Is Open Source Software a Race To Zero? 729
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?"
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.
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).
Re:You want to let Stallman know (Score:3, Informative)
Or try reading the next two paragraphs after your quote.
And of course stallman is talking about something completely different. Company mentioned in the slashdot post seems to make its money from developing non-free software (extensions to a free software product but that's irrelevant in terms of them being free or not). Stallman is just claiming it is possible to be paid to develop free software directly.
He is clearly not claiming it is impossible to make money developing non-free software.
So exactly how does what he said have anything to do with the situation in question???
This have been said ad nauseam here. (Score:4, Informative)
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. (Score:5, Informative)
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:Free software is rarely 'better' (Score:2, Informative)
Enjoy that you can sell that peice of software for 5k right now and accept that its not worth it. If you want to continue making money off it, stop trying to make back your entire development cost on your first sale and charge a price for it that makes it so no one else is going to bother doing it themselves, its cheaper to just buy yours.
You were doing relatively well up to here. If you make minimum wage ($6.55 in the US), you will make $13.1K/year. That means you have to sell at least 3 of your so called "not worth it" $5k software just to make that (this is not including overhead). The equation is really simple - cost/unit x # of paying users/year = your yearly wage. BTW, if you don't like paying everything up front, you should hate the GPL, since that is *exactly* what GPL encourages.
Thats the way every other industry works, developers are just too stupid to see that at the moment, and the people we sell to are just now starting to catch on to that as well.
There are few other industries that have this problem. If you make hardware (say, memory chips), if a competitor comes in and gives away memory for free, they are charged with dumping. The only industry that I can think of that deals with "free" content is the broadcast industry and it's not a bunch of roses there either.
This scenario is the same with others that have to compete with product dumping. The ones that can survive in the environment are ones with a "brand" name. All the small frys go under.
Re:Yes, and there's nothing new with that (Score:5, Informative)
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: Sales! (Score:3, Informative)
The DotBust made a lot of businesses wary about Sales.
Wary about sales? Sales is the MOST IMPORTANT part of a s/w business...of ANY business. If you are wary about sales, then make sure you work for someone who isn't.
But the companies that survived the DotBust weren't those who had good ideas. They were the ones who had ideas that couldn't sell, or who had poor business plans.
Those that had a proper business approach might have found sales pipelines slowed or dried up, but they were paid for the work they did (including profits). So at worst they walked away from a dead market with a small amount of dough (profits!) in their pockets.
I'm guessing you'd want to go from proof-of-concept to a venture investor to develop the deep work just to be sure you won't get hosed by some unbelieveable glitch like the one that damn near took down Microsoft when they had to Reboot their codebase for LongHornedVista.
Let'set something clear here: in the history of Microsoft, at no point did they find themselves deep in a hole. They have always had the funds and/or signed contracts for the work that they went off a did. Sometimes they did work on a new product that they funded themselves, but that was well after they had massive cash-positive flows to easily handle the expenditure (cash-negative) for that new development.
They did not go out and develop MS-DOS 1.0, then go looking for a customer. The reason that IBM and others have an intertwined history with MS is that they funded MS's early development efforts.
Don't let hysteria and hyperbole ("DotBust") make you write off an entire industry. The IT world went through a pain of hurt because they (and their investors) took their eyes off business and economic FUNDAMENTALS. Those who understand business didn't get caught up in all that (well, I know that some very savvy business folks took advantage of the situation...but they also realized that it was to be a sort lived situation before a full collapse would occur).
Then with some core tech that can be finalized in a few variant ways, then go dig up your customer and tell him "X software is only 7 months out. Sign here."
That still involves doing at least some preliminary work before getting paid. That is usually how a new product comes to market: initial investors (the coders themselves, or the idea people, or the company developing the new product) develops a prototype and begins pitching that. Only when initial early adopters show a sincere interest (e.g. sign a contract) does the hard investment in the product development happen.
Re:Value (Score:4, Informative)
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:Yes, and there's nothing new with that (Score:3, Informative)
Re:No, the base software is open. (Score:2, Informative)
The source would have to still be available for 3 years for existing customers, and there is nothing stopping anyone from making a fork of it and keeping it open source.
The author (copyright owner) is not bound by the license and can pull the source at any time, picking a different (proprietary) license of their choice instead.
Also, much software is licensed under terms that allow the source to be pulled outright in future versions by anyone (BSD license, MIT license, etc.)
Re:No, the base software is open. (Score:5, Informative)
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.
Derive a new business model (Score:3, Informative)
A while back some guys derided open source because it was killing their product. Actually, it wasn't killing their product it was just changing the business market.
What the bozo at that company couldn't understand was that the problem lay with them, not with open source.
They had a product where open source competed directly. They felt that the open source version was so close to theirs that it was taking away their revenues because people were opting for the open source instead of their product.
What this means is that they weren't adjusting fast enough to create products that were worth choosing the paid version. This is the same thing. These guys won't adjust fast enough and produce fast enough to actually keep ahead of what open source is able to do.
What does this really mean? It means that unless commercial product developers get off their lazy asses and build faster and better tools their competition is going to catch up. This is the same for everyone everywhere, not just them, and certainly not just the company related in this story.
It means that commercial and open source products will gain parity sooner or later, hopefully sooner and we'll see that the level head prevails. The level head is the one that chooses the best product for the price. That means that open source (once parity is attained) will be the better choice.
It also means that we will be able to get rid of the likes of predatory companies such as Microsoft, sooner or later. The sooner the better. On top of getting rid of Microsoft we'll have better products than they can produce.
I hope Microsoft is paying attention here. Open source will overcome them sooner or later. If it takes another 20 years then so be it. But it will happen.
Microsoft, get rid of the draconian DRM from the heart of your OS, stop accusing everyone of being a thief, cooperate with open standards and stop trying to usurp them with your closed standards in order to lock your customers into different products. Then, maybe you'll have a chance in the long run.
Business case studies have shown that no company has held top spot for 2 consecutive decades running. Microsoft has. Microsoft is trying for a third. It won't hold. This is the start of the decline. As we understand that their "added" complexity (unnecessarily added) is reduced to easy reproduction through open source (concepts they intentional made far excessive in complexity is sifted through and made easier for the average person) we will be able to overcome their lock in models and that will send Microsoft on a slide. They'll always be there, just as IBM is there but they'll never again be able to hold everyone in a choke hold forcing them to use their product.
Added Value is all-important (Score:3, Informative)
I'm not in software, but I am operating a small publishing company, and I'm about to undertake a project that leads into similar issues to what you're facing.
In order to increase my revenue streams, I'm about to start a line of public domain reprints of mostly-out of print books. Now, this leads to a similar question to what you're looking at - if this book is available on Project Gutenberg (P.G.) for free (and it is - that's my source for the texts), then why should any customer in his/her right mind drop down $20-30 for my product?
And that's where added value comes in.
If you just do the basics, then yes, it is a "race to zero." If all I do is reproduce the text from P.G., then a customer has no reason whatsoever to choose my version over the P.G. version.
However, I do things that add value. I commission a new introduction to the book, for example. I redo the typesetting so that it looks really nice, I give it a nice cover. That way, when the customer is making up his/her mind, they're not just getting the text for their $20-30 - they're getting a nice, easy-to-read volume for their library with extra stuff that you can't get online.
It seems to me that the same solution applies to just about any product in any business where there is competition...do something with your product that adds value that a competitor doesn't offer.