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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 $0 because the free version is just as good as the paid. This same cycle is obviously having an impact on pure-play commercial software vendors. Is open source ultimately a race to zero? In ten years will there be any cost associated with commodity (non-custom) software? If not, will there still be a 'software industry' as it exists today, or will software simply be a by-product of the operation of other industries? Is that a good thing or a bad thing? As a professional developer, do I need to fear this or feed it?"
Yes, and there's nothing new with that.
Just because your software is open source doesn't mean that you get to sit on your duff and collect money off your paid extensions in perpituity. Just like any other software company, if you want to keep food on your metaphorical table, you've got to continue to innovate and improve. Otherwise, just like any other software company, your competitors (in this case, open source develoeprs) will eat your metaphorical lunch.
For what it's worth, though, nothing would be different if your software were closed source, except that your user base would probably be smaller and, depending on how necessary your software is, open source competitors would be even more eager to push you out.
My company makes sure that doesn't happen by continually inventing things. Sure, a lot of people are afraid of big corps and patent troll fake-outs, but we've decided we're not, and we're moving.
Personally I don't see there being a lot of value in paying for new versions of spreadsheets and word processors over and over again. There's not much, to me anyway, that's been added in the past 10 years. It keeps M$'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.
-- Programming with boost is like building a house with lego. It's a cool but I wouldn't want to live in it
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..
marginal cost (I'm not entirely familiar with the term, but it appears to be approximately the cost of manufacture).
Marginal cost is the cost of making the next one of whatever you're selling. In software, this is a little tricky because the raw material cost of the next copy is bandwidth or the CD/DVD media. The marginal cost of the first copy is the big one... it absorbs all the cost of development.
So, in this way of analysis, software companies take a big loss developing the software, then can make it back by selling enough copies, then can afford to make it near-free because the sales are pure profit.
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.
Breaking Into the Industry - A development log about starting a game studio.
You just have to develope OSS applications, very carefully.
You have to make it prone to breaking, unintuitive and with a horrible user interface. That way, you can earn money forever by support contracts and paid-for maintainance/seminars/schooling.
The worst you could do would create a "just works" application, because that way you would steal your own future.
HI O WISE PRINCE. WHT TOOK U SO DAM LONG?
In the sense of "who pays for it and why" most software has always been a by-product of other industries. The stuff that isn't(mostly games and consumer utilities) is highly visible; but there just isn't that much of it(and, even then, much of what you are buying in your package of Quake or Quicken isn't software per se; but software wrapped around art or accounting expertise). Open Source, though, has really accelerated the move from the "who pays for it and why" sense to the "quite literally produced by" sense of by-product.
Whether this is a good or bad thing depends on who you are. For a substantial percentage of developers, it probably doesn't make much economic difference. Somebody always needs to write the software, whether those somebodies are all bunched together at SomeBodieSoft Inc. or spread across SomeBodieSoft's former customers. People who have invested in selling software are likely to suffer a net loss(as a whole: Redhat may be doing fine; but their gain will be less than Redmond's loss). People who have traditionally bought software will likely enjoy some gains, mostly captured from the losses of the sellers. I suspect that a certain number of software operations that are on the cutting edge will remain proprietary, and largely as they are today, as will producers of software packages that are mostly about non-software stuff(a big-name videogame, say, has economics much more like a movie than like an OS. Games will probably use more OSS plumbing and libraries and stuff; but will continue to be sold more like media).
"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
--
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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).
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
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.
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.
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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're also, (to Him), a girl.
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.
From scarped cliff or quarried stone she cries "A thousand types are gone, I care for nothing, no not one."
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.
The ______ Agenda
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.
It's a simple matter of complex programming.
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.
It's a simple matter of complex programming.
Empirically, supported software usually has fewer bugs. As for ease of use, some software is inherently difficult to configure, or has intrinsic nuances that cannot be coded around. For example, a security package (such as SELinux) needs to be tailored, and it needs to be tailored by an expert, or else the benefits are reduced. Supported software is backed by experts who can not only tailor such a package, but update the policies as security needs evolve. This is not about typical desktop software, where one-size-fits-all is an acceptable approach. A company can choose to hire a full time expert, whose services are only needed some of the time, or save money by buying support from a company that already employs experts. It is sort of like a bank: the experts derive their salaries from the support contracts of multiple companies, and as long as those companies do not all require that support at the exact same time, the system works.
Palm trees and 8
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.
"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.
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What is really happening with open source is that the value proposition has changed. With closed source the value is attributed to the software itself. Some open source businesses try to kludge themselves into this model as well. In reality what the open/free software movements have done is shown that the real value is in the time and effort of the developer. Once the market realizes that they are paying for service and expertise from the developer, the market will start to make sense.
Cheers!
CS
Most development happens in-house.
The immense majority of developers need not to worry about a substantial reduction in the job market.
IANAL but write like a drunk one.
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.
"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.
I can say this is the model that directly affects us. I work for a large US corporate who sells enterprise software to governments and similar. We've been beaten in bids by our #1 competitor for a while, it turns out they are offering the software for free, as long as the buyer takes on a services contract (think outsourced IT type thing) that would support the software and hardware required to run it.
We sell the software and let the buyer decide how to get support for hardware and other IT systems (we provide serious support for our software only, not stuff like Windows and email etc). So far, we've lost every bid. Unfortunately, our US overlords won't let us change our terms.
So looking at this from a FOSS POV, it is a model that can work - give your software away for free, and then go and sell your consultancy and support services to corporates who buy it off you. You should be providing them with support services to get it installed and configured, not just "if it breaks we'll look at it for you" and "bugfix" support.
Yeah, that means you have to work all the time, you can't just make something then lie back and see the money rolling in, but that old 'make loads of easy money without having to work" is a paradigm that died last year.