Open Source Case for Business
- Ernie Ball (guitar string manufacturer) switches to open source and saves $80,000.
- Open Source-onomics: Examining some pseudo-economic arguments about Open Source.
- MITRE REPORT: "A Business Case Study of Open Source Software".
- "Your Open Source Plan" from CIO magazine.
The open-source model has a lot to offer the business world. It's a
way to build open standards as actual software,
rather than paper documents. It's a way that many companies and
individuals can collaborate on a product that none of
them could achieve alone. It's the rapid bug-fixes and the changes that
the user asks for, done to the user's own schedule.
The open-source model also means increased security;
because code is in the public view it will be exposed to extreme
scrutiny, with problems being found and fixed instead of being kept
secret until the wrong person discovers them. And last but not least,
it's a way that the little guys can get together and have a good
chance at beating a monopoly.
Of all these benefits, the most fundamental is increased
reliability. And if that's too abstract for you, you should
think about how closed sources made the Year 2000 problem
worse and why they might have very well killed your business.
The Reliability Problem
Gerald P. Weinberg once famously observed that, "If builders built
houses the way programmers built programs, the first woodpecker
to come along would destroy civilization." He was right. Up to
now, the reliability of most software has been atrociously bad.
The foundation of the business case for open-source is high
reliability. Open-source software is
peer-reviewed software; it is more reliable than
closed, proprietary software. Mature open-source code is as
bulletproof as software ever gets.
Until recently this was a radical idea to many businesspeople; many had a
belief that open-source software is necessarily not "professional,"
that it is shoddily made and more prone to fail than closed software.
But the Internet's infrastructure makes the best possible refutation,
and since OSI was founded in 1998 many people have been paying attention.
Consider DNS, sendmail, the various open-source TCP/IP stacks and
utility suites, and the open-source scripting languages such as Perl
that are behind most "live" content on the Web. These are the
running gears of the Internet. (Read this
for a look at what would happen if they disappeared).
These open-source programs have demonstrated a level of reliability
and robustness under fast-changing conditions (including a huge and
rapid increase in the Internet's size) that, considered against the
performance record of even the best closed commercial software, is
nothing short of astonishing.
You can read an extended technical argument for the superior
reliability of general open-source software in "The
Cathedral and the Bazaar". This paper was behind Netscape's
pioneering decision to take its client software open-source. It
describes a bazaar style of managing software
development that depends on open source and leads to high
reliability and quality.
The real-world evidence backs this up. In an independent head-to-head
reliability test, open-source Unix systems and utilities were less
fragile crashed or hung less often than their proprietary
counterparts. The paper describing this test is available
The business implication of this technical case is clear. Eventually,
bazaar-mode peer review will come to be considered a necessary
condition for highest quality. In many market niches,
software that has not been peer-reviewed simply won't be perceived as
good enough to compete.
The Payoff for Software Producers
Bazaar-mode development seems to reverse our normal expectations about
software development; more programmers are better (at
least, as long as the capacity of the project leader or project core
group to handle integration isn't exceeded). Even a small open-source
project can muster more brains to improve a piece of
software than most development shops can possibly afford.
You'll see the following gains under the open-source model whether you're
producing software for internal use or for resale.
Advantage: Development Speed
It follows that commercial developers leveraging the bazaar mode
should be able to grab, and keep, a substantial initiative
advantage over those that don't. But there's more; the
first commercial developer in a given market niche to switch
to this mode may gain substantial advantages over later ones.
Why? Because the pool of talent available for bazaar recruitment is
limited. The first bazaar project in a given niche is more likely
to attract the best co-developers to invest time in it. Once
they've invested the time, they're more likely to stick with it.
Advantage: Lower Overhead
Switching to the open-source model should also be good for a
significant overhead reduction in per-project
software production costs.
The open-source model allows software shops to (in effect)
outsource some of their work, paying for it in values
less tangible than money. (But perhaps not less economically
significant; the increased speed with which an
outside co-developer can have a needed bug fix will often
translate into a substantial opportunity gain for
This means smaller shops will be able to handle bigger
The Payoff for Software Merchants
If you produce software for sale, you'll see two more advantages:
Advantage: Closeness to the Customer
One of the most often-repeated pieces of management advice is "Stay
close to the customer." In today's fast-moving, short-product-cycle
business climate it's more important than ever to do that to
understand almost as soon as they do what the customers want and be
able to rapidly respond to those needs.
If you sell software, what better way to do this than by
co-opting your customers' engineers to help your development?
It's worth pointing out that the open-source, bazaar method resembles
the way many successful Japanese companies have done consumer product
development; get a product to market that works but is not perfect,
and iterate quickly based upon customer feedback to reach the
combination of features that the customers need and want. This has
turned out to be especially valuable for high technology products
(laptops, personal assistants, cellphones, etc) that people don't know
they need, or what features they need.
Advantage: Broader Market
An important side-effect of the open-source model will be a
much wider platform range for your product.
Open-source authors frequently find themselves receving, for
free, port changes for operating systems and environments they
barely know exist and can't afford developers to support. Each such
port, of course, widens the market appeal of the product.
The Payoff for Entrepreneurs
For an entrepreneur or start-up software producer, going open-source
is a way to grab mind-share. The best new concept in the world won't
make money unless people know it's interesting.
Whether this makes sense as a strategy depends on whether you think
your main value proposition is in the software itself or in service
and the expertise associated with the software. More often than
one might think, the value is actually in service and integration.
This, to give one recent example, the startup Digital Creations
open-sourced its flagship project Zope on the advice of its venture
capitalists. The VCs projected that going open-source would actually
increase the value of the company.
For full discussion see Paul Everitt's
decision essay. It makes an eloquent case.
You can also read Wired magazine's tour of
Four Ways To Win
Now for a higher-level, investor's point of view. There are at least four
known business models for making money with open
- Support Sellers (otherwise known as "Give Away the Recipe, Open A Restaurant"):
In this model, you (effectively) give away the software product, but
sell distribution, branding, and after-sale service. This is what
(for example) Red Hat does.
- Loss Leader: In this model, you give away open-source as a loss-leader and market
positioner for closed software. This is what Netscape is doing.
- Widget Frosting: In this model, a hardware company (for which software is a necessary
adjunct but strictly a cost rather than profit center) goes
open-source in order to get better drivers and interface tools
cheaper. Silicon Graphics, for example, supports and ships
- Accessorizing: Selling accessories books, compatible hardware, complete systems
with open-source software pre-installed. It's easy to trivialize this
(open-source T-shirts, coffee mugs, Linux penguin dolls) but at least the books
and hardware underly some clear successes: O'Reilly Associates, SSC, and
VA Research are among
The open-source culture's exemplars of commercial success have, so
far, been service sellers or loss
leaders. Nevertheless, there is good reason to believe that
the clearest near-term gains in open-source will be in widget
For widget-makers (such as semiconductor or peripheral-card
manufacturers), interface software is not even potentially a revenue
source. Therefore the downside of moving to open source is
(Frank Hecker of Netscape proposes more models and discusses them in
detail in his paper Setting
There are even, as it turns out, people willing to argue that the
open-source model could work well economically for hardware design.
There are a couple of standard business objections to the
open-source model that deserve to be exploded. We cover these on the
Frequently Asked Questions list.