open source ultimately a race to zero?

Yes, and there's nothing new with that.

Just because your software is open source doesn't mean that you get to sit on your duff and collect money off your paid extensions in perpituity. Just like any other software company, if you want to keep food on your metaphorical table, you've got to continue to innovate and improve. Otherwise, just like any other software company, your competitors (in this case, open source develoeprs) will eat your metaphorical lunch.

For what it's worth, though, nothing would be different if your software were closed source, except that your user base would probably be smaller and, depending on how necessary your software is, open source competitors would be even more eager to push you out.

Re:Yes, and there's nothing new with that

[eddy_crim]

Imagine if there was no open source. You would still have competitors and they would still be undercutting you. Remember the cost of reproducing software on CD or download is effectively negligible. So perhaps your competitors would sell for a dollar or whatever. The problem is the same. Keep innovating, sell something people want and the best possible price. Unless your selling something tangable its always going to be a race to zero for the item itself.

Working for an IBM business partner i see constant erosion of the products i work with by OSS. This means IBM must keep moving the products forward which i guess is a good thing.

Re:Yes, and there's nothing new with that

[nine-times]

I think you're right, and the idea of "copyright" in general is headed towards some kind of reform over the long term. Eventually we'll find ourselves in a world where it's not sufficient to have done some valuable work at some point, and then sit around and collect money for the rest of your life.

Now I don't know how long people will be able to hold that off, but I think it's just a matter of time. I don't think copyright is going away, but it's either going to be restructured or it's going to be ignored, as it's already starting to be ignored.

Lots of people used to ask whether FOSS could compete with proprietary software. I remember reading lots of people ask, "Will Linux be able to catch up to Windows?" I haven't seen that in a while, and for good reason. I think the fact that lots of people can contribute and no one ever really has to start from scratch means more consistent progress. So if you're a developer and your livelihood is based around building a highly in-demand software and sitting on old innovations, while hoping that FOSS won't catch up, you'll eventually find yourself in trouble.

So now to the big worry-- how are developers going to make money? I'm not sure. There will be demand for software development, and where there's demand, there's money to be made. I don't know if it's through support and services alone, or if there's something else. Maybe you just have a shorter term to make your money, and that term starts when you offer a new innovation first, and ends when other people get around to offering it.

...will eat your metaphorical lunch.

I thought we were drinking metaphorical milkshakes now.

Re:Yes, and there's nothing new with that

[novalis112]

The only problem with your rational is that if all the competition was from commercial entities, and not from people willing to work without compensation, then the bottom line would not be zero. Yes, competition would force the price lower, but the limit would be considerably nonzero. In theory all the competitors but one would eventually be weeded out as the company with the most efficient infrastructure (assuming the product quality was equal amongst all competitors) managed to sell the product for the lowest possible price while still maintaining the ability to pay for its business costs.

Re:Yes, and there's nothing new with that

[nine-times]

I don't see a particular reason to drag OSX into this, but fine, it only goes to illustrate the point. Apple was able to make OSX such a successful OS as quickly as it did only because it was able to build off of an open source base. Darwin is based on BSD Unix, Webkit is based on KHTML, and OSX is packed full of GNU tools.

But also I think Linux has become very competitive with both OSX and Windows. It seems like it supports a greater variety of hardware then either, it's just as easy to install, and it really is easy to use and attractive. The major downside to Linux that I see is still application availability, but I think that will only last for so long.

Re:Yes, and there's nothing new with that

[Richard W.M. Jones]

So now to the big worry-- how are developers going to make money? I'm not sure. There will be demand for software development, and where there's demand, there's money to be made.

Agreed 100%. It's just like being, say, a builder. Is it a terrible thing if you build a house and then let the public live in it without paying you a fee every time they enter? Is that putting honest builders out of business? Will builders starve? Erm, no, because new houses are constantly needed, and old houses are constantly repaired and replaced.

Rich.

Re:Yes, and there's nothing new with that

[Hal_Porter]

In a closed source for-profit world, the price rapidly sinks to the marginal cost per copy. Which is zero.

No it doesn't. Movies, music and software have always been priced way above the marginal cost per copy, mostly because that isn't the 'true price'. If you spend money on developing software, making a movie or promoting a band you expect to sell that product above the marginal cost to get back the investment and make a profit on top. If the profit was less than you'd get from investing it at base rate you might as well have left the money in a bank somewhere and saved yourself the trouble.

Re:Yes, and there's nothing new with that

[bahamat]

For what it's worth, though, nothing would be different if your software were closed source, except that your user base would probably be smaller and, depending on how necessary your software is, open source competitors would be even more eager to push you out.

Which explains all of those open sourced calendaring solutions that beat the pants off of Exchange. Oops, there aren't any that even come close. Oh well, so much for that idea.

Re:Yes, and there's nothing new with that

[zappepcs]

Whoa there nelly. Linus got rewards for his efforts. Many people are getting rewarded. The race is to equilibrium, not zero. The price of functional software had long been inflated. That is not taking RMS's stance either.

There are trade-offs in the software business and RedHat, Mozilla, and others have shown that it's possible to work in that paradigm.

Some of this argument seems to be based on a notion that all work must be rewarded, and that the reward MUST be monetary in nature. It does not always work that way. Cellular companies are willing to give you a phone if you sign up for a contract. That's free right?

Skydiving analogy: You can buy a parachute rig, or use one that is given to you freely. Now, all things equal you can choose to pack it yourself or pay someone to do it for you professionally. Staying on point, the free one can be modified and changed, the one you had to pay for can only be changed/modified with parts from the original vendor. So with either rig you pay to get it packed, but with the pay-for rig you are locked into their cost paradigm. Which rig is more useful?

Sure, you want to make sure that the rig you choose will do the job and perform in the manner you require. With both rigs being equal, which do you choose? Some will choose the pay for model because they can blame someone if the rig fails. Others know that if you don't check your rig regularly and maintain it, it will fail no matter where you got it from.

This race is not to zero but it will force Microsoft and others to re-evaluate how they build and distribute software products. You only have to look at Sun and IBM to see that they are on track with the need to change. Whether they are making wise decisions is yet to be seen, but they are embracing the changes rather than fight them tooth and nail by creating their own standards and fighting against open standards.

The race is toward equilibrium. No matter whether a user pays for Windows or steals a copy. They end up paying to get the machine tuned and fixed. OSS just gives them the opportunity to do it themselves to skip the initial costs and lockin. F/OSS does not have a zero operating cost, but it's MUCH lower than other options.

One of the things that has destroyed the lattice work of market forces in software is Microsoft itself. They bundled so much software for free with their OS that nobody else could afford to compete. Those that could had to give away their product... and the non-monetary reward system was born. People started doing it for the luls or reputation of doing better than MS, or simply from the need to have better than MS. Some people are like that, and are happy to give it away if you have to see their name every time the app starts. The more that MS bundled, the more others did. They squeezed out the small players. Now we are racing towards equilibrium again. se la vie

Re:Yes, and there's nothing new with that

[Jah-Wren Ryel]

Man, those are some bad examples.

Most big name pop bands don't make a dime off their first hit album. Its only their 3rd or 4th hit album where their contract has expired and they are able to renegotiate based on how much money their work has earned for someone else. And the reason that is so is precisely because of the 'lotto-winner' effect of the current system which is directly caused by the stranglehold that copyright gives distributors.

On the flip side, Rowling definitely didn't need even 0.01% of that money in order to keep writing more books. From a society's point of view, all the money in excess of what was required for her to continue writing was wasted and could have been spent better elsewhere on hundreds of other promising writers that have now been crowded out of the marketplace by the harry potter monster. Similarly look at how Lucas has squandered his royalties. Sure he made a handful of good films, but all he really makes now are "just" films. How much more utility would society get for its money if it weren't squandered on things like 'The Clone Wars' and the Ewok Christmas Special that coast on the good name of his earlier works?

People often say that those who work for royalties "sit around and collect money when doing nothing"
Those same people are the ones taking a daily wage for all those years when those royalty guys worked their asses off for zero salary, to try and get to that point.

Your implication is tantamount to arguing for taxation without representation. Royalties and copyright are a 100% consensual construct of society, thus every member of society has just as much right to criticize the system. If anything, it is those who benefit directly from the system who should have the least say in how the system is run. The last hundred years or so of copyright extensions and copyright scope creep demonstrate what happens when those with a vested interest are the ones who have the most say.

Re:Yes, and there's nothing new with that

[ScentCone]

those who benefit directly from the system who should have the least say in how the system is run

Let me guess ... Obama voter?

To follow your logic, people who don't work at all should be the ones who get to say what someone who's willing to work 80 hours a week must do with the proceeds and output of that work. You are supporting a framework in which willingness to work is punished by submitting the worker to the whim of the non-worker. You are supporting a framework in which the ability to create something or to innovate means automatic slavery to those with less talent and motivation.

"Society" benefits just fine from an author hitting a resonent note and producing a series of books like Rowling's. It benefits by demonstrating that there is the prospect of being well rewarded for sparking an interest in one's work, and prolificly persuing that audience. Your model - where some entity takes the audience's willingness to spend money on entertainment they want, and spreading that money around a 1000 other authors - is absurd on the face of it.

The Ministry Of Entertainment might accidentally get it right once in a while, but the knowledge that a government agency is injecting itself between readers and writers and regulating that relationship - that might please you, but it all it would do for me is make me seek out authors willing to work for the reward of my wanting to pay them for their writings. Those who spend their day writing books while receiving their assigned sliver of the book-buying public's government mandated redistribution of entertainment funds don't strike me as the likeliest sources of what I want to read.

Most big name pop bands don't make a dime off their first hit album.

Unless, of course, they are clearly talented enough strike a deal more to their liking, and are able to show that it's not a risk for the people fronting the money. Most new entertainers can't demonstrate that sort of marketability, and they themselves know it, so they make an investment in their own success: they trade some early income in exchange for letting someone else take the early risks.

How much more utility would society get for its money if it weren't squandered on things like 'The Clone Wars' and the Ewok Christmas Special that coast on the good name of his earlier works?

Well, that sort of depends on how wisely that money is spent, and how concentrated it is on larger, more complex projects that require long-term funding during production. I'm curious which agency of the government you think should decide such things? Perhaps we can get Michael Moore to be Minister Of Good Taste And Wholesome Entertainment to direct those dollars and choose which artists are worthy? Yesiree, Change We Can Believe In!

Or, are you just pissy because the consuming public is fickle and lazy, and you don't always love the choices they make, and think that it should be up to you, instead? Yeah, I thought so.

commodity software

[Uzik2]

Personally I don't see there being a lot of value in paying for new versions of spreadsheets and word processors over and over again. There's not much, to me anyway, that's been added in the past 10 years. It keeps M$'s revenue stream high but is there value to me?

If software became more about producing new product instead of reworking the same old stuff in the language of the month I would be happy and I think there would be just as many jobs.

That's all strictly opinion, with no facts to support it.

Your business model is wrong...

[tgatliff]

You are correct with the race to zero when you talk about developed code... The more time that goes by, the more it will erode existing code bases.

As far how to deal with it... Change your business strategy to help your users more. Meaning, instead of selling code, consider working on a support model where you offer support and monitoring services to your user base. Also, another good strategy is a hosted approach. Meaning, maybe you can offer connectivity to your users...

In the long-term there is little doubt in my mind that that proprietary software will be mostly obselete for a number of reasons. First is certainly cost, but security and quality are good other reasons. As a comany you can either change or die. The choice is yours..

So it goes.

[ZorbaTHut]

The world provides no guarantee that you can forever be profitable at the thing you currently make money on.

Many years ago, people spent their lives painstakingly copying books. Today, we have printers that can do the same thing at a tiny, miniscule fraction of the cost.

More recently, people made money doing repetitive calculations, over and over again, and compiling the results into books. Now, obviously, computers can do it faster, cheaper, and more reliably.

Perhaps you're used to writing operating systems for a living. Well, operating systems are now valuable enough that people are willing to spend effort to make them free - CEOs realized, hey, I *could* spend $100,000 on licenses of an operating system. Or, I could spend the equivalent amount of money by taking an existing operating system and improving it for me . . . and for all future users . . . and then not have to spend $100,000 on next year's licenses, but instead just spend a relatively tiny amount of money maintaining our local patches.

And, hell, I could submit those to the central repository too. And now they'll maintain it for us.

Here's what it all comes down to. The core software in a computer is now too important to pay for. If you pay for it once, that implies you can be asked to pay for it again . . . and again, and again, and again . . . and if it's that important, you may simply have no choice. You don't want to contract out the necessities to someone who can withhold them on a whim - you want them available to you, for free, whenever you desire.

I don't know about you, but if I had to pay some dude $50 every time I wanted to flush my toilet, I'd be buying my own toilet with free flushes pretty damn fast. And, at the risk of stretching the analogy, I think people are tired of putting up with Microsoft's - or any other large company's - shit.

Broken/borked business model?

[zotz]

"My company is an open source software vendor/developer. We maintain a popular open source project and keep ourselves afloat by producing commercial products derived from or extending the value of the core project."

If I understand this correctly I think the business model is what would keep me away in the first place.

I am happy for "the same code base" to be available gratis with no pro support or for a fee with pro support, or free with paid pro support available.

But since one of motivations for operating in the Free software realm is to get myself out from under the vendor lock in problem, your business model makes me mistrust you. And note that this is not a case of wanting everything gratis as there is a situation I know of now where we cannot consider moving to the Free software option because currently there is a Free software option but it does not have the needed paid for support option at a competitive price that we are aware of.

I still think there be to be some future for industry association funded software development and support. But perhaps I am way off base on this as it has seemed obvious to me for years and I have seen no move towards this in all that time.

Now, if the world can get all to software it could need "developed" gratis by people who get a kick out of it so much the better but somehow I think that people will be able to get paid to develop software for a good long time to come. Getting paid for a monopoly on producing and distributing copies of software is another matter.

all the best,

drew
--
http://zotz.kompoz.com/

No, the base software is open.

[Anonymous Coward]

And since the base is open, the investment in time required to make a competitive product is just the extension itself. Usually something a motivated user can and will do.

And no, it's not a bad thing. But it does mean a changing business model. I really don't think there will be much in the way of pure play software businesses in the future. I also think the "support" model is a mirage.

Software will be what it has always been for me and many others... a necessary component of a larger system or product that does have a barrier to entry (for me, that's embedded systems).

Re:No, the base software is open.

[loufoque]

If the cost of making the extension yourself is far lower than that of buying the extension, then obviously it's the price of the extension that is much too high.

And that's what the problem with that kind of things is in practice, extensions are priced much more than their real value to amortize the cost of the main product.
The solution is simple: just price the extensions correctly. If that means your extensions become super cheap, then why not make extensions that are actually valuable?

Re:No, the base software is open.

[mikeb]

I don't think that support is a mirage at all. Many customers will pay for support - I've been in numerous meetings where I say something like "You can have RedHat for xxx per year or Fedora free" and it's the last bit that scares them.

We could have a philosophical debate about how long customers will pay for support on software with a low price tag but my bet is it will be at least until we no longer have to care about it.

If the software is worth having - i.e. has a nonzero benefit to the customer - then it has a negotiable support price. How much would they lose if it stopped working? Between that figure and zero is what they will pay per year to not have it stop. The more it's worth to them the more they will happily pay as an insurance policy let alone to guarantee access to updates.

Until you have been in those meetings negotiating the prices it's hard to get a grasp on how much that means to many customers and how delighted they are to be able to pay someone.

Remember, if the system goes down and they are summoned to talk to higher management who ask "how much were we paying in support for this stuff" - and their answer is "we didn't pay for support" then that's their job on the line. Senior management will not be impressed by that reply.

So for many customers if nothing else it's ensuring that they keep their jobs and it's not coming out of their pockets. There is a budget for support and it has to be spent with someone.

Wrong, very wrong

[jsse]

Really, I'm surprised you still selling opensource solutions without being driven out of the market.

I didn't say you should switch to closesource. My friends' companies develop with, on, from opensource projects and still make profit with them. Why? Because they know how to keep up with the market.

They sell Appliances, like those CISCO routers and Checkpoint firewall, but perform some other functions like MTA, Virus scanner, load balancers, etc.. Appliances with opensource elements in them, such that they can be trademarked and brand-protected, can be maintained, without paying huge royalty. Above all, you can still contribute opensource projects back to the community, and keep it growing.

This is just one example to make use of opensource projects. Honestly I don't really know your business so I don't have further suggestion for you. But I'm very sure the problem doesn't lie in adopting opensource projects. Someone else makes money with them, if you can't, don't blame opensource projects, blame your marketing strategy.

Plumbing

[Kupfernigk]

Do you remember when it took real skill to be a plumber? To attach a faucet to a pipe, you had to be able to melt solder and shape it with tools while using a kerosene-fueled blowtorch. Get it wrong and you melted the lead pipe. Putting in a faucet was half a day's work. When it froze, pipes split and had to be cut out and repaired, also at vast expense. The training to do all the jobs was expensive and took years.

Now go round the hardware store. In ours there are several kinds of push fit and screw fit plumbing. The pipe is plastic, you cut it with a simple little tool. I recently had to replace the water softener and the new one had different plumbing. It took me nearly half an hour to put in four bends and a few joints.

That's the race for the bottom. Basic plumbing skills now take a day to acquire and, by following the instructions, you can do a safe job. But plumbers are still employed. I'm not about to service my boiler, or install a bath. I have more sense than to try to put in an oil tank and all the safety equipment, following all the codes.

It's like that with software. It is not a race for the bottom, it is called progress. An SMTP server is now a basic piece of kit. The learning curve for spreadsheet design is, basically, over. Unlike the so-called creative arts, engineering does not recognise the idea that somebody should be rewarded forever for a one-off contribution. In a knowledge society, new knowledge has value but old knowledge is free.

Eventually, kicking and screaming, I expect we will get Open Source Law, and so-called lawyers will no longer be able to charge excessively for basic legal advice in simple cases. But specialist lawyers and the Supreme Court will still be needed, because there will still be hard cases. The same should really apply to all professions. And if you want a guaranteed source of income, make something essential that wears out. Grow food, make clothes or shoes.

Re:Value

[cgenman]

Can I just say that as a user the "survive on service" model makes me uncomfortable. We're disencentivizing making robust, easy-to-use software in exchange for one that requires some degree of brokenness to survive. I'd rather pay someone for their software than being stuck with their services because their software is somehow unintelligible.

     

Re:You're doing it wrong

[PinkPanther]

But that way of thinking is also fraught with backward thinking too. If the core is a paid for product, then you won't get a large userbase (unless you create *fantastic* software). If you have a large userbase, then supporting them and creating a user community is just icing on the cake...you've already got a good base.

The benefit of OSS is that you can establish and grow a base very quickly. Successful OSS companies leverage the fact that people can download and try their s/w on their own timeline. You leverage that fact as the main marketing tool, with people posting to /. and writing up in trade rags about this cool new project to check out.

Once the s/w gets a footprint with the costumer, they recognize the value of it and now want customizations and/or support because the s/w has VALUE only after they've played with it.

The model you are proposing is about increasing VALUE only after they have bought into the core product.

Re:You want to let Stallman know

[PinkPanther]

If you don't understand that a business model can exist that leverages free stuff, then you shouldn't be reading what Stallman has to say.

Sun, IBM, Red Hat, Microsoft and thousands of consulting firms (big and small) make LOTS of money by giving away free software.

You use that free software to sell SCARCE resources: services (business analysis, custom programming, expert installation, production support, training, etc...), hardware, non-free software, etc...

They hypothetical programmer loses their house because you believe they simply write software, give it away for free, and collect a paycheck. The reality is that the real OSS programmers are much smarter than that. The software is only a PART of their business model. It is a sales and marketing tool, and an effective one at that!

If you can only see the "OSS programmers don't make any money", then you should not consider running a s/w company, especially one that would leverage an OSS model. There is WAY more to running a s/w company than creating software. You stick to the cubicles and whiteboards, let non-myopic people run the business.

Re:So it goes...on and on.

[BarryJacobsen]

"The world provides no guarantee that you can forever be profitable at the thing you currently make money on."

I suspect the issue isn't perpetual income but is it fair competition? Are the rules that OSS plays by fair to only a minority?

I'm curious what universe you live where the notion of "fair" has anything to do with surviving - whether as an organism or a company. Where I'm from the world has always been a cold, heartless bitch when it comes to any competition other than friendly games.

Don't forget file format lock-in.

[khasim]

Don't forget file format lock-in and network effects.

If you're the only one who can make a 100% compatible word processor ... and everyone uses that file format ... then you can do just about whatever you want. As long as the damage you are causing to your customers is less than the cost of them migrating (and causing problems with THEIR suppliers and customers).

That's why there was such a big push for ODF. Once the file format is standardized, ANYONE can write a word processor and compete on quality and support instead of lock-in.

Effectively driving the cost of word processors down to zero.

Re:You're doing it wrong

[kz45]

"Yes, but then you won't be building a community because you've already decided that the s/w you make "doesn't need to be fantastic".

No organization with that mindset is going to build a thriving OSS community."

The goal of a business is to make money, not create "a thriving OSS community". A large community can help, but it many cases it just works against you as a company. This is because many of the same people that are using your product have the ability to fork it and compete with you.

OSS communities also have a history of containing people that not only will not pay for your software, but are against paying for software in general. Strike #2.

"Once the s/w gets a footprint with the costumer, they recognize the value of it and now want customizations and/or support because the s/w has VALUE only after they've played with it."

Support and custom jobs are a nightmare. I would much rather sell licenses to a proprietary application than become a glorified freelancer. This is why OSS businessmen have a free, open source version, and an enterprise version. They use the free version as a sort of a freeware/trial for the large, enterprise version.