If You're Looking For The Open Source Business Model, You're Looking For The Wrong Thing

from the that's-backwards dept

Tue, Dec 1st 2009 3:30am — Mike Masnick

Every so often we see a similar article to the one penned recently by Ashlee Vance in the NY Times, bemoaning the lack of "open source business model" success stories. Now, Vance is a top notch reporter and does great work for the NY Times (as he did for The Register before), but these kinds of articles seem to miss the point. They go looking for "open source" company success stories, and find that most open source software companies don't end up doing very well, and the few that do okay end up selling out to other companies (MySQL, XenSource, SpringSource) and conclude that, outside of perhaps RedHat, "open source" isn't a very good business. But that misses the point. Open source software, by itself, shouldn't be much of a business. Just as music isn't much of a business by itself, but it can be a huge component of a larger business, open source software is part of what helps many other businesses.

So, while Vance dismisses the fact that companies like Google and IBM rely tremendously on using open source software to be the foundation of their multi-billion dollar businesses, it's time to recognize that those are open source business models. Just as we talk about how the new music ecosystem involves using music to make other things much more valuable, the "open source business model" is using open source software to make other things much more valuable. The companies that haven't gotten very far trying to sell open source software are in that spot because they don't understand open source business models themselves, and seem to think that the focus should remain on selling software, rather than using the software to make other things more valuable. While Vance dismisses companies like Google and IBM using open source software as "pawns," it's time to recognize that that is the most reasonable way to build a business on open source work. And there's nothing wrong with that at all. It's helping build tremendous businesses that have a huge impact on the world economy.

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Filed Under: business models, open source, services, software
Companies: google, ibm, mysql, red hat

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Pete Austin, 1 Dec 2009 @ 3:55am

One Trick Ponies?
Re: “A lot of open-source firms are one-product companies, and it’s hard to build a long-term, successful business that way.”

Nonsense. Most computer companies have very few products. For example look at Google and Microsoft, two of the biggest and most profitable companies in the world. Google is a one (profitable) product company, selling Digital Advertising. Microsoft is a two (profitable) product company, selling Windows and Office. Both of them do a lot of other things, but those lose money.

I would argue that what's hard is building a multi-product company. Look at how many turkies Apple produced between launching the Mac and launching the iPod/iPhone. So it's very sensible when successful startups sell out, rather than risk diversifying. Whether they are Open Source or Proprietary is quite unimportant.
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Chill, 1 Dec 2009 @ 4:48am

Re: One Trick Ponies?
I would disagree on the Microsoft part. Are you forgetting the whole Xbox thing? They make a killing off of XBL subscriptions and console sales. More like a, well, 3 trick pony? still those are very profitable tricks.

Also, good post Mike. Glad to hear something not about the woes of copyright or patents; something fresh (though I tend to agree with what you have to say, those areas just seem to bring me down )':
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Tyler (profile), 1 Dec 2009 @ 4:55am

Well said.
I work with open source all the time, it is crucial to what I am doing, I could not get buy without it.

I read the nytimes article yesterday and was very angry. At least there are others out there who can think outside the industrial age, thanks for this article I do not feel so alone.

Maybe "business models" are no longer good models for "value" in an information age.
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Kazi, 1 Dec 2009 @ 5:06am

Re: One Trick Ponies?
What happened to Microsoft's and Google's other products? Microsoft's Bing and Google Office products?

... Just because you don't return a direct profit on a product doesn't make the product is less valuable. Also, "digital advertising" is not a product but a service - end user don't use it. Google Office applicants are products offered through Google's Cloud computing service.
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Steve R. (profile), 1 Dec 2009 @ 5:44am

But Humans are Altruistic, wink wink!!!!
The Times also had an article We May Be Born With an Urge to Help. What does the Time's article on open software have to do with this urge to help article?

Despite our supposed altruism, there seems to be a community that finds it repugnant that people will work collaboratively on projects such as MySQL, Wikipedia, and Linux. Contrary to the urge to help article, the open source article implies that those who wish to work collaboratively are, in politically correct speech, "misguided".

Additionally the Time's open source article goes on to say "Many of the top open-source developers are anything but volunteers tinkering in their spare time." to imply that the open source community is hypocritical. There is nothing wrong with getting paid to build something that all people can use as they see fit.

In a simplistic sense, we have Ayn Rand's "Objectivism" running amok. That is that everything one does must be monetized and must be self-serving. Regretfully, "Objectivism", as the collapse of our financial market has demonstrated, is a bankrupt philosophy.
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senshikaze (profile), 1 Dec 2009 @ 5:53am

Re: Re: One Trick Ponies?
last i heard the entire xbox division was in the red.
i don't have any links to back that up, though.
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Yano (profile), 1 Dec 2009 @ 5:53am

i was frustrated reading that article last night as it is almost dismissive of open source software calling it "a populist movement among developers and hobbyists" ignoring the fact that the internet is built on open source and open standards and the fact that open source is incredibly beneficial to businesses as it greatly cuts costs and in this economy that is a blessing, huge corporations like Google depend on open source and inject huge amount of code into open source projects and communities, as for myself i'm a LAMP developer open source is my job, i learned it through documentation and experimenting with freely available software and code which was and is a great contribution by some of the great minds out there and i owe my lively hood to open source and belive in everything it represents, i use it and i contirbute to it as many big bussnisess and corporations do.
that article infuriated me and i'd like to thank you Mike for bringing it up here.
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Anonymous Coward, 1 Dec 2009 @ 5:54am

None of the programming I've done since university has been on anything else but open source software - kind of forget that some people use something different....
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senshikaze (profile), 1 Dec 2009 @ 6:01am

Re: But Humans are Altruistic, wink wink!!!!
a lot of people see us open source users/developers as misguided.

I think from a user stand point many people don't see why some of us put freedom and gratis above quick and easy.
I also had an interesting conversation with someone and his only reason for disliking linux and open source (not including firefox, which he uses) was that he had spent so much money on windows and software that he didn't think it was fair that I could get many of the things he spent lots of money on for free.
I love open source. Open Source matches up with most of my personal beliefs on how we should run our lives. I am not a big fan of large business (even open source business (I still don't trust Sun and really don't trust Oracle with OOo and VBox and Mysql and Java)), but i know it is a necessary evil. With open source, at the very least, my computer can be free(libre).
Choice and freedom is more important to me personally than quick and easy.
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senshikaze (profile), 1 Dec 2009 @ 6:03am

Re:
bingo!
I seriously think people have a hard time seeing that some people don't look at the world the same way.
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cc, 1 Dec 2009 @ 6:12am

What people seem to miss is that software, music, films, news etc are all *thin air*. There is a cost involved in producing them (not necessarily monetary), but there is no inherent value in the thin air that is produced.

Think about it -- there has never been a better term than "software" to describe what I've just called thin air.

What can an open source business model be like? Take "hardware" sales, where good-quality free software is used to add value. The money comes not from the thin air, but from the actual product being sold. The software and hardware will need to be maintained, so you can sell support and service. You can have a consulting arm to your company that sells tech consulting based on open source software components that you can use to build systems with.

The problem with open source? Much like with music and film, it's the old business models fighting against change! If Microsoft would ever let the Linux hippies get a foothold, they know they wouldn't stand much of a chance in the long run. Similarly, the music and film industries know if they let the small-time artists on the internet get a foothold, they'll just chip away at their profits little by little until they go under.

So, big companies = bad for consumer, bad for small-timers/start-ups, bad for progress. Bad.
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WammerJammer (profile), 1 Dec 2009 @ 6:27am

Is Open Source Valuable?
Let's see. I am using Windows and a 3.2GHZ computer which I paid for. With Windows I have a huge investment required to own the system and supporting software.
But my Internet setup is almost totally open source. I use Firefox which is open source. So far the companies Google and Microsoft are making money off of me.
That's the User side of the story.
On my company side we use Linux and we host web sites using Apache, MySQL, PHP with an email server, ftp server and so forth. Everything except the computer itself was open source.
We contribute a small amount to the different companies and always buy the book they produce. Open source software is free to use. But a smart open source software developer also publishes books on their software for the user to buy. A lot of the books put out by the developer cost $70.00 or more for a soft bound copy. If the developer is smart they make the book indispensable and a must have so people will buy it.
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Anonymous Coward, 1 Dec 2009 @ 7:00am

Mike, I read this post very carefully, and I think I see where you are going, but you are wrong.

The use of open source software does not create an "open source business model". It is akin to saying a pizza delivery business is an "automotive business model". The delivery car is only one part of the deal. In the same manner, open source software within most companies are only tools, not a business end in itself.

The vast majority of websites use apache, ngix, or similar to serve webpages. They are open source products, but it doesn't make the websites an "open source business". In the same manner, while Google may use and may produce some software that is open source, the real guts of Google is carefully hidden, patent, and copyrighted up the wazoo. Just ask your friends over there how open source their page rank model is, and you will find out pretty quickly how "open source" Google is.

I actually suspect that this post is one of your foundation posts, where you will link to this with the "google is an open source business" tags trying to build a nice little pyramid of half truths and misdirection to try to come to some point (on average, it takes you a few months to actually come to the point). If nothing else, it's makes for a nice set of slides for your next presentation, even if the facts are a little thin on the ground. Fast flashing slides and posts that disappear quickly off the first page don't give people very long to check facts.
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cc, 1 Dec 2009 @ 8:00am

Mike: "Open source software, by itself, shouldn't be much of a business."
AC: "Mike, I read this post very carefully..."

Anonymous Coward FAIL
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sherry heyl, 1 Dec 2009 @ 8:24am

It is time to shift all business models
Open Source "business models" is leading the change that we all need to be moving toward in all business models. We have the ability to do great things with few barriers. We have the ability to improve processes and products without the need for great resources. We have the ability to improve our skills and talents without waiting for the opportunity to knock on our door. Not only that we have the obligation to be proactive without waiting for a sanctioned business model. We will find the business models through customization and support and training, but the art itself does not need a business model.
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nasch (profile), 1 Dec 2009 @ 8:36am

Re:
Sounds like it's a matter of definitions. Mike considers these open source business models and you do not, so why don't you share your definition or criteria for an open source business model?
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Anonymous Coward, 1 Dec 2009 @ 9:09am

Re:
No, no fail, sorry - Mike is attempting to define any business that uses open source as some sort of "open source business". The reality is that by that definition, almost every site on the net is an "open source business". It's too wide of a net, as it captures just about everyone.
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Nraddin, 1 Dec 2009 @ 9:10am

Extortion?
I would think that if you threaten to sue someone if they don't do X, and they refuse you would have to sue or it would be extortion.

You are using the legal systems costs as a weapon to get people to give you money. If you don't sue you obviously didn't have a case, which makes it extortion (according to the dictionary).

VA more or less says, Any person who accuses another of any offense, and thereby extorts money, is guilty of a Class 5 felony. "

VA Law:
§ 18.2-59. Extortion of money, property or pecuniary benefit.

Any person who (i) threatens injury to the character, person, or property of another person, (ii) accuses him of any offense, (iii) threatens to report him as being illegally present in the United States, or (iv) knowingly destroys, conceals, removes, confiscates, withholds or threatens to withhold, or possesses any actual or purported passport or other immigration document, or any other actual or purported government identification document, of another person, and thereby extorts money, property, or pecuniary benefit or any note, bond, or other evidence of debt from him or any other person, is guilty of a Class 5 felony.
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cc, 1 Dec 2009 @ 9:31am

"No, no fail, sorry - Mike is attempting to define any business that uses open source as some sort of "open source business"."

He does? Where?
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Anonymous Coward, 1 Dec 2009 @ 9:52am

Re: Re:
The definition of "person" encompasses every single human being in the world. That doesn't mean the definition is bad.

The correctness of a definition has nothing to do with the number of things that match the definition. If Mike's interpretation of the word is bad, then state what the correct one is, but saying that "all websites match it" does not discredit it in the slightest.
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Derek Reed, 1 Dec 2009 @ 10:40am

Re: Re: Re: One Trick Ponies?
From GameSpot:
During Microsoft's prior fiscal year, which ended June 30, the E&D division generated an annual operating profit of $169 million, its second consecutive year in the black. As a platform, the Xbox 360--and before it, the Xbox--had traditionally been money losers for Microsoft since it got into the console business in 2001.

Sounds like Microsoft is at least trying to say they've recently become more profitable overall with "xbox", even if the consoles themselves are still a loss. I noticed they still didn't comment on the consoles, just "E&D Division" or live revenue or whatever.
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Anonymous Coward, 1 Dec 2009 @ 11:28am

Re:
You need to learn to click on the reply to this comment button, otherwise you get lost at the bottom.

To answer your question:

while Vance dismisses the fact that companies like Google and IBM rely tremendously on using open source software to be the foundation of their multi-billion dollar businesses, it's time to recognize that those are open source business models.

Essentially, anyone who rely on open source are using an open source business model. If my web servers use apache, I am relying on it, and thus, an "open source business model".

Don't worry, this post is just Mike putting a foundation down for something bigger down the road, combining murky definitions with another odd part of economics to redefine the universe in his vision.
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cc, 1 Dec 2009 @ 12:51pm

Re: Re:
Yes, Google and IBM *contribute* to OSS to add value to what it is they *actually* sell, which is not OSS.
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Lawrence D'Oliveiro, 1 Dec 2009 @ 3:28pm

Open Source Facilitates Business Models
LWN does regular analyses, like this one, of who contributes to the Linux kernel, and who their employers are. As you can see, there is quite a mix of commercial companies funding this development, as well as a lot of people with no known affiliation.

Why are the companies doing it? Obviously, because they are directly benefiting from it.
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Reed, 1 Dec 2009 @ 7:06pm

Re: Re: Axeman
And the Axe grinds on.... lol
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Mohammed Azharuddin - Bista solutions, 1 Dec 2009 @ 9:44pm

wrong thing . . . if you have more money to waste.
how it can be wrong thing ???? if some thing is free and you only pay for the customization of the same.

We are the experts in Open source software and we have news that this will be one of the best technique to safe cost.

for more details log on to our website www.bistasolutions.com
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kadri mohammed azharuddin, 1 Dec 2009 @ 9:48pm

it's a wrong thing for a waste spenders
how one can say open source softwares is a wrong thing when it reduce the cost of an organisation.

yes it might be wrong thing for those who want to money to spend
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dkazaz (profile), 2 Dec 2009 @ 2:19am

Re: Re: Re: One Trick Ponies?
X-Box has not broken even, despite healthy revenues from subscriptions and increasing sales of consoles. The initial investment was over $2bn and over the years has gone up to over 3bn. By the time it breaks even, it will be pointless.

MS looked at the whole business a few years back and decided that it was still worth maintaining a lossmaking business to establish a foothold in the "living room" space.

Sadly they have made little headway while Sony have established healthier "living room" positions since with the PS2/PS3 (of course they were already in there with DVD players, TV's and HiFi).
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Lawrence D'Oliveiro, 2 Dec 2009 @ 4:28pm

What Do You Mean, “THE Open Source Business Model”?
There’s more than one.
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Anand shukla, 14 Mar 2019 @ 4:49am

Thanks for sharing
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