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BBC Examines Open Source Business Model

Posted by ScuttleMonkey on Sun Nov 06, 2005 11:34 PM
from the anything-to-turn-a-buck dept.
Software Linux Business
twitter writes "The BBC's David Reid attended Euro OSCon in Amsterdam and reports what he learned about the Open Source Model. He sums up the rise of non free software in the 1980s and how people and companies like IBM can make money with free software. From the article: 'The open source movement does not object to making money. The source code may be free, but there is gold in software support, training and publishing.'"
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  • Money in support?? (Score:4, Insightful)

    by Jason1729 (561790) on Sunday November 06 2005, @11:39PM (#13967031)
    Do you really want to use software built on a model of the software is free but you pay for support?

    There would be a huge incentive to make software hard to use, buggy, etc.
    • Which is why the people writing the software and the people selling the support are usually not the same. Also, selling software that you need a lot of support for will just encourage people to switch to someone else.
      • You've never dealt with Peoplesoft, Oracle or IBM.

        Or that most of the "enterprise software" industry charges 20% of initial purchase price each year for ongoing support.

        It is the way the market works now. it's not the way the market should work.
        • But is that relevant in the context of this article? If the software they were selling was open, you could buy support from whoever you wanted. This destroys the incentive to produce buggy software because the writer of the software never knows whether they will be the one paid to fix it.

    • Re:Money in support?? (Score:5, Informative)

      by Russ Nelson (33911) on Sunday November 06 2005, @11:56PM (#13967112) Homepage
      The parent of this isn't a troll. If it's a troll, then Keith Bostic has also been trolling over the years, and I doubt that. Yes, it does appear that there is a tension between having to do a good enough job that people like your software, but a lousy enough job that people need to buy your services. But, really, I haven't gotten all THAT much business through bugfixing. Most of my business has come from people with different requirements, e.g. it does X; that's great, but we need it to do Y on the Z platform.

      For example, I had a packet driver customer who wanted to put packet drivers into an air traffic control system, but he needed to detect hardware transmission errors so that he could log hardware failure. I had another customer who was building special Ethernet hardware for operating rooms, and the existing packet driver needed changes relative to network connection detection.

      The worst business I've had has been bug fixes, because, damnit, if I could have fixed the bug in the first place, I would have!
      -russ

    • Parent is NOT troll (Score:2, Insightful)

      by Anonymous Coward
      Parent should not be modded "Troll". He brings up a valid point: if someone offered me a free car and said they would offer "service and support" for a fee, I would immediatly assume the car must be prone to having problems.

      It's similar to a week or so ago when an article on slashdot brought up Microsoft entering the anti-virus/security market. It seems like a conflict of interest when part (or all) of your revenue comes from fixing your own company's mistakes.

      With that said, I am still an avid supporter

      • Re:Parent is NOT troll (Score:5, Insightful)

        by LDoggg_ (659725) on Monday November 07 2005, @12:25AM (#13967242) Homepage
        Parent should not be modded "Troll". He brings up a valid point: if someone offered me a free car and said they would offer "service and support" for a fee, I would immediatly assume the car must be prone to having problems.

        The problem with that analogy is that support is never free. Vendors of proprietary closed source software also charge for service and support.
      • Parent's post is my main beef with Linux. Linux to this day is not a plug and play solution the way Windows or Mac OSX is. It takes more manual labor to get things set up right, and it's too easy to break a program and not know how you broke it. This provides the foundation from which the "support" part of the open-source movement comes from.

        For instance, I have had a Windows PC since around 1998. I have never ever had to actually call a support line on software issues other than problems registering sh
        • and it's too easy to break a program and not know how you broke it.

          I get this problem with _all_ systems. The difference is that (as a techie) it's easier for me to debug a problem under linux because I don't have to deal with a black box where it's impossible to see what's going on in the middle. Very often with closed systems, if something breaks there's very little you can do to debug it and you probably end up wiping the system and starting from scratch.

          For instance, I have had a Windows PC since arou
    • I don't know about that - think about it this way - if you write excellent code, and can sell support contracts for a product that has few if any flaws, (such as to corporate types who need that warm fuzzy of a finger to point if something goes wrong, even if it's unlikely to do so) you get your money for very little work, after you cover your initial development costs.
    • It would still be less profitable that the common business model of kicking software out the door before it's time and making money off of support.

      I don't think that it's done intentionally, but it's a reality.

    • Re:Money in support?? (Score:4, Insightful)

      by Sir Runcible Spoon (143210) on Monday November 07 2005, @03:05AM (#13967804)

        Do you really want to use software built on a model of the software is free but you pay for support?

      Why not? If you don't like the support you are getting, move elsewhere. There is little to stop you with open source. And when you had all the support you need - stop paying. These are often no even options with closed source.


      There would be a huge incentive to make software hard to use, buggy, etc.

      I don't think you will find it works this way with open source. The guys writing the stuff do so because they are also using it (you have got to pay your bills after all). And if you don't fix it someone else will.

      • I specifically DID NOT a career related to CUSTOMER SERVICES and whatever. Now, a bunch of people is telling me to give away my software for FREE and charge for "SERVICES".

        No one is telling you to do anything. However, quite a few people are giving software away for free, and it's pretty hard to compete with free. Therefore, a lot of people are thinking about how to get income without relying on licensing costs, and are saying that this is one possible way of doing so.

        I know how to do GREAT QUALITY S

  • Thar be gold! (Score:5, Insightful)

    by Anonymous Coward on Sunday November 06 2005, @11:39PM (#13967036)
    There's also gold in the software customization market, like a VAR would in the propriatary market.

    Being able to take a free foundation and tailor it perfectly for your business model is much better than trying to wrap your company around a canned, closed source solution.

    Whats good for the customer is good for the consultant.

    • Re:Thar be gold! (Score:4, Interesting)

      by QuantumG (50515) <qg@biodome.org> on Sunday November 06 2005, @11:57PM (#13967116) Homepage Journal
      Friend of mine works for a megacorp in a non-IT field. They get all their software developed in Malaysia and no-one else in the corporation has access to the source code. So whenever they need some small customization they do shit like screen scraping and dodgee Visual Basic hacks. If they ask for a customization or a bugfix from the development team they won't get it for 6 to 12 months, if they get it all, and it won't do everything they need.

      So yeah, next time you try to tell someone about the benefits of Open Source, consider the fact that most consultants in their own god damn company don't have access to custom developed software.

    • Having worked in this business for three years, and being the CTO of a small company in the Third World actually doing it, I can see a bit of a problem with it.

      While I cannot deny that it's a profitable business, it's not profitable enough to make most people engaged in it very wealthy. The main problem boils down to the fact that it doesn't scale very well. The only way to grow this kind of business would be to get more clients to do custom work for, and pretty soon, you wind up getting lots and lots o

      • "While I cannot deny that it's a profitable business, it's not profitable enough to make most people engaged in it very wealthy."

        Is there something wrong with that? Isn't it enough simply to be wealthy or somewhat wealthy or even GASP upper middle class wealthy?

        It seems to me the support models is a little more egalitarian. Iw ill enable many many people to be well off rather then having just a few people to be very wealthy. In fact it will probably enable just about anybody who wants to make a decent livi

  • Curiously... (Score:5, Interesting)

    by Spy der Mann (805235) <spydermann.slashdot@NOsPaM.gmail.com> on Sunday November 06 2005, @11:49PM (#13967075) Homepage Journal
    Today I watched a TV show on hackers. How the hacker culture formed, from the phone interventions to the computer makers. One thing that called my attention was Bill Gates' letter [nyud.net] to the homebrew computer club, saying:

    "As the majority of hobbyists must be aware, most of you steal your software. Hardware must be paid for, but software is something to share. Who cares if the people who worked on it get paid?"

    It's so funny, isn't it? At the beginning, Bill Gates complained about people sharing "his" software. But now, people sharing FREE software (Linux, OpenOffice) is what's ruining his business.

    Oh the irony....
    • I don't think there's any irony here, because Gates was being sarcastic. The letter itself was bitter complaint about the majority of Altair users not paying for copies of BASIC and hence "stealing" the development effort he had put into writing it.

      At the time, this was rather novel concept. The mainframe and minicomputer vendors of the era basically sold hardware, the cost of which far dwarfed that of hiring programmers to write the operating system and application software they ran. Thus, turnkey solutio
  • If you want to say that Open Source software can lead to a viable business strategy, then I don't think anyone can really argue with that. There are companies that sell bottled water and others that sell magical stones, so there's got to be some way to make money stuff that is given away for free.

    But is it a better strategy than actually selling proprietary software? Perhaps, but then again, it depends on how you define "better strategy". The whole point of keeping software closed is to keep control over the product. By doing so, it is possible to make money through lucrative licensing schemes. And the best part is that you only have to write the software once in order to license it multiple times.

    With Open Source software, the product is generally available for free from any number of vendors, so such a situation limits the licensing fees that can be generated. Also, because of the nature of Open Source software, customers may choose any number of other service companies to do customization work. This is not the case with Closed Source, as the company that owns the product maintains strict control over who has the ability to do customization work on it.

    On top of all this, how lucrative is "Service" anyway? In general, a product-driven strategy has a better margin than a service-driven strategy. A product only has to be written once, so the costs are all up front. In a service company, each project requires a certain number of employees, and as projects increase, so does the required headcount. There is always a growing cost of payroll associated with growth in a service company, so much so that as the number of engineers increase, the profit margin falls significantly because of increased costs such as HR and "non-essential" staffing overhead.

    This is not to say that there isn't money to be made here. In fact, there is a lot of money to be made by keeping projects to a minimum and keeping headcount low. However, a company with any aspirations to become large and self-sustaining must rely on a strong product base and not solely on service.

    But it doesn't mean that Closed Source is better. Just different. In many ways (such as from the point of view of the customer), Open Source represents a much better solution than Closed Source offerings. However, from a business standpoint, it's hard to imagine why anyone would see OSS as a better alternative to CSS.

    • On top of all this, how lucrative is "Service" anyway? In general, a product-driven strategy has a better margin than a service-driven strategy.

      Service is not worth much money in the home sector, but worth many times more in the commercial sector. So, you give away the software for free to the home consumers, and they provide your market validation for support at the commercial sector.

        • Ah, but if you produce the software yourself and keep it closed AND provide service to your customers, you now realize both benefits whereas the OSS strategy fairly limits you to just the service aspect of the business.

          Good point. However, in the commercial sector, you might stand to make $100 per seat for your software, and then $50 per month per seat for support.

          Support is ongoing revenue...so the initial cost of software is only relevant when you need cash on hand. Which is irrelevant to companies

    • There are companies that sell bottled water... so there's got to be some way to make money stuff that is given away for free.

      They give away water where you're from? Where I live it's part of my monthly utility bill ;)

      But seriously, the US economy has been converting over to a service economy over teh past century. It has been quite some time since GDP was more products than services. Products can be made anywhere, and with software the transportation cost is nearly $0. If you rely on software products then you had better be sure that you're the best or else because lower-cost software can be made in India and China.

      Services can go either way. The call center may be in Bangalore, but if you need someone to come to your business in Topeka either for training or an on-site service call, there's definitely not going to be someone coming from New Delhi to do the job. Services are a great hedge against the future, which is probably why IBM is shifting focus away from solely producing their international business machines to providing consulting service. Plus, it's perfectly in line with where the US economy has been headed for decades.

    • Sell Improvements (Score:4, Interesting)

      by queenb**ch (446380) on Monday November 07 2005, @12:15AM (#13967198) Homepage Journal
      I cannot tell you the times I've ripped down an open source package that was oooo, ever so close to what I really wanted. If the source code happens to be in a language I know, I usually felt pretty free to modfy it to suit my purposes - namely the pursuit of world domination.

      All kidding aside, this business model already exists. I've seen a lot of web shops that run this way now. They get ahold of some open source portal product, learn to tweak it, and then they sell it to all their customers with a specific set of tweaks for each customer. Heck, if more people knew they were running on Mambo, they'd be on the phone yelling at their web guys for charging them umpty-thousand dollars for "a custom portal application".

      2 cents,

      Queen B

    • Interesting, yes. I often think it's strange how many believe that Open Source is a better course for all software, or that Closed Source is the same. In reality, I don't think either succeeds in the needs of everyone 100% of the time. There's problems and benefits of both, which are often framed within context.

  • I beg to differ. (Score:5, Insightful)

    by Bruce Perens (3872) <bruce@pe[ ]s.com ['ren' in gap]> on Sunday November 06 2005, @11:59PM (#13967125) Homepage Journal
    I do not believe that businesses with a product that is related to Open Source will be, or are, the main driver of Open Source software development. The companies that use Open Source software to get a job done, and that have a product that has nothing to do with Open Source, are the most important ones. If you trace the money that pays for software to its source, those folks are it - software vendors just work for them. All of those companies devote some money to writing non-differentiating, cost-center software. They can distribute the cost and risk of such development by using Open Source for all enabling, non-differentiating technology. I've written a paper that goes into this. You can read it here [perens.com].

    Bruce

    • Re:I beg to differ. (Score:5, Interesting)

      by Ctrl+Alt+De1337 (837964) on Monday November 07 2005, @12:26AM (#13967243) Homepage Journal
      The part of what I have read so far that jumps out at me was this:

      Is the greatest economic effect of Microsoft the fact that they have enabled a great many businesses - their customers - to do business more efficiently, and to have businesses that they could not operate at all without the software that enables them? Yes, that is the biggest economic impact of Microsoft.

      Microsoft is a tool-maker, and the effect of the tool-maker on the economy is tiny next to the economic effect of all of the people who are enabled by the maker's tools.

      It's like my marketing (shriek! yes, marketing) professor says: when people buy a 1/4 drill, they're not really buying a 1/4 inch drill, they're buying 1/4 inch holes. The product itself is not as important as what it does and how it benefits the consumers.

      I think this is an area that open source could use some work on. It's not necessarily that the drill has to be shinier, fancier, or even more featureful than Microsoft's/Adobe's/any other propreitary software maker's drill, rather it must drill better holes more reliably at a lesser cost. Then, we can can worry about what kind of finish is used to make it gleam under lights.

      Case in point: KDE and Gnome both put a lot of work into eye candy, and justifiably so, but neither can give me a list of all the wireless networks around my computer in just 2 clicks in a default setup - but Windows can. I'd imagine OS X probably could too. It's these kinds of things that I'm talking about. Supporting wifi isn't enough - that's a drill that leaves jagged stuff around the 1/4 inch hole instead of making it clean all the way through.
      • One of our main differentiators is control. Rather than sell 1/4 inch holes, we're selling the ability to drill the size of hole you want, and not be limited to the drill sizes they have at the store.

        Bruce

        • That's very true, and I probably should have made that as a disclaimer or something. I just used the drill analogy because my professor did. By being specific on the size, I was referring to how individual programs generally only serve one purpose, like Gaim with messaging, and the Gimp with graphics.
          • Isn't a compiler essentially the ultimate tool of control?

            Yes, if you want to sustain all of the cost and risk of development all by yourself. One of the main points of Open Source is that you can distribute that cost and risk among many parties.

            Is "control" a euphemism for "incomplete"?

            We have lots of finished software. And the world has square holes and round pegs. The people who finished that software never dreamed of a square hole.

            As an example, I once met a Divinity Ph.D. who was using the Debian L

      • RE the wireless network browsing capability, Mandriva 2006 has this capability built in upon install. (called net_applet). All you do is right click on the systray icon. This is a case of a linux distro filling a hole in functionality. I really like it actually; it works quite well. 2006 on my laptop is a hasslefree experience (also the startup time is much improved over previous versions).
    • I do not believe that businesses with a product that is related to Open Source will be, or are, the main driver of Open Source software development.

      Who said that? Even the IBM rep quoted credited the developer community as a source of innovation. Did I miss something in the article or goof the summary?

      People are getting it. I submitted this story because of it's friendly portrayal of free software by a mainstream news outlet. David talked to people who say most of what you say, ORiely, Thoughtstrea

  • There's more than support (Score:5, Interesting)

    by max born (739948) on Monday November 07 2005, @12:06AM (#13967159)
    Damien Conway, who trains programmers through his business Thoughtstream, said: "I think the most successful of those is definitely licensing support; providing the software and then saying: 'if you want to buy a support contract, here's what it will cost you on an ongoing basis'.

    There's more than just support:

    There's also building and designing systems using open source. Like backup and mail systems, for example. It can sometimes be a lot cheaper (in savings on proprietory licenses) for a company to hire someone to implement an open source solution.

    Then there's customization. Sendmail does X and Y but some company wants it to also do Z. They hire a programmer to write an add-on or a module. Again it can be less than buying proprietory licenses.

    I've been implementing Linux systems for nearly 10 years doing just this and I've made a lot of money by helping companies save money.

  • The Open Source Model Just Makes Sense (Score:4, Interesting)

    by quadra23 (786171) on Monday November 07 2005, @12:19AM (#13967218) Journal
    These are programmers building great technology to help their peers to build software to solve customer problems.

    Let's face it, the Open Source Model is more focused on meeting the needs of its user community for the sake of the community. In contrast, the closed-source for-profit model typically works on the basis of, "Is this good for company? Will this help us sell more product?". When your concerned 100% about the community your mentality behind development is far more focused on the solution and how the product can be improved, with no extra baggage like the requirement of turning a profit by giving focus on things that would simply sell a product (the changes in closed-source could be good or bad, since the focus is a sell not product improvement). I know it's been said before but it can not be overstated, for-profit companies can easily disappear and no promise that any sort of support is available in the future. The Open Source Model is so flexible that as long as people still use the software it can still be improved and developed. Essentially it's quite hard when using Open Source to lose any time investment (unless the software was that poorly used to begin with), while with closed-source model you can lose both time and money when the company that provided you the product disappears as well as the product support to never re-surface again.

    In Open Source there is little room for added restrictions now and later that would require another license for using the software, while for-profit will always say the EULA is subject to change and can later lock you into paying continually more. The real gold in the Open Source Model is the flexibility it gives in use of the software. The protection from a lot of the stupid restrictions (i.e. paying based on number of concurrent users of the software) that we see in closed-source software almost practically pays you back in peace of mind and saves people from features in closed-source software that are specifically designed to lock you into their products.

  • You can find "gold" in anything if you look hard enough, or think about it the right way.

    Just look at the King of the Golden River, Harry King. ;)

    "Taking the piss since 1961."

  • Flocking obvious, BBC! (Score:4, Funny)

    by Anonymous Coward on Monday November 07 2005, @12:52AM (#13967338)
    One very recent open source innovation is Flock, a browser that integrates next-generation web technologies such as RSS, blogs, bookmarks and photo sharing.

    That would be the same Flock I downloaded the preview of last week - the one that is a build of Firefox with a new skin, a mildly different methodology for bookmarking (meh, tags) and er... er... it has a pop up editor for your blog that er... is not quite as good the one you can get by er... going to your blog and er... creating a new post... oh and a really shonky clipboard feature...

    Oh and Next-gen web technologies? Hmm, my first blog (and I was slow to get on that bandwagon) er... 2001... so four years ago, practically neolithic in IT terms. RSS, hmm, played with that in 2002 for the first time professionally. Bookmarks, they've been around at least a decade in web browsers and the prior art must stretch back to the dawn of computing. Oh and photo sharing... has been around since a tech first realised he could digitise a pair of breasts and then display them on a teletype and then send it to his mate at the next terminal*

    * and I'll bet there are some suggestive punched cards out there as well...
  • I don't see how you can get to a point where you sit back, and essentially sell your code base over and over again, as most market-leading software companies do. That is where the huge profits are. All the typical ways of earning money using OSS requires that you constantly provide services, which despite being steady and profitable isn't a cash cow. The closest thing would perhaps be selling some piece of hardware only running software digitally signed by you, or OSS software running with proprietary softw

  • One more important option. (Score:3, Insightful)

    by Vo0k (760020) on Monday November 07 2005, @05:32AM (#13968226) Journal
    Selling THE software.
    Not "licenses to use", not "support+media+manual" packs, but THE software, that is binaries+source+specs+tools+IP+support+customizati ons+... so the buyer becomes actual OWNER of the software, not just a licensee, "person permitted to use our package".
    Sure that won't work in case of simple, tiny generic apps, but for specialised software - the government commissions a countrywide tax system, vote counting system, car registration index, health care accounting software, portals for government institutions and such. It's not likely the company would sell more than one (countrywide) license anyway, and profits from access to the sources, API, specs, ability to release the userspace tools for people for free, while making them possible to be modified to fit existing systems, it's all very important.
    People paid to create software, pay for work, not pay for item. People paid to modify the software, audit the sources, add features, keep it bug-free (not pay per bug, but pay per month of bugfixing support service), people writing manuals, how-tos, guides - lots and lots of opportunities to get paid for work on common, publically accessible code base. And of course getting paid to create the code base in the first place.
    • "there is gold in software support, training and publishing."

      thats all well and good.. doesnt help a programmer pay the bills though.

      Sure it does -- the company gets revenue through support, etc and pays programmers to make software so they have a product to support.
      • Not every company that offers training, support, documentation etc actually produce the product(s) in their service. For instance you could have a company that builds and deploys computers running RedHat and then offer support to their customers as an added extra. Because this company doesnt also need to pay the salaries of programmers, they may be able to offer a lower support cost. Granted this wouldn't be official RedHat support, but hey, when grandma can't work out that the reason she can't copy a file
        • The company paying the salaries of the programmers also has a much better insight into the product, and hence can support it to a much deeper level, as well as produce fixes or customisations in a shorter timeframe than a support company that doesn't have anyone inhouse who knows the codebase inside-out.

          The small-time operator helping grandma do monkey tasks and being paid peanuts for it - well, there's room in the ecosystem for them, and they free up the programmers at Redhat et al from having to deal with
      • This only works if the company that's providing this support/documentation/etc. is

        1. the same company producing the software
        and
        2. is producing support/documentation/etc. that is qualitatively / quantitatively better than freely available resources.

        For practically all open source products available there exist publically available Forums where anybody can ask a question and get a reasonably quality or even high quality reply.
        In addition, for the majority of open source products there are many resources avail
        • So the only way you're going to make money off of support/etc. is if you can 'beat' those freely available resources - and I'm not entirely convinced that works for 'any' open source software.

          Why you think your theory is somehow limited to open source software? Windows support information is also "freely" available on Microsoft's site and various forums. How would you explain how all the MCSEs etc. earn their keep?

          The fact is that only a tiny percent of IT professionals earn their keep producing softwa

      • there is gold in software support, training, and publishing

        that's all well and good. doesn't help a programmer pay the bills though.

        Sure it does--the company gets revenue through support, etc. and pays programmers to make software so they have a product to support.

        No, that's not the model. The model is that some company gets revenue through support. Sometimes that company is the one that paid the programmers to make the software, but often it's not. There is nothing in the model that says the money

    • Re:Gold in software support, training and publishi (Score:4, Interesting)

      by Russ Nelson (33911) on Sunday November 06 2005, @11:51PM (#13967087) Homepage
      doesnt help a programmer pay the bills though.

      I've managed to pay my bills selling support for the last 14 years. First for packet drivers, then for qmail.
      -russ
    • "Support" can mean:
      1. Customization/enhancement work.
      2. Migration and deployment.
      3. User support.
      For example, many of Red Hat's larger customers have service contracts where they pay for 1 and 2. People who buy their shrink-wrapped product pay for a bit of 3.
    • That's a personal problem, the last job I had I made plenty through doing software support, training and publishing in the software I wrote. I knew it better than anyone else so mine tended to be the more in-depth stuff. I suspect that my next job will do so also.

      It's pretty common, look how many tutorials and papers at places like Ottowa Linux Symposium, Supercomputing, and other large conferences are written by the programmers. Even in some semi-canned software (Autocad for one) I've been put in touch wit

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