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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?"
My company makes sure that doesn't happen by continually inventing things. Sure, a lot of people are afraid of big corps and patent troll fake-outs, but we've decided we're not, and we're moving.
I work with a Government agency in Ireland, (I work for a university to avoid confusion). We developed a really innovative information system with them, a web-based system which allows flexible mapping, GIS work, sophisticated calculations, open ended queries, loads of pre-specified reports and more. It is entirely open source.
It would have been economically unfeasible, and, I think, technically impossible, with closed source software.
The developers were paid, and are still being paid, quite a large amount of money to build this for us, maintain it, and keep it moving forwards. My view is that give great value for money. All the stuff they develop for us is GPLed.
This seems like quite a viable model to me. What's not viable is the 'write a better video-processor' model which you describe. You need to work with your clients, support them in improving productivity, ease of use, cool new features, whatever it is they need for their business.
Good luck,
Anthony Staines
-- Anthony Staines
There is no market for selling a commodity with a zero cost of production. This is basic economics. If you want a good business model, sell something that doesn't have a zero cost of production. If you want to be in the market, then you have to do this by selling software that doesn't exist yet, since any software which does exist can be reproduced for zero cost.
The commodity off-the-shelf model for software only works because we have laws that let us pretend that software is a product.
Look at the market for commercial writing for an analogue. The vast majority of writers are employed writing for newspapers, magazines and web sites. Quite a lot are employed for in-house publications. A (comparatively) very small number write books. The software industry is exactly the same. Most developers are employed writing bespoke software. For these, open source lowers their costs, because they are not selling a product, they are selling a service: writing some software that solves a given problem for their customers. If they build their solutions on easily-modifiable, open source, commodity building blocks then they can charge less or profit more.
It sounds like this is what you are doing already, but you are seeing the number of people who need more than the commodity version shrinking. You now have two choices:
Option 1 is a good short-term solution, but again you will find that you eventually have a shrinking market. Option 2 is more effort, but a good long-term business model. Hopefully your existing customers already trust you to do a good job, and you can get them to recommend you to their suppliers and customers when they have other problems.
I am TheRaven on Soylent News
The whole notion of a software "industry" is a new and novel idea whose time is more or less come and gone.
Speaking as a long-time software developer, I find it hard to believe that software has been considered a "product." It is so amorphous and ever changing, it is hard to say that a "purchase" has any durable value what so ever.
Prior to the "write it once and get rich" mentality that ISVs dream of was the software as a service mentality which is seeing a resurgence.
Also note, most software written does not run on personal computers, in runs in microwaves, embedded devices, phones, routers, TVs, etc. Only a few companies really make money selling "software." Most P.C. based "software" companies make money selling a service around their software.
For instance, "QuickBooks" is a software product and has a lot of competition, but it is the service that keeps it afloat. TurboTax is the same way, they work all year to have the next years revision ready.
The "write once" software industry has only existed for a short time and for a very fortunate limited few. For people like myself, who have been developing software since the late 70s/early 80s, I don't see any major problem because I don't really see any real effect on the vast majority of the market.
You are missing the point. Writing software costs money. Reproducing software costs (almost) nothing. Microsoft has already made enough profit on Word 97 that they have covered the cost of developing it. They could sell Word 97 for $1 for a site license and it would still be a profit. Now, imagine you made a word processor. If your did nothing more than Word 97 then you would have to sell for under $1 to compete. This was not the case with Microsoft - they still had WordPerfect and other competitors so they kept adding features and charging for new versions, but if Word 97 does all you need then you can pick up a second-hand copy for next to nothing. The number of people who need Office n and aren't happy with Office n-1 is smaller for each subsequent value of n. This is why StarOffice could compete with MS Office even before it went open source. It was a lot cheaper, but it did less. Unless you needed the features it didn't implement, however, you didn't notice and so it made more sense to buy the cheaper version.
I am TheRaven on Soylent News
This is a classic manufacturing issue. The killer point is when an expensive item becomes cheap due to mass production. The makers of expensive items seldom survive that transition.
Historically, this has happened time and again. It happened to basic watches around 1890, when Ingersoll introduced the $1 pocket watch. The watch industry got hit again in the 1980s, when quartz crystal watches became both cheaper and more accurate than mechanical ones. (Neuchatel, Switzerland was hit hard by that.)
One strategy is to position a product as a luxury item. Rolex took that route in watches. Their CEO actually says "We are not in the watch business, we are in the luxury business. Apple positions themselves that way in computers and audio/video gadgets.
If that doesn't work, you're toast. There used to be a high-end graphics hardware business, with companies like Evans and Sutherland, Dynamic Pictures, Matrox, and SGI. They all got clobbered when gamer graphics cards got good enough to take over pro jobs. I visited Sony Pictures Imageworks around 1997, when all their animators had SGI workstations, with a few PCs being tried out. When I went back in 2001, everybody had a PC, with a few SGI machines still around to run legacy stuff. SGI went bankrupt in 2006.
Open source is just another form of commoditization. Most open source software isn't very original. There's usually some predecessor commercial product that did roughly the same thing. Open source is the same kind of competitive threat as white-box generic hardware.
Eh. I don't really understand the question.
Having thought about it, the submitter is disappointed that they must continually develop new, better software products?
How is that a problem? Today, you're selling a simple app that people need. Tomorrow, someone will make a new one, but in the meantime you get to keep your developers busy (and paid) working on the next big thing.
Some day open source developers will replace that, and you'll have already been working on the next next big thing.
Sounds like a good scenario for a business... lead the market, make new products all the time, be known for being innovative and the model for everyone else's software.
The only downside is that you actually have to BE A SOFTWARE COMPANY, instead of the marketing and sales company that many closed source co's turn into... just before they die.
The mark of a good software development company is one that recognizes that writing one app is not the be-all, end-all of your existence. Some day you'll need something else.
Even MS doesn't get to stand still for too long. If they never improved Exchange, we wouldn't use it. If they never improved their OS's (Vista jokes aside), we wouldn't use them. They're not really selling Windows ME + Office 2000 + Windows NT 4.0 anymore. Each of those have been long eclipsed by other software. The only argument left in the marketplace is whether their CURRENT software is good enough to warrant buying it.
And the other side of the coin is that IT is not a producing industry. IT merely allows other industries to produce their goods and services in a more efficient fashion. From this you can clearly see that the real source of money for IT is serving other industries as custom solutions.
Commodity market can go to 0 without a significant impact on global IT economy, because even now 9 out of 10 programmers work for non-IT companies. If your company is not selling software, then raise of free software is only to your benefit.
Except your scenario has never happened in real life. At least never happened without the collusion of government. The scenario exists in some bad economic texts, but it's a myth. Without the force of government to competitors at bay, big businesses will always have small businesses keeping them awake at night. The history of 19th century "robber barons" is the history of lobbying government to stop the competition. In fact, the term "robber baron" was coined by a monopolist (Collins) complaining to congress about a competitor (Vanderbilt) encroaching on his government granted privilege.
The more successful a business, the more people want to enter that industry to grab a piece of that pie. People used to enter the oil business just so they could get bought out by Rockefeller. And he only had 60% or so of the market. We may not have seen Windows clones come out in the late nineties during the heyday of the Microsoft monopoly, but we did see an explosion of software development all competing with various bits and pieces of Windows.
Businesses come and go. It's the nature of economic reality. The Fortune 500 of 1958 had a very different roster than the Fortune 500 of today. And I can think of only one major U.S. company in 1908 that still exists intact today (IBM).
Don't blame me, I didn't vote for either of them!
"done some valuable work at some point, and then sit around and collect money for the rest of your life."
This always bugs me. It's not like there is a major world problem that people who create something that sells lots then sit on their ass and do no more work. In fact, I'd say the opposite is true. J K Rowling could have quit writing after book 1, but didn't. Most big name pop bands could retire after their first hit album. Spielberg and Lucas could have retired after their first big movies (American graffiti and Jaws).
When people make a lot of money from royalties, they very often will plough that money into doing it again, only bigger and better next time. Lucas spent every penny of his American Graffiti money to make Star Wars. Then he took all the SW money and used it to try and self-fund Empire, and cut out the movie studio.
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.
If working for royalties is such a meal ticket, why doesn't everyone quit their job and start their own business?
I don't begrudge anyone earning royalties of any sort. if you can live off your royalties, you created one hell of an awesome product and likely made a lot of people very happy.
DRM-free indie games for the PC and Mac: Positech Games
OSS aside, shareware, adware, bundling, and "free for personal use" push the software market to $0 or very close thereto. Think of the Windows anti-virus market -- there were a number of entrants who gave away a version of their product even before any open-source AV was available: anti-vir, AVG. Same for desktop firewalls: zonealarm, kerio/tiny/sunbelt. Same for virtualization: vmware server is a free download. Same for web browsers: IE and Netscape went free even before mozilla went open source. Same for Windows media player software: remember Real vs. Windows Media player? Same for disk compression software: remember the Stacker/Doublespace controversy back in the early 90s? Same for backup software: Microsoft has bundled a basic backup app in Windows for a while.
So even in a "pure" commercial software world, you sometimes have to compete with free.
The same effect can even happen in the COTS hardware market. If you released a 1GB hard drive in the early 1990s, you were sitting pretty. If you sat back and didn't innovate, though, your product's value would quickly erode over the next few years as competitors released larger and larger drivers. Today, your product's value would be effectively $0, with vendors giving out free 1GB USB keys at tradeshows. Similar for video cards: a video card that could command $100 10 years ago is nearly worthless now, with much faster devices available, and equivalent functionality integrated into cheap motherboards.
Progress is a bitch. Evolve or die.
Actually it may be a good thing _overall_ if the people who aren't good at designing bridges get discouraged from trying to design new bridges, or get put out of business if they are already doing crappy bridges.
;). A raising of standards.
;).
To me that's more of a benefit than a problem
A lot of OSS software out there isn't that good (much of it is just tolerable), so if your Closed Source stuff is worse than free/Free stuff, maybe the world would be better off if you were doing something else instead.
Audacity has its problems. OpenOffice still sucked the last time I checked (haven't checked the latest though).
And it's been the year of "Desktop Linux" for how many years
In contrast look at how long Mac OSX took to overtake "Desktop Linux" in market share.
If Desktop Linux discourages "yet another crappy closed source O/S" from being made, it's worth it even if the Desktop Linux market share remains abysmal. If you want to make a new closed source O/S, you better know what you are doing. If you don't, please do something else.
I doubt we really need a new closed source OS that's worse than Desktop Linux.
Nor do we need a new closed source audio tool that's worse than Audacity.
Do we want to have to keep paying big bucks for something that's only a bit better than OSS software? I doubt it.