Articles / Editorial: OSS to replace s…

Editorial: OSS to replace shrink-wrapped software?

After a pretty long period of time without posting any editorials, the freshmeat team is proud to announce a fresh writeup by Ronald Kuetemeier dealing with the future of Open Source Software and the possibility to take over the market of shrink-wrapped software. Hit the details link for his editorial.

Background information:

Ronald Kuetemeier worked for 13 years on an advanced distributed system, from the early days of UNIX networking to Jini lately. Throughout his career at a fortune 500 company Ronald Kuetemeier got involved with strategies by working in what it is normally called a "Think Tank".

For the OSS community Ronald Kuetemeier provides Mist, a distributed Object system, and he is working on a networked spell checker for small or distribute "appliances". Basically providing ispell or aspell services over the network, by using Mist technology. In the future Ronald Kuetemeier might show a system with automatically distributes it self, transparent to the user, when run on networked appliance or stays "monolithic" when used on a "powerful" computer.

The editorial:

Executive Summary:
This paper is written to highlight some aspects of the software industry and show how to compete in today's closed market by changing the market.

Today we have mainly three processes of developing software and generating revenues from it:

  • Proprietary (the most successful company here is Microsoft)
  • Open but not Open (The most successful company is/was Netscape. Remember Netscape != Mozilla.org)
  • Free Software under the *PL licenses (GPL, LGPL, FREEBSD, to some extent company licenses from Mozilla.org and IBM)

It is clear how to make money from proprietary software. Develop something that fits into a broad market and sell it as shrink-wrapped software. However the limitations become clearer over time. There are only a small number of people that can resolve bugs and its extendibility is very limited for other companies or people who need special functions added to the core functionality. Because of this other firms have specialist in extending the core which sometimes results in an unstable product and finger pointing in the event of problems. Since there is always the risk of new functions appearing in the next release of the original core system (which might replace add-ons) the general support for innovation from the outside is limited to non-existent over a long period of time.

The "open but not open" approach builds upon open protocols and adds proprietary extensions to those protocols to lock the customer in. This business model can be expected to suffer the same problems as the proprietary model. Companies using this model will have to compete directly with companies using the proprietary model.

The "open" part of this business model can be seen as just a marketing point since the customer is confronted with proprietary extensions for which he paid money. Since the source code is not freely available the man power used to build this code must be as good or better than those in companies which build proprietary systems.

While the Open Source Software movement does not suffer from the same limitation to innovation and bug correction as the proprietary or "open but not open" models, it has some apparent problems. There is no revenue stream for its developers at first glance. The only revenue streams I am aware of are services and extended documentation via the publication of a book. Therefore this model is best for companies which provide service. Since new innovation generates new customers who require service for the new functionality, this model is expected to thrive when driven by service companies.

Service Companies driving the OSS model:

The most daunting strategy question for most service companies in the software industry today is, "How do we succeed in a market where the most financially successful company in developing software becomes our competitor by providing service in order to create a new revenue stream?"

The best way might be to create a market in which one revenue stream that supports the competition does not exist. The argument, "We wrote and have the source code therefore we know best how to serve your company" has to be leveled out.

There are two ways to do this.

  • 1. Write proprietary software and use the same argument as above.

  • The problem with this is that it puts the company in direct competition with established players. With no unique ways to develop software more economically, the established players can match new functionality by using more resources and their influence in already existing products and markets. The chance of success is slim.
  • 2. Use OSS and concentrate on service as the main revenue stream

  • Explain to potential customers that most innovation is done today in the OSS field. Demonstrate how you provide the best services in this field. Your customer begins to understand how they become competitive by using OSS, and that they have a choice.
    This levels the argument of being the only one who really knows how a particular system or subsystem works. You provide the best service and knowledge about a broad range of products from which the customer can select. By leaving the customer the choice to select and being able to provide the guarantee of others also knowing the product, the customer is more likely to build his core competitive in house application interfacing with OSS. This in turn may lead to additional service needs.

This seems very compelling for a company with an already established reputation in service and no major revenue stream from products that compete with OSS products. Or from an Internet or Network service provider with no interest in developing shrink-wrapped Software, but with the interest to provide innovative services or applications from the network for computer appliances. It becomes a question of how to keep the OSS movement alive and how to influence the OSS market to build or provide products needed.

Create the market for services:
The first step can be seen as creating the OSS service market. Release software into this market as OSS. Sponsor OSS development for products which are either innovative or needed for a product portfolio. This enables customers to switch over from proprietary software and require service.

The long-term question that arises from this strategy is on how to keep this market alive if its developers have no income. The dependency on good will over a long time period is a risky assumption for a company that needs revenue.

Assuming that the decision is to focus on service revenues and stay out of the direct development, some of the revenues have to go back into development to support future growth. To minimize the investment, the focus here is to create the most effective environments known today in developing software - namely small, focused and highly motivated teams.

This could be achieved through the investment in small "virtual" companies that provide the core team for development and use outside people interested in the product to be developed for documentation and testing. This way, a product portfolio can be built and talented people can be recruited for the service business. The developers not interested in maintenance can move to another project in OSS or be recruited to develop for vertical markets that have to interface with the OSS product. By not releasing the developed product as OSS the interest in "support" can be assumed to vanish since there is no "sensitive" for these people to stay involved. On the other hand there might be a chance of creating a market for freelance writers, who write documentation for OSS products professionally. Creating a revenue stream by publishing a book or creating a Web side and generating revenue from advertising, or simple get paid by a Web portal that provides this service for it's customers.

Most companies buy services from a known source and might also judge on in-house knowledge of the products. Recruiting just the best or "main" developers instead of the whole development team can keep cost down and service competition from becoming too successful.

The consumer market will be most likely move into a specialized appliance market. Services can be sold by providing an easy way to have the OSS already installed. If the processing power is insufficient because the appliance is too small, applications can run on a network and a service fee is paid by either use or support of the application on the network or via advertising.

Summary:
In any case, OSS provides a way to rapidly create the underpinnings for a service market of scale since the entry into this market is mostly free. This might create a lot of competition for participants at the beginning but it also creates the market of scale for consumers where consumers have a choice of service and are more willing to participate.

At the very least, OSS can be seen as a new start for the software market by leveling out the advantage of existing shrink-wrap product suppliers. Rules can be developed as the market develops. Providing OSS does not only pay software developers in this market, they also have a free distribution channel for innovative products. Innovative companies will require software that supports their core competency as a business organization. Information technology will be used to support this competency. Software companies that have a proven record of innovation and know how to interface with non-core business software will build this software.

If everything works out we are witnessing the birth of a new industry, all over again.

Recent comments

20 Jan 1999 07:42 Avatar bentilly

Getting the product started
The one thing that your article, along with most others that I see, does not address is how projects of commercial interest will get started.

Historically the OSS answer has been that a project gets started when a single person is sufficiently interested to build a working prototype. However a significant portion of business problems are not reliably going to fit into this model.

The standard commercial answer has been that the large potential profits of a commercial product makes venture capital worthwhile. However OSS removes the economic structure that provides these incentives.

Which leaves a gap.

The model that I think will fill the gap is that consultants will be asked to make custom OSS solutions for companies. The company is hoping to get bug-fixes and extra features for of a product that they need to pay for in any case. The consultant is doing what they would be doing anyways, and getting a little publicity while they are at it.

Which boils down to the observation that since OSS reduces the economic reward to the inventor and improves it for the consumer, it makes sense for new OSS products to be motivated by the consumer.

Regards,
Ben Tilly

19 Jan 1999 14:54 Avatar sjames1

Hardware + Service

There is something to be said about the Hardware + Service + OSS combination. Often in a corperate environment especially, they are looking for solutions that won't disrupt the rest of their operation. A box that drops in, pre-loaded, configured, and ready to plug in is a good answer to that. It is also much simpler for them than to have an existing (and probably overworked) admin take on yet another system he/she has never seen before.


This can be especially important today when one vendor's hardware is about the same as another's. Something has to differenciate your system from everyone else's.

19 Jan 1999 11:50 Avatar jeffreyhenning

Another OSS business model: Hardware
The editorial left out an important business model: hardware. Remember the days when software was free, always bundled with hardware? Unfortunately, hardware manufacturers have yet to catch on to the potential of OSS. Some examples I would like to see:

PalmPilot - I would like 3Com to make the Palm Desktop OSS. They make their money selling the hardware and licensing the OS. They don't make their money improving Palm Desktop, and they don't even try to improve it much. So let us!

Printers - Printer drivers and printer utilities should be OSS. I have an Epson Color Stylus 400 at home and its UI definitely needs improvement.

Game PC - I'd buy a PC with Linux installed and with a host of games on it.

Best regards,

Jeffrey Henning
Invent Your Own Language - http://www.langmaker.com/

19 Jan 1999 09:06 Avatar peterpawel

Service as Revenue for OSS? Dicey...
I'm not convinced that one can make a living by depending on providing service for an OSS application. Of course, in situations where the software is used by corporations with deep pockets there's no question that lucrative service contracts are possible..especially for something like a large complex database. However, OSS for end users/small consumers would likely not get much revenue from support. I, for instance, comb resources such as DejaNews and mailing list archives to figure out problems that I'm having with an OSS program; heck, I even do this for commercial software that I have such as WordPerfect8 or stuff on my SGI/O2 box. Of course, many in the Linux community share this DIY approach. People like us are loathe to fork over cash to a tech support line when we can find out the answers ourselves!

And then, of course, there's the argument that this sort of business model would encourage poor documentation of OSS. If your living depends on keeping the support requests coming in, are you going to go through the effort of painstakingly documenting *every* feature and troubleshooting scenario in your program? From an ethical point of view, the answer would be 'yes', but from a business point of view, I'm not so sure.

I'm pretty sure that one *can* make a living producing OSS, but I'm not sure how *yet*...and I'm certainly not sure that the model proposed in this editorial is the way to go.

Peter (ppawel@axess.com)

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