"FOSS Business Model Broken" — Former OSDL CEO 412
liraz writes "Stuart Cohen, former CEO of Open Source Development Labs, has written an op-ed on BusinessWeek claiming that the traditional open source business model, which relies solely on support and service revenue streams, is failing to meet the expectations of investors. He discusses the 'great paradox' of the FOSS business model, saying: 'For anyone who hasn't been paying attention to the software industry lately, I have some bad news. The open source business model is broken. Open source code is generally great code, not requiring much support. So open source companies that rely on support and service alone are not long for this world.' Cohen goes on to outline the beginnings of a business model that can work for FOSS going forward."
Re:Here's a great paradox for ya.. (Score:3, Interesting)
Here is Fred Thompson laying it out for you:
http://www.youtube.com/watch?v=7IrR3o7x1ps [youtube.com]
Re:Well, duh (Score:3, Interesting)
Many companies don't want to sell a solution. They'll sell a package (software) that others can make part of their overall solution. I could not imagine many software companies that want to get into the solution business.
Re:Traditional? (Score:1, Interesting)
I figure that anybody doing anything in a way that they did before or saw somebody else do is pretty much following a tradition (it might be on purpose and well thought out, but it is still pretty much a tradition if it follows an example).
So anything that helps avoid thinking is pretty much a tradition in my book, and often, even if you think about it, you won't find a reason not to follow the tradition.
Re:Here's a great paradox for ya.. (Score:3, Interesting)
The problem with that is that you end up with tons of disjointed features that only one customer wanted, and you end up like Microsoft Word - a cluttered interface with tons of toolbars, tooltips, palettes, windows, menus, icons, shortcuts, and everything you can cram into the app, 99% of which no one ever uses, and all of which makes the program harder to use, support, maintain, or update.
Solution in a mixed model? (Score:5, Interesting)
As far as FOSS being something that has serious business problems in regarding to sustaining the developers who work on it, this is indeed a serious problem. It generally can be very hard to raise revenue with FOSS, projects can ask for donations and sell packaged versions, but you often end up with just a trickle with these sorts of things. Programmers should obviously be able to work full time developing software. With FOSS directly competing with commercial software an eroding those markets, could it be that programmers will end up waiting tables during the day just to support the time they spend writing code? fOSS does indeed wipe out commercial software markets and it can actuall
I am supportive of the freedom aspect of FOSS. For far too long commercial software has shut down innovation and stifled the development of improvements through cooperative development with its closed model. FOSS is on the other extreme, its an open model but it leaves programmers in a situation where they cant afford to live. Perhaps a solution for some projects lies in the middle, with a commercial source tiered licence system, where the source code is provided with all licences, the developers are receptive to improvements from customers, and the cost of software is set according to the ability of the customer to pay, a hobbyist who is using the software for fun would pay far less than someone using it in a high revenue business. This assures that the software does have a high degree of openness and accessibility to all, but also assures revenue can be raised to develop the software.
Part of a valid company life cycle (Score:2, Interesting)
If they want to stay afloat, they will need to stay on top of developments in the open source community to provide consulting for multiple products.
Don't give it away for free (Score:4, Interesting)
Re:Why does nobody understand why this doesn't wor (Score:2, Interesting)
An old joke goes something like this:
A customer goes to radio shack to get his printer repaired. The repair guy says it will be $300, and be done in two days. Customer balks, repair guy explains the problem, and points out that the parts needed can be bought in the store for $5. Customer is thankful, but is concerned repair guy will get in trouble for turning away business. Repair guy says.... we find we make more money if you try to fix it yourself.
Other than its use as bait, FOSS enables a cottage industry for customization or repair which gives the customer choices like they have for repairing (most) cars, appliances, pets, etc...
The service industry is good work, but there is little opportunity to launch a retire-on-it type of project.
I agree (Score:3, Interesting)
FOSS is a poor business model. (It's a great software development model, though.)
My company produces both FOSS (GPL) and proprietary software. We happily sell support and service contracts for our free stuff. I estimate that the revenue from support+service of FOSS adds up to about 1% of the revenue from selling the proprietary software. (We include source with the proprietary software; you just aren't allowed to redistribute it.)
Making money from service and support is hard and labour-intensive. Making money from selling proprietary software is much easier, because once the thing is written, you can sell it over and over again, amortizing your labour costs enormously.
Sorry... much as I love, use and contribute to free software, I just don't think it's easy to build a good business around it.
Re:Why does nobody understand why this doesn't wor (Score:4, Interesting)
Odd, I can think how people are making your equation work with varying choices for step 4.
4) Make it do a complex task that requires skilled labor you provide cheaper than training staff to handle it internally
This works for several companies, a couple of which we pay where I work. The task of consolidating threat profiles, keeping them current, providing solid feedback and rapid response as well as managing secure channels with a variety of companies is something our company could hire a couple full time employees to manage. Rather than be out the cost of staff, we hire an outside vendor who does it very well at a fraction of the expense.
4) Build a small closed source application that utilizes the open source software. We use software built to work with a MySQL database system. The tasks done by the configuration, maintenance and integration are within the reach of a moderately talented programmer, but they are able to do it for hundreds of clients who all benefit from solid testing, research and experience of a few experienced and skilled developers who also contribute back to the open source system. This improves MySQL for anyone who cares to use it, but at the same time benefits the company who own the closed source application utilizing it. (For this example the model has to change step 1 to "Promote and contribute to a really cool product.") This is similar to the business model for Crossover Office where you pay for the expertise that has gone into the development of a product that does nothing you couldn't manage by hiring talented developers but for a price that makes sense for small business.
4) Make your staff the source for training required to manage a complex system. Zabbix is an example of this type of product. You can download and work on Zabbix for free, but it is complex enough that for significant implementation, you really need to get solid training, and that will cost you.
Our core transactional system in fact, would be a great example except that it is a closed source system. The software is good, but there is plenty of similar software that we could use. What we really pay for is the ongoing development, support and integration they offer. They protect themselves from competition by keeping it closed, allowing them to charge a higher fee, but if they were to manage a transition to open source they could potentially drop their development costs significantly, increase market penetration and undercut their competitors while still maintaining the same profits. They would have to face the risk that another company could do a better job pricing or servicing their current customers with the same software, however, and I honestly don't believe they have enough talent in programming, support and management to make it worth the gamble.
Re:Well, duh (Score:3, Interesting)
Re:Well, duh (Score:3, Interesting)
Writing custom software solutions is what MOST of the software industry was doing for decades.
But how would a business model based on custom software solutions work for interactive entertainment? With the exception of advergaming, I don't see how the bespoke model fits video games any more than it does movies.
very temporary... (Score:2, Interesting)
...on historical timescales. The model you outline is exactly what has happened with investment banking and repackaged/renamed mortgages and derivatives. They worked under the illusion that just by redefining an existing piece of wealth-one house/mortgage, or one unit of some other commodity, that a huge amount of new wealth could be miraculously created upstream by merely writing it down in new and diverse ways in contracts, then selling these things to each other. They even borrowed against a future set of still unwritten and/or unfilled or consummated contracts, then made bets with each other how well they would do, and used those bets as a sort of collateral to write up more contracts and lather rinse repeat to this huge freaking mess we have now that they insist they get bailed out for.
It's totally crazy, that's why it collapsed and will continue to collapse, we aren't even *close* to full collapse yet because of that insanity. It only worked temporarily because enough new, real wealth entered reality, but at only 1/200th of what they were trading around in "real" worth. We now see where the collapse level is, right there. They "lost confidence" in each other because they all realized they were all crazy and thieves. Some walked away rich on the con, but most of them are stuck with utterly worthless contracts. The derivatives bubble is the big kahuna still looming, it is orders of magnitude larger than their CDOs that caused this first mortgage and crash. Hundreds of times larger. They claim quadrillions with a Q "worth" of wealth in those contracts, more than the sum total of all real wealth ever made on the Planet Earth.
And that is why it is crazy. And that is why the crash will continue and no amount of bailouts are going to work. And that is why that theory of "wealth creation out of thin air because we wrote a contract that said it exists" is unworkable for the medium or long run, it just is not possible to be brought to reality.
The only way an "ongoing revenue stream" can exist forever is if someone actually DOES some work to create wealth. That means you have to keep some real humans paying you off forever, even when it is not in their best interests to do so, and they finally cease, and your pension/stock portfolio goes to nothing, or your contracts go sour.. That's why over bid up stocks always fall. That's why going into debt against your own best interests (governments inflating currency to ridiculous levels) always lead to disasters and collapses (and usually big wars as distractions). And this isn't anything new, the "something for nothing" angle has been explored throughout human history, none have succeeded for very long, and the short term successes have been pretty much based on rather severe and heinous exploitation of other humans at the point of a government gun. That only works for so long, then you eventually get a north korea or zimbabwe..or roman empire. They all fall and fail once they think they can get a lot of something for not much of anything and make that delusion official policy. There is no free lunch. Money never "works". Humans can work. And if/when they get overly exploited, they cut you off. The western economies are now based on the theory that Asia will do their real work for them forever and for cheap, and all they need to do is write up contracts about it and keep printing currency units and stock shares to any sort of level. This is beyond la-la land. It's collapsing, and it will be a very bad collapse.
Re:Solution in a mixed model? (Score:1, Interesting)
For far too long commercial software has shut down innovation and stifled the development of improvements through cooperative development with its closed model.
What a fucking lie. How many users of Linux can even read 10 lines of kernel code and understand it? Let alone be competent to even make one line of useful change. A handful? Thought so. The rest? Why cant they write code and give it away? Who is stopping them? They can do it on BSD/Linux/MacOS/Windows/Solaris/etc .. etc
Ohhh thats right , poor developers cannot afford a compiler or IDE or documentation, which BTW companies like MS give away for free on college campuses. Whats that? They gave it away only to lock those poor innocent minds in their evil development chain of "commercial innovation-stifling products" ? Thats such a load of crap...
Besides, what is this revolutionary "innovation" thats suddenly going to take place because you can read the code for the kernel? The linux kernel is mostly rehashing decades old OS concepts ..
Look at any linux distro. Each and every application is a copy of some other one. In many cases they are copies of other commercial tools. Note that I'm not suggesting that OSS particularly has to tackle the burden of innovation. After all research requires money and donations can only get you so far. But the dumb claim that "commercial software" has been stifling innovation is hogwash. And you know it. So, a basement-hacker-hippie wont have the big bucks to make his "innovation" marketable, but so fucking what. This is capitalist-pseudo-free-market-ish world, not some damn communist state.
*Should be noted that replies were to rhetorical questions often seen from OSS cheerleaders.
And also should be noted that I have a hotter girlfriend , bigger dick and a even bigger bank account. :p , OK, the last part was a lie.. but I do have a huge wang , dammit !
Re:That's great (Score:3, Interesting)
Thank you for commenting on something I have been puzzling over for quite some time. I keep hearing how FOSS is the way all software is heading. However the problem is it does not address niche markets.
To keep the discussion simple, let's say I develop a new graphics application that is perfect for graphics designers and much better than anything on the market at the moment in terms of speed, usability and features.
The problems I run into if I open source are:
1) If usability is great, who is going to want to purchase support?
2) If I open source it - I may sell a few copies until someone grabs the source code and starts distributing it for free.
So how do my bills get paid??
Let's say this application takes a year to develop - that is a year of unpaid work that I will receive no benefit from besides a warm fuzzy feeling. Unfortunately warm fuzzy feelings do not pay the bills. Most developers who are looking at starting a business are already employed and well into their career and are not interested in writing an open source app just so they can land a job somewhere (working for someone else who started a business to make money). The entire point of starting a business is so that one doesn't have to work for someone else any more.
So in this instance how does one make money? Or does this new application just never see the light of day?
Re:Well, duh (Score:3, Interesting)
Creepy stuff.
Sounds about right (Score:2, Interesting)
Companies have long hoped to make money from this freely available software by charging customers for support and add-on features. Some have succeeded. Many others have failed or will falter, and their ranks may swell as the economy worsens.
Sounds like a true statement, only is this really unique to Open Source at all?
Companies have long hoped to make money from ______________________. Some have succeeded. Many others have failed or will falter, and their ranks may swell as the economy worsens.
What a bold statement! Now how many other business ideas does this ring true for? Almost all of them?
Its all about saving money. (Score:3, Interesting)
Free Software is not a great money printer for business in the traditional sense. Instead of earning money they save loads of money and thats something many PHBs have problems wrapping their head around. The software cashcow where you could write an application and then sit back and reap the rewards are dead.
I think the focus in mainstream media is very wrong since they only look at the earning bit and not at how much money can be saved. In their mind Linux isnt successfull if it dont bring in lots of money even if it saves boatloads of money for the people using it.
Hogwash! (Score:3, Interesting)
As far as FOSS being something that has serious business problems in regarding to sustaining the developers who work on it, this is indeed a serious problem.
Hogwash!
The software industry is competitive and margins are always thin. Full stop. It has nothing to do with FLOSS, except insofar as FLOSS is an extreme example of how thin the margins can get! :)
Some examples from my own career:
1. I started out of school writing a quicksort for a company that needed one. It came in on time, under budget, and was very well done, and got me a full-time offer from the company. Nowadays, quicksort is a standard part of the standard C library, and nobody wants to hire someone to write a quicksort. Oh noes! But the end of the market for quicksort programmers had nothing to do with FLOSS!
2. I spent a few years working for a company that made one of the first word processors. Something...happened to the market for word processors, and it wasn't FLOSS, but it was just as bad as the effects you attribute to FLOSS (unless you work for a certain NW-US company which shall remain nameless).
3. I spent several years working for a company that did custom point-of-rental software for video stores. We charged a good amount of money, but we did customization and support, and, with all of that, barely managed to scrape along, until someone entered the market with a similar product for about 1/10th of what we could afford to charge. Of course, they didn't offer customization or support, but for some reason, store owners just saw that sticker on the front of the box, and decided they'd give us a pass. We were torpedoed out of the market, and, again, it had nothing to do with FLOSS.
FOSS is on the other extreme, its an open model but it leaves programmers in a situation where they cant afford to live.
That's just ridiculous. Yes, companies that specialize in creating pre-packaged software are going to struggle just as they have been since long before FLOSS came along. FLOSS is merely an extreme of what the software market tends to do in any case. But programmers are in no danger of losing their jobs, since something like 90% of them work for companies which use their software directly, rather than making it to resell. The company I work for now uses Apache and MySQL and Linux and other free software, but they still need programmers to glue it all together into the shape they need, and there's no sign that's going to change any time soon. Plus, once in a while, I even get paid to find and fix bugs in Apache or MySQL or Linux, and that's a very good feeling! :)
But in any case, so what? Even if you were right (and you're not), what gives programmers a right to earn a living as programmers? Why should buggy-whip makers deserve a living? If there's no market for programmers (and I assure you, there is), find something else to do. It's the way of the freakin' world, man! Things change. Whining about how we should all get together and conspire to force the auto manufacturers to require buggy-whips for cars is just silly, and ain't going to happen, and your plan makes about that much sense to me.
People rarely pay for software nowadays (Score:3, Interesting)
People don't usually pay for software. They pay for one of the following:
1) a pure conscience
2) a zero fuss installation process
3) not having to go through the effort of finding a copy of said software and ripping it
[if 2 is broken and outweighs 3 in effort and hassle, people ripp software - one of the reasons I haven't bought any copies of flash anymore since MX 2004 Pro - the installation and registration process is an insult to any paying customer]
4) cool looking UIs and neat workflows
5) automated processes (software + hardware + the people to understand the problem and set it all up to actually save work and money + a number to call when things go south)
6) access to a professionally maintained gameserver
In fact, in the web developement industry, that a piece of software is open source is mostly a given. Wether a company succeeds or failes is rather independant of wether it offers its code as OSS or not.
Re:Well, duh (Score:2, Interesting)
Buy charging for every copy you can spread out the cost of development.
By releasing the source you can spread out everything of the development. Sure, it's not profitable for corporates that would in the other hand hold monopoly, but I don't give a simple fuck about the corporates. There will always be some way of gaining profit anyway, perhaps not in the same ridiculous way that we have today. Company dominates market -> has dependency -> forces software through -> creates additional dependency -> sells software that everyone depends on -> repeat.
Re:Sometimes they won't even take your money (Score:2, Interesting)
Businesslike? I am a private individual and I donate 180€ per year to the OpenBSD project. I wouldn't even think of demanding anything to them. If you think that a one-shot donation of 150$ is generous, you live in a very strange world.
Re:Well, duh (Score:5, Interesting)
Do know that it is generally estimated that less than 20% of programmers work for software companies?
Lots of companies have in house programmers. I have even seen cities with "hiring freezes" post ads for programmers and sys admins.
Every estimate I have seen for the failure rate for computer projects is 80% or higher.
More or less everything with computers has been a disaster.
Bespoke solutions, off the shelf solutions, a combination of the two, you name it, your work will be harder and the money spent will never be recovered. (at least that is the way to bet.)
Of course we see the relatively rare successes and assume that the massive carnage was just the unenlightened fools that didn't know what they were doing.
Comment removed (Score:3, Interesting)
Proprietary Open Source License (Score:2, Interesting)
I have recently drafted a new open source license just to solve this problem. I feel that the most important problem of open source software is that the company may not sell just the binary of the software because somebody else will gonna clone it and distribute a free version. RHEL vs CentOS is a very good example.
What I suggest is to create a new open source license that prevent cloning of a project with exactly the same code. By forbidding this, the company would be able to have exclusive right to distribute the compiled binary and thus have the power to charge for the download and usage of the binary.
I think that the business model for selling proprietary software is very simple and efficient model, and the only problem is the closed source nature of proprietary software. If we can make use of best of both world, wouldn't it be great?
I temporary calling this license Proprietary Open Source License (POS) and a complementary library license for it, called Common Open source Library (COL). (bad naming, gonna find better ones.) And below is some details for these two licenses. I hope that anyone can give me some feedback about this license, tell me whether it would works and whether there is any possible flaws that violates the open source philosophy. This is just a very rough draft and your opinion is very valuable for me. Thank you!
General Rules of Proprietary Open Source License (POS):
1. The licensor must release all source code of the binary under this license or licenses that are no more restrictive than this license (e.g. COL, LGPL, BSD).
2. The licensor has exclusive right to distribute the original binary.
3. The licensee has unlimited right to distribute the original source code but not original binary.
4. Redistribution of binary must have the source code modified to have no more than 80% similarity than original source code at any time.
5. Redistribution of all modified binary and source code from this license must be relicensed under COL, and not this license, unless explicitly permitted by the licensor.
6. The licensor reserves the right to patch from the modified source code, provided the patched original source code has no more than 80% similarity of the modified source code.
7. The 80% similarity is calculated by iterating every source code files that are released under this license, and compare the differences in program code ignoring comment.
8. In case of similarity of source code is in grey zone, with rough calculation of around 75%~85% similarity, the licensor reserves the right to request the licensee to make further modification to the modified source code.
9. Embedding the original program into other software, whether open source or closed source, requires exclusive permission from the licensor to release the code in other licenses.
10. The licensor may not control which 80% of code a licensee may or may not copy.
11. Same as GPLv3, the license implicitly grant patent licenses from the licensor to the licensee.
Common Open Source Library (COL):
1. Software written under POS cannot use GPL libraries because it violates the terms.
2. A new library license has to be made to let different POS licensors share a common library.
3. COL Licensees are required to release all linked source code under GPL or POS or COL; hence it is more restrictive than LGPL and BSD.
4. COL allows the library to be used in both POS and GPL software.
5. Source code under COL is not counted under the 80% similarity requirement of POS.
6. This would make a healthier environment to open source. Because POSS (Proprietary Open Source Software) vendors not only would have the incentive to improve the library, but also monetary support to do so.
7. The compatibility for use in both POS and GPL means GPL software can benefit from the improvement of the library.
Benefits of Proprietary Open Source:
1. Provides monetary incentive to produce high quality software.
2. Gives ex
Re:Oh give me a break. (Score:3, Interesting)
Hypothetical - someone writes a fantastic graphics application, lets call it BetterThanPhotoshop and open sources it. Having bumped into quite a few graphics artists I can say with confidence that the vast majority of them don't care diddly squat about discussing the innards of the project or who the authority is on the technical aspects of graphics software development. If the product was sold at $100 and someone grabbed a copy of the source and sold it at $50 - the exact same product - guess who gets the business? The problem here is that the year head start means absolutely nothing - in fact it is a liability - someone else comes along and gets all the requirements gathering, design, spec, testing etc for free and only has to pay for marketing and distribution, while the original developer has to pay for not only the marketing and distribution but also has to recover costs from the year of dev and so has a year of costs to make up on the second guy.
We are all quite aware that the business model is critical - I have not suggested otherwise. My question is around developing FOSS as part of a business model - is it viable in all situations? In many situations I am sure it is. Unless someone can show how the original developer in the above hypothetical would benifit using FOSS as part of their business model - my answer would be a resounding no. My comment is more in response to the general attitude by many on this site that all software should be open sourced. I am not aware of your personal opinion so am not assuming one way or the other in regards to your comment, rather making a general observation.
Re:FOSS movie (Score:3, Interesting)
Can you think of any way that an organization could make money producing CC licensed movies?
Product placement.
Producing propaganda for a third party(probably a non profit) and charging more than it costs to produce the movie.
Providing support for people who have watched the movie(Confused by Primer? Check out the ad supported website. Remake 'Grave of Fireflies' and charge people for tissues, anti-depressants and counseling.)