Transcript Open Source Business Models

Open Source 2006 Projects
• Operating systems
– Linux (also GNOME, KDE)
– Linux distributions: Ubuntu, Debian, Red Hat et al
– Solaris, FreeBSD
• Web infrastructure
– Apache Foundation (dozens of projects)
• Development environment and tools
– Eclipse Foundation (dozens of projects)
• Databases
– MySQL A.B., Postgres, Berkeley D.B. (Oracle)
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More Projects
• Enterprise Applications
– SugarCRM, www.vtiger.no, WebERP
• Portal Development
– Drupal, Plone, Liferay
• Languages
– Perl, Python, PHP, Ruby, Java
• Productivity Tools
– Firefox, Open Office
• VoIP
– Asterisk, Pingtel
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Observations
• Overall state of open source ecology is strong
• Open source a default mode of participation
by developers
– what they are socialized into from the outset
– "I was never motivated by financial gain.”
– “gentle slope” from user to committer
• Many projects relatively mature, require little
or no marginal work per instance-in-use
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HISTORY & CONTEXT
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In early days of software industry, software was
either given away or licensed by contract
between firm X or Y
As mass market began to develop, there was
uncertainty about intellectual property rights
(IPRs)
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?s about © because of functionality of code
?s about patents because many program innovations
were mental processes
Trade secret protection alone won’t work
Shrinkwrap licenses attempted to provide some
protection, although many ?’d their
enforceability
Sept 25, 2006
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Context Matters
• Shift to open source not taking place
against static IT background
• Technology environment itself coevolving with and because of OS
• Much of the evolution in software would
be impossible without Internet and open
source
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OPEN SOURCE
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Is a puzzle to economists who come to it with
the public goods/private goods mindset and IP
as the solution to getting information works
produced
Is also a puzzle because open source seems to
confound the commonly held “theory of the firm”
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Firms are necessary for the development of market
goods
Open source is often produced without firms
Most of the literature produced by economists
and lawyers grapples with one or both puzzles
Sept 18, 2006
economics of open source
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VARIOUS EXPLANATIONS
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A hobby, amusement, a way to have fun
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“scratch your own itch”
An aesthetic experience
Altruism, sharing norms, gift economy
A way for socially impaired geeks to participate
a community, experience social gratification
Skill enhancement, ego gratification
Friedman: “reputonics”; Lerner & Tirole: open
source as a signaling technique
Anti-Microsoft (or AT&T or IBM in old days)
Communism (WIPO official)
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STEVEN LEVY ON HACKERS
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Shared identity and beliefs among hackers
Access to computers should be unlimited
Information should be “free”
Distrust authority & promote decentralization
Judge people by what they create, not by who
they are, their credentials
Computers change life for the better
Experimentation is the highest form of human
behavior
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Business “Logics”
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proprietary
– power with suppliers
– customer lock-in
– profitable, but inefficient
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open source
– power with customers
– customer choice
– less profitable, more efficient
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Microfoundations
• Software can be “anti-rival” and subject to
positive network externalities, whereby the value
of a system increases with the number of users,
even benefiting from free riders, as long as
some fraction of the users make a contribution.
The highly diverse population of the Internet,
combined with low connectivity costs, increases
the impact of the small percentage of “outlier”
users who actually contribute to code solutions.
Macro-organization
• Open source efforts manage the
complexity of software development in part
by modular design of the code, which
reduces organizational demands on the
social and political structures. Sanctions
upon violators of community norms take
the form of public expressions of
disapproval (“flaming”), and denial of
cooperation and access to the
community’s support (“shunning”)
GPL & OPEN SOURCE LICENSES
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GPL is distinctive:
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Prohibits proprietary derivatives if you redistribute the code
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GPL imposes obligation to attach same terms if distribute
derivatives (H. Meeker questions whether this is enforceable)
But to what derivatives does it apply?
Moralistic tone
GPL can’t be changed—but why?
Wide variety of open source licenses
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OSI is worried about this, so formed a license proliferation
committee to encourage use of standard licenses
OSI has promulgated a definition of what makes a license
“open source”
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Sometimes acts as if it had a certification mark on the term
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Mismatch of SW & Patents
• Incremental innovation cf. “invention”
• Value in industrial compilation of applied
know-how
• Complex systems innovation cf. one-off
product innovation (e.g., drugs)
• Many things are so obvious that they aren’t
documented
• Lack of prior art for 1st 30+ years of sw history
• Need for lead-time protection (patents take
too long to get)
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Patents & Open Source
• Open source developers view patents as
major threat
• Easy to detect infringement of sw patents by
OS because so many patents have issued
and OS source is available
• Big firms have portfolio to trade but open
source may not have patents
• Various proposals for how to deal with
– GPL 3.0 attempting to get pledge not to exercise
patents if you use our software
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CONCERNS--REVISING THE GPL
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Addressing the derivative work issue so
as to limit open source firms from use of
mixed strategy
DRM provision
Patents clause
Multiple versions of GPL leading to
incompatibilities, harm to open source?
Comprehensibility
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GPL3
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Changes the language on this issue
completely
Position on linking, complete source
code, etc. is spelled out explicitly in the
license
Most GPL code is “GPL plus any later
version” but Linux is version 2 only
The overarching question is: Will Linux
adopt GPL3? (No.)
SOCIAL NORMS
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Steve Weber talks about open source licenses
as constitutions, social contracts
Eben Moglen will yell at you if you violate the
GPL, and you will get shunned by open source
community + bad publicity
Eric von Hippel studied IP norms of French
chefs
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they don’t use patents or ©s or even TS
but if you violate community norms, your reputation
will be shredded
death of Chef Robin in 5 days; no litigation fees
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Which community?
•
Shuttleworth: Novell’s decision to go to great lengths to circumvent the
patent framework clearly articulated in the GPL has sent shockwaves
through the community. If you are an OpenSUSE developer who is
concerned about the long term consequences of this pact, you may be
interested in some of the events happening next week as part of the
Ubuntu Open Week...I know that posting this message to an OpenSUSE
list will be controversial. I'm greatly respectful of the long tradition of
excellence in the SuSE product and community and have no desire to
undermine that with this post. That said, I think the position taken by
Novell leadership in their contract with Microsoft is hugely disrespectful of
the contributions of thousands of GPL programmers and contributors to
SuSE, and I know that many are looking for a new place to get involved
that is not subject to the same arbitrary executive intervention. Ubuntu is
one option, as are Gentoo, Debian and other communities. Please accept
this mail in that spirit.
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Project Organizational Models
• Unincorporated
– Linux, PHP, wxWindows
• Non-profit
– Apache, Eclipse, Free Software Foundation,
Python
• For-profit
– My SQL
• Hybrid / sui generis
– Mozilla
– Open Office
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Unincorporated Projects
• Advantages
– easy (to get started), low overhead
– some developers see it as helpful in
maintaining control
• Disadvantages
– lack of clarity about ownership and control
– hard to do business with a non-entity
– it can’t take donations
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Non-Revenue (Indirect) Benefits of
Open Source
• build brand awareness, mind share
• enable drag-on and add-on sales of
other products and services
• take market share from proprietary
competition
• low-cost way to build consumer
applications and services using
advertising business model
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Trend: Web-based Computing
• Enterprise market
– browser wins, client-server loses
– Linux et al. propagates across the entire
enterprise
• Consumer market
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Google, Yahoo et al. in the lead
Microsoft playing catch-up
Web (2.0) apps taking over from desktop apps
Will PC architecture be succeeded by mobilitycentered devices?
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Trend: Open Source as a
Mainstream Phenomenon
• Less and less a problem requiring
special explanation
• More and more a fact of life with a
“natural” explanation
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Future Challenges
• Research
– Transferring lessons from open source development to conventional
development (inner source)
– Offshoring – globally-distributed software development
– Open code-sharing, large-scale peer-review, community development
model
– Expanded role of users and altered user-developer relationship
– Elaboration of business models
– Derivation of appropriate TCO models
• Practice
– Achieving balance between ‘value-for-money’ versus acceptable
community values
– Implementing the whole-product approach
– Stimulating development in vertical domains
– Safeguarding against IPR infringement
Networked Information
Economy (NIE)
• Increased role for nonmarket and
nonproprietary production
• – software, journalism, games
• • Great potential to:
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– empower individuals
– enhance democracy
– foster human development
• Much at stake
– threatens incumbents who try to hold back the full
emergence of the NIE
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Shifts enabled by the NIE
• • Individuals can do more
• – for and by themselves
• – informally outside of markets and hierarchies
• – in formal organizations outside the market sphere
• • Transition from mass-mediated public sphere to
• networked public sphere
• – but is the Internet a Tower of Babel?
• – or is it already being recentralized?
• • Internet democratizes culture
• – more transparent
• – more malleable
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The Battle
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Big stakes: redistribution of power and money from
20th century industrial producers of information
(Hollywood, broadcasters, telcos)
• Will resources necessary for information production
and exchange be governed as a commons?
• Or will there be a second enclosure movement?
• – Restrictive IP regime reducing rights to use
• – Death of “Free Culture”
• • Benkler believes we are in a temporary period of
• disequilibrium in which the outcome will be
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LINUX & OPEN INNOVATION
• By the time IBM decided to invest in Linux
– It already had a substantial customer base
– It already had a stable production process
– It already had a community of software developers committed to
maintaining, extending it
– Other major firms were providing financial support
– It had proven to be a flexible, reliable, interoperable ecosystem
• IBM’s AIX software enabled Linux to support enterpriselevel services
• IBM could share costs of this OS with others, build
proprietary software & services on top of it
• IBM has uses both open and closed innovation models,
thinking strategically about when it makes sense to do
collaborative development and when not
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OPEN INNOVATION
• Taking advantage of innovation generated by others,
being willing to license technologies, share costs
• Reaction/response to many factors:
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High(er) costs of R&D
Knowledge worker mobility
Availability of venture capital for startups
Increased willingness of university researchers to focus on
industry-relevant projects
• University researcher insistence on publications
– Availability of Internet to facilitate distributed collaborative
development
• Open source is an example of open innovation
– It taps into the minds and experiences of many experts, allows
distributed collaborative development of information resources
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Companies get into the game
• Firefox
• IBM’s 2001 $1 billion commitment
– Linux support eroding MS and Sun, platform for services
– Eclipse $40 million – followed by NetBeans and Beehive
• Red Hat has published an architecture roadmap that
details its plans to move open source up the software
stack towards middleware and management tools.
Fedora/RHEL
• Oracle branding: ”Unbreakable Linux”
• Sun: JCP/Java, OpenOffice/StarOffice
• HP, O’Reilly
• Google, Yahoo, Amazon, Salesforce