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

[KingSkippus (799657)]

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.

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 (1400831)]

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.

[MBGMorden (803437)]

You're half correct. The author is under no obligation to continue to provide source for any project if they wish to change the license. HOWEVER, they also can't force the source of any previously GPL'd version of the software to be pulled from a third party's site either. The license change is only forward applicable, so any version previously GPL'd can always be forked and continued regardless of the wishes of the original author. Even under other licenses such as BSD the same applies except that the forks themselves can technically go closed source, but the original author can't force the removal of BSD-licensed source.

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

[hedwards (940851)]

Keeping food on a metaphorical table always causes me trouble. I can't even recall the number of times I've had to mop the floor.

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

[eddy_crim (216272)]

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

[novalis112 (1216168)]

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

[TheRaven64 (641858)]

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.

Don't forget file format lock-in.

[khasim (1285)]

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:Yes, and there's nothing new with that

[Brandybuck (704397)]

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).

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

[Morty (32057)]

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.

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

[thePowerOfGrayskull (905905)]

If you are not innovating, then you and your competitor can drop prices until it is effectively zero. Commodity software eventually drops to zero with or without open source. Innovative design is worthwhile. Besides, how many engineers do you see out of work because they can't design a better bridge?

We'll tell that to Microsoft ;)

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

[AigariusDebian (721386)]

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.

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

[PHPfanboy (841183)]

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.

Dude. Guitar Hero.

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

[TheLink (130905)]

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.

To me that's more of a benefit than a problem ;). A raising of standards.

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.

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

[zappepcs (820751)]

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

[Hal_Porter (817932)]

I read that in the XBox vs Playstation 2 contest Sony were able to drop the cost faster than Microsoft because they owned the more of the IP of the chips, i.e. the processor and the GPU. The Xbox had an Intel CPU and a NVidia GPU, neither of which were made by Microsoft. Sony owned all the IP and eventually shipped slimline PS2 with the CPU and GPU in one chip.

With the XBox 360 Microsoft went for a 3 core IBM PPC design and an ATI GPU. In both cases Microsoft licensed the IP and subcontracts the manufacturing of the chips, the CPU is made by Chartered and the GPU is made by TSMC. Microsoft will make sure that both chips are die shrunk as aggressively as possible to cut costs, and maybe combine them at some point. In fact this was the main reason for switching from Intel and NVidia to IBM and ATI. Intel at least was unwilling to sell Microsoft a license to make x86 CPUs.

So I'd expect agressive price cuts on the XBox 360, that's what it was designed for from the start.

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

[nine-times (778537)]

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

[Blakey Rat (99501)]

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.

Those people got sick of waiting and started using OS X?

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

[nine-times (778537)]

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 (591125)]

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.

This have been said ad nauseam here.

[jotaeleemeese (303437)]

Most development happens in-house.

The immense majority of developers need not to worry about a substantial reduction in the job market.

Re:This have been said ad nauseam here.

[perlchild (582235)]

Hear hear, just because software "as a product" is going bad, doesn't mean software won't make money.

There's software-as-a-service, software-as-internal-infrastructure, shareware, and possibly quite a few I haven't heard of yet either. Let's not become the MPAA or RIAA here, just because one business model failed(and presumably, some businesses) doesn't mean the end of the world if you can adapt.

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

[Ruie (30480)]

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.

Actually, when Open Source is more widely used I expect the demand for computer experts to go up. Back in the days when computers just got to the sizes to be useful the programmers wrote all software from scratch - in assembly or fortran. Their Open Source foundation consisted of centuries of accumulated mathematical knowledge.

As proprietary codebases grew there was first increased demand for programmers to replicate competitors functionality, but than it shrunk as industry consolidation kicked in.

Now the growth is limited by what you can develop for existing proprietary product.

On the other hand, with more Open Source software there many more points to innovate. And very few packages can be used without some customization. So customers would need an expert anyway - and if they buy expert services they would also be inclined to pay a somewhat smaller fee for a commodity addon.

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

[toad3k (882007)]

The idea that software development will somehow become obsolete because there are open source programs freely available is a fallacy. It is like when 20 farm workers are replaced by a mechanized piece of farm machinery, they don't just starve and die. Those twenty farm workers end up operating, repairing, and building those pieces of farm machinery instead of breaking their backs in a field and every benefits from the productivity increase.

Software is similar. There's no less money being thrown into technology now than there ever was. The difference is that instead of throwing all their money on basics like OS and Office suite, now they spend your money on more complex things, custom internal software, employees capable of managing and aggregating FOSS, and highly complex systems that have not been tackled by the community. This is great for programmers in general as there will be less drudgery, more respect, and more rewarding work than have existed in the past.

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

[cliffski (65094)]

"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.

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

[Jah-Wren Ryel (80510)]

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 (795499)]

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.

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

[nametaken (610866)]

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.

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

[bahamat (187909)]

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.

Evolve or Die

[Captain Jack Taylor (976465)]

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.

Your business model is wrong...

[tgatliff (311583)]

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 (126196)]

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.

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

[BarryJacobsen (526926)]

"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.

How this works

[imsabbel (611519)]

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.

Not necessarily dying; but smells funny.

[fuzzyfuzzyfungus (1223518)]

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).

Broken/borked business model?

[zotz (3951)]

"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/ [kompoz.com]

No! and I'll tell you why..

[astaines (451138)]

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

Wrong, very wrong

[jsse (254124)]

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

[TheRaven64 (641858)]

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:

1. Look upwards in the market. If you are currently selling solutions to small businesses, aim for larger corporations. Look at much bigger customisations.
2. Broaden your service base. Look at what other problems your existing customers might have. Offer to solve them too.

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.

paid legacy is dead

[mlwmohawk (801821)]

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.

Plumbing

[Kupfernigk (1190345)]

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.

It's a classic manufacturing issue

[Animats (122034)]

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.

Re:From reading Techdirt...

[LostCluster (625375)]

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.

Re:Value

[cgenman (325138)]

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:Value

[betterunixthanunix (980855)]

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.

Re:Value

[gbjbaanb (229885)]

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.

Re:You're doing it wrong

[PinkPanther (42194)]

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're doing it wrong

[kz45 (175825)]

"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.

Re:You want to let Stallman know

[PinkPanther (42194)]

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.