You Don't Have To Sell Software
from the seriously dept
Reader Philip writes in to ask about our thoughts on a commentary on News.com by Dave Rosenberg concerning Sun's open source strategy. Rosenberg seems very concerned that Sun has decided to forego trying to sell software directly:Sun's approach--at least the way I'm reading it from Jonathan Schwartz's statements, is about making the software totally free and trying to sell support and hardware. This clearly diminishes the value of the products and doesn't offer a mechanism that encourages people to pay for software.It's difficult to see what Rosenberg is worked up about here. Sun seems to be following pretty closely an economically sound approach to a market: using infinite goods (software) to make scarce goods (hardware and services) more valuable. That's a lot more reasonable than using infinite goods to try to get people to pay for more infinite goods. There's no reason why Sun needs to encourage people to pay for software, and there are many reasons why they should not try to make people pay for software.
Yet, for some reason, Rosenberg seems to think that this strategy is somehow damaging to the open source movement:
It also puts an unnecessary burden on the notion of open source--such that if Sun is wrong, everyone else will look wrong too.Why? If, as Rosenberg notes elsewhere in the article, Sun's open source strategy is different than other companies', then such a failure should be seen as a failure of Sun's model, not a strategy of embracing open source. There are plenty of reasons why Sun may (or even is likely to) fail in this endeavor. The Sun brand name has been tarnished. People may not find the hardware or services Sun is selling as providing enough value compared to alternatives (even with the software included). On the whole, it's not clear what's compelling about Sun's offer compared to the alternatives, and that's its biggest challenge. But that hardly reflects poorly on open source software or on the idea of not selling software.
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Filed Under: business models, economics, infinite goods, open source, scarce goods, software
Companies: sun
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Sounds Like They've Given Up Selling Copies
I doubt they've even tried selling the software - so that would preclude them giving up what they haven't started.
At least MicroPledge.com tried enabling people to sell free software. Their hiccups in doing so are disappointing, but not yet a gravestone on the idea.
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Re:
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You damn well pay the developer. All this changes is how your company is going to make money. You concentrate on the harder things, such as quality support.
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The Software Developer is not Working for Free
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With start-up companies, of course you have to develop the software for "free". Customers won't give you money in advance of the product. Actually, a lot of start-ups go to venture capital firms to get funding so they aren't really doing product (software) development for "free" anyway.
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I'm... confused. If you're selling hardware and service, why would you care that it doesn't encourage people to pay for software? You aren't selling software. How is this a sensibly remark?
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I'd be interested in finding out why Rosenberg apparently thinks this direction is doomed to failure, even though similar (to varying degrees) changes seem to have worked OK for IBM, Red Hat, etc.
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Making the same investment
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Re: Making the same investment
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Misaligned incentives
Granted, for the world to adopt your software, you have to write efficient software that is easy to maintain and use, both of which will kill your hardware and support sales. So, using the "don't have to swim faster than the shark" metaphor, all they have to do is write software that is just a little more efficient and a little easier to maintain than the other guy...sure they get reduced hardware/support sales each time a new and brighter generation comes out, but they live a lingering, diminishing, atrophying, morphine craving death for years to come.
Cheers!
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Re: Misaligned incentives
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Re: Misaligned incentives--Guess Who?
byron88 wrote:
Funnily enough, there is a large software company whose products seem to fit in with your claim quite well--they write software that is inefficient and requires bigger/more expensive hardware, thereby driving, or at least attempting to drive, hardware sales, and their software also requires more and more support, thereby driving a whole support industry.
Who am I talking about? Microsoft, whose Windows operating system, in particular, represents some of the most bloated, cumbersome, inflexible and maintenance-intensive code on this Earth. Completely the opposite of Free Software alternatives like Linux, which are easy to install and keep up-to-date, adaptable to configurations from the very large to the very small, and run particularly well on modest hardware like the new, fast-growing netbook/budget-mininotebook market.
Who's the one with the misaligned incentives again?
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Re: Re: Misaligned incentives--Guess Who?
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open source is a myth, software should cost money, VC business is nuts
1) Open source is a myth. Linux is essentially built by IBM, and don't let anyone tell you different. I'd like to believe at least as much as the next guy or gal there's this amazing open source army out there teaming together to get it done. The reality is far different. Don't take this the wrong way. It doesn't mean open source sucks -- I love open source, have managed open source projects with millions of users, and I open source every line of code I write (a lot of lines).
2) Software should cost money. Anyone reading the papers lately? These companies built on infusions of millions of dollars of investment capital are a friggin joke. What ever happened to good old fashion profits and losses? Turns out nothing. Sure, if you've got millions to spare, you can gamble it all on Facebook or whatever, but if the fundamentals of the business suck, you've got the same old problem. I actually don't put Twitter in this category. Why? Their costs are low low low in comparison. All the other names likely popping up in your mind are a joke to me.
That's why software should cost money. If you're doing something valuable, you should charge for it and actually run a profitable company. Sure, there's the whole "loss leader" thing in Sun's case, but why not charge for what you can? It also adds legitimacy. Sun seems desperate, further diluting their brand. It's like they don't respect themselves enough to charge for the software they're writing. That pretty much covers both #2 and #3.
-Adam
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Re: open source is a myth, software should cost money, VC business is nuts
First of all, even if we grant the premise that Linux was created by IBM (which isn't true...), how does that change things. If anything that makes the case for giving away software and charging for other things even STRONGER. Based on your own reasoning, IBM is spending its own money and resources to develop software that is given away totally free, and is doing just fine profiting from that.
That SUPPORTS the idea of giving away software for free. Not the other way around.
2) Software should cost money. Anyone reading the papers lately? These companies built on infusions of millions of dollars of investment capital are a friggin joke. What ever happened to good old fashion profits and losses? Turns out nothing. Sure, if you've got millions to spare, you can gamble it all on Facebook or whatever, but if the fundamentals of the business suck, you've got the same old problem. I actually don't put Twitter in this category. Why? Their costs are low low low in comparison. All the other names likely popping up in your mind are a joke to me.
I would suggest that learning a little economics might help here. Again, you seem to be missing the point that IBM, for example, is making a ton of money by giving away software for free.
You seem confused. No one said that you don't make any money. We said you make money from a different part of the business.
That's why software should cost money. If you're doing something valuable, you should charge for it and actually run a profitable company. Sure, there's the whole "loss leader" thing in Sun's case, but why not charge for what you can? It also adds legitimacy. Sun seems desperate, further diluting their brand. It's like they don't respect themselves enough to charge for the software they're writing. That pretty much covers both #2 and #3.
Value does not equal price. You value air, but you don't pay for it. Price is determined by the intersection of supply and demand, and if supply is infinite, then price gets driven down to zero. That's just basic economics. That doesn't mean it's not valuable, and it doesn't mean you can't make money off of it, but you make money off of having that infinite good make something scarce more valuable: in IBM's case, that's its services.
I thought I wrote all of this in the post, so I'm not sure why you seem to be reiterating these obviously false points that you want to make.
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Re: Re: open source is a myth, software should cost money, VC business is nuts
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Re: Re: Re: open source is a myth, software should cost money, VC business is nuts
So Sun needs to have the best product on the market. That doesn't mean they need to charge for it.
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Re: Re: open source is a myth, software should cost money, VC business is nuts
So, if some of the high-quality suppliers are not willing to do this and the quality or intrinsic value of their product is enough to differentiate it (think music here), they might be able to charge money for the product (even if its supply is infinite) and get away with it...but, the argument is not that they SHOULD, but that they might HAVE TO because they cannot control unauthorized distribution. Keep in mind that just because a product can be distributed like that doesn't mean that its fair game to do so.
If that is what you mean by your argument, then I might be inclined to agree with you. But, keep in mind, that companies who charge for software often bundle the support in with the price so, effectively, its no different than giving the product away for free and charging for support only. You would never, ever see McDonalds just giving away beverages in hopes that some of its customers buy a hamburger. (and in this case, the beverage is so cheap that it almost qualifies as the same thing as an infinite good from their perspective).
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Re: Re: Re: open source is a myth, software should cost money, VC business is nuts
As for McD's, of course the analogy is flawed. Why are there always analogies drawn between infinite and scare goods? McD's doesn't give away drinks, so Sun shouldn't give away software? Drinks and software aren't the same, so it doesn't make sense.
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Re: Re: Re: open source is a myth, software should cost money, VC business is nuts
First, I am not sure you have replied to FinanceGrad's comment. I would be interested to see your response.
Second, I have read (and in many cases agreed with) many of your blogs over the years. But now I have a specific real world example which I would be VERY interested to get your thoughts on in the light of this conversation thread. All specifics have been removed as I want to focus on the principle around making money from simple unique software.
I have a cool piece of utility software for use on the new generation of mobile smartphones (IPhones, Android, etc.). It will be extremely simple to use by design (therefore not requiring any support) but I believe is unique due to having a number of inventive steps (at least initially until someone copies the idea).
My plan is to protect the idea through the use of a patent and then sell it for a small fee (a few dollars at a time). I will also offer ongoing enhancements for an even smaller fee. Of course, I am prepared to take the risk that no one values or is prepared to buy my product.
If I am not able to sell the item for a fee (due to it being an infinite good) I have difficulty in seeing any incentive for me in investing my time and money in to developing this software. The nature of my product means that I can't make money from supporting it given its ease of use and I have not been able to think of any other mechanisms for selling a commercially significant scarce good on the back of it. In my opinion the world would lose one potentially very useful application.
I imagine this would be a problem for many small software makers. I would welcome your thoughts. Have I:
(a) misinterpreted your writings (It seems this is a common occurrence) or
(b) is there another reason other then money why I should invest my own time or money to make this application or
(c) am I missing some other ways to monetize this type of simple but unique software application other then direct sale and support?
Thank you in advance
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Re: Re: Re: Re: open source is a myth, software should cost money, VC business is nuts
Hey, it's really difficult to suggest a business model without knowing the specifics. Every market is different, and understanding the specific infinite goods and scarcities in a particular market would make a big difference.
I don't know that you've misinterpreted my writings at all, but I would caution you that "support" is not the only scarcity in software, though you seem to indicate that's the only scarcity you're thinking about. I'd look carefully at other scarcities that are made more valuable by your software.
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Re: Re: Re: Re: Re: open source is a myth, software should cost money, VC business is nuts
It is very difficult to envision business models for companies like these that provide very important and useful products that are here characterized as infinite goods when these companies are not also involved in the provision of scarce goods.
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Re: Re: Re: Re: Re: Re: open source is a myth, software should cost money, VC business is nuts
It is very difficult to envision business models for companies like these that provide very important and useful products that are here characterized as infinite goods when these companies are not also involved in the provision of scarce goods.
You are thinking too narrowly.
That's like saying it's impossible to think of a business model for horse carriage makers as the automobile came around. Yes, that's true, if they don't change. But, if they were willing to change...
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Re: Re: Re: open source is a myth, software should cost money, VC business is nuts
Two points on this. Yes, I agree the issue is that they may *have* to give away the software for nothing, due to the competitive nature of the market (and note, that I include piracy as a natural part of this market). But, the more important point is that I think that giving away the software will almost always open up opportunities to make more money.
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Re: open source is a myth, software should cost money, VC business is nuts
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Re: Re: open source is a myth, software should cost money, VC business is nuts
I never said they were different model wise. I said they were different cost wise. That's a pretty key factor in running a profitable company.
Except that the SaaS model says nothing about whether or not you sell it. It just says it's a service.
I'll admit I'm lumping together selling software with selling services on web sites, but the two are very closely related.
Good god, what have I gotten myself into? Back to writing SaaS so I can make some money...
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Re: open source is a myth, software should cost money, VC business is nuts
It seems those individuals who cannot conceive of valuing anything in other than monetary terms simply lack the vision to perceive the larger picture -- and must resort to forcibly coercing a true world view into something much smaller and thus perceptible through their small lens. But this is hardly anything new -- we've been hearing this same tripe since we began building this network decades ago. My suggestion to them remains the same now as it was then: build your own network. Feel free to use proprietary standards and commercial software. Let us know how that works out for you.
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Re: Re: open source is a myth, software should cost money, VC business is nuts
Again, it's not some big diss to Linux to say it's largely built by paid employees. We should be more interested in what makes these various models succeed than we are in whether or not they match our conceptions of them.
-Adam
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Re: Re: Re: open source is a myth, software should cost money, VC business is nuts
Moreover, it is a serious (but certainly not uncommon) error to consider the value of any package of software only in monetary terms. Take, for example, BIND, which is both (a) very valuable and (b) free simultaneously. It is such an integral part of the fabric of the 'net that most people don't even know that it exists or what it does. And while there have been a few competing software packages brought forth from time to time, it's still -- by a huge margin -- not only the most popular, but the standard by which all others are judged. So what's it worth, in financial terms, really?
Everything.
And nothing.
The aberration of closed-source and commercial software is now coming to an end, as the computing industry matures away from it. It's coming with a recognition that the dilemma above isn't choosing between the answers: it's recognizing that the wrong question is being asked.
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Re: open source is a myth, software should cost money, VC business is nuts
There is a distinct difference between corporations contributing to Linux (which, despite your claim involves more companies than just IBM) and claiming that a single company is responsible for the entire OS.
That's why software should cost money. If you're doing something valuable, you should charge for it and actually run a profitable company.
The problem with your argument is that you don't "do" software - development, support, and other services are the scarce resources, not the actual finished product. And none of those things dictate that the end product should be charged for. Charging for the services and giving the software away makes perfect sense if the chosen business model is sound.
Sure, there's the whole "loss leader" thing in Sun's case, but why not charge for what you can?
So the logic behind your argument is that just because you can do business a certain way, then you should do business that way? It seems to me that a more sensible solution would be to investigate what model makes the most business sense, rather than what happens to be easiest.
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Re: Re: open source is a myth, software should cost money, VC business is nuts
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Re: Re: Re: open source is a myth, software should cost money, VC business is nuts
My point is true for any software - the scarcities may be different, but they exist.
The logic behind my argument is that you should bring in cash where you can, and I think more companies could bring in cash on the software side.
If it really wanted to, Google could put their search engine behind a pay wall and charge users for search results. But that would be a disastrous decision for the company, because their market share would plummet. Instead, they provide the search service for free and sell advertising space.
Now granted, not every company is Google, but a philosophy of "bringing in cash where you can" can lead to incredibly short-sighted business decisions that ultimately have a negative impact on your bottom line. That's one of the reasons the music industry has been struggling with the digital transition for the better part of a decade.
The free software stuff is trendy, but to me often misguided because fewer and fewer companies can afford to hemorrhage cash.
If the company is hemorrhaging cash, then they have obviously chosen a poor business model, regardless of whether they're leveraging free software or not.
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Re: Re: Re: open source is a myth, software should cost money, VC business is nuts
Yes, I'm sure to many newbies who are unacquainted with the history of this network, it looks that way. However, given that the entire Internet is built on open source software and that it's now many decades old, I think it's fair to ask how many more decades it will have to persist before the diminutive "trendy" will no longer apply?
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Re: Re: Re: Re: open source is a myth, software should cost money, VC business is nuts
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support for free resources
www.iwebforums.org
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There's a reason Sun's left standing
This is a win for Sun (because some people will buy support and/or other Sun products) and a win for the community (because it's a very nice piece of technology).
I'm sure this baffles some traditional business analysts, but then again, Unix baffled some of those same people decades ago. Some people have a difficult time grasping change.
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If that's me you're mentioning...
Anyway, nice commentary!
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Quick!!!!
Wait...WHAT?????
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You Don't Have to be a Corporation, Either.
http://www.reason.com/news/show/32239.html
Sun Microsystems is not a hard-core manufacturer, in the sense that Intel and Seagate are. A working definition of a hard-core electronics manufacturer is that it runs Clean Rooms, and that its profitability is dependent on defect rates at nanometer-scale.
I think that in the long term, virtually all large-scale open-source software will be shifted to foundations, which will get their funding from hard-core manufacturers like Intel and Seagate. Standards work is traditionally run by foundations and professional societies. In software, open source largely supersedes standards, because, instead of implementing the standard, you generally modify, or incorporate, or link to the source code, and do so under version control. I have my doubts about whether some of the present standards bodies, notably the IEEE, ANSI, and ISO, can make the transition, as they seem fundamentally hostile to open source.
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some more myths for you...
Might wanna take a look.
http://www.linuxplanet.com/linuxplanet/reports/6597/1/
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Re: some more myths for you...
1) More people will pay for it than you think
2) As a result of #1, many businesses that are currently unsustainable could be made sustainable
I'm really not attacking Linux or open source here. I actually think part of the problem is open source is associated with free. Myth #1 you point to is interesting:
1) If software costs nothing, it's no good
You don't have to convince me of that. There's also no shame in putting a price tag on something, though. There's a sort of badge of honor associated with making your open source software also free, and I think it's often a mistake if you want to make that software ultimately succeed.
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Re: Re: Re: open source is a myth, software should cost money, VC business is nuts
It's got nothing to do with a "badge of honor" it's the simple economics of open source.
Anyone is welcome to sell open source software for as much money as they can get - no open source license will prevent them from doing so. However since the same license gives all their customers the right to give copies away, one quickly finds the customer base rapidly vanishes.
Would you buy a product from a market stall if you can plainly see the guy on the next stall is giving away the exact same product?
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I must say
Of course, there are other ways of making money out of open source, but, it most likely that 99 % of REALLY FOOS companies won't be profitable, ever. Hence dual licensing, badgeware and stuff.
Personally, I think that money in OS comes at the end of the circle, when basically one sells out its installed base to a company that can, or better yet, thinks it can, leverage that asset.
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