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Is Open Source Software a Race To Zero?
Posted by
Soulskill
on Sun Nov 23, 2008 11:40 AM
from the at-least-i'll-beat-zeno dept.
from the at-least-i'll-beat-zeno dept.
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?"
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Yes, and there's nothing new with that (Score:5, Insightful)
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. (Score:5, Insightful)
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).
Parent
Re:No, the base software is open. (Score:5, Insightful)
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?
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Re:Yes, and there's nothing new with that (Score:5, Funny)
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.
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Re:Yes, and there's nothing new with that (Score:5, Insightful)
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.
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Re:Yes, and there's nothing new with that (Score:5, Insightful)
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Re:Yes, and there's nothing new with that (Score:5, Interesting)
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Don't forget file format lock-in. (Score:5, Insightful)
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.
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Re:Yes, and there's nothing new with that (Score:5, Insightful)
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.
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Re:Yes, and there's nothing new with that (Score:5, Funny)
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?
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Re:Yes, and there's nothing new with that (Score:5, Insightful)
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.
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Re:Yes, and there's nothing new with that (Score:5, Interesting)
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.
Parent
Your business model is wrong... (Score:5, Insightful)
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. (Score:5, Insightful)
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. (Score:5, Insightful)
"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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Not necessarily dying; but smells funny. (Score:5, Informative)
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).
No! and I'll tell you why.. (Score:5, Interesting)
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 (Score:5, Insightful)
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 (Score:5, Interesting)
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.
paid legacy is dead (Score:5, Interesting)
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 (Score:5, Insightful)
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 (Score:5, Interesting)
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... (Score:5, Informative)
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.
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Re:Value (Score:5, Insightful)
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.
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Re:You're doing it wrong (Score:5, Insightful)
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.
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