SimpleBusiness.org

Source: http://perens.com/Articles/Economic.html

Open Source developers have, perhaps without
conscious intent, created a new and surprisingly successful
economic paradigm for the production of software. Examining that
paradigm can answer a number of important questions.

Bruce Perens is of course the noted spokeperson for Open Source. Looks like he is now researching Open Source in George Washington University. What a great job to have!

Here I am quoting some key points from the article that caught my attention, adding my thoughts on them.

It’s not immediately obvious how Open Source^[1] works
economically. … Fortunately, if you look more deeply into the economic function of
software in general, it’s easy to establish that Open Source is both
sustainable and of tremendous benefit to the overall economy.

Exactly what I like to learn. So far I have not seen any scholarly analysis (I’m sure there are but I have not seen them) on the economic viability of open source.

In Raymond’s model, work is rewarded with an intangible
return rather than a monetary one. … return is still not as direct as
in proprietary software development.

Indeed, this had been a stumbling block in open source business model. Are we hinting at the service model?

Around 30% of the
software that is written is sold as software^[2]

Interesting data. The real question though is what percentage od revenue the 30% accounts. Also even if 70% of the software are made to order, it does not translate into a case for open source. Either many companies are competing for that 70% of the software market, making each slice of the pie unrewarding. Or that 70% are dominated by big players like IBM, EDS, Accenture.

A new economic
phenomenon is operating, and to explain it we’ll have to look
more deeply into the economics of software production.

The secondary economic effect caused by
all of the people and businesses who use an enabling technology
is greater than the primary economic effect of the dollars paid
for that technology.

On the individual level, we can understand this as the fact that investment in software is repaid, many times over, by the return made by the business.

Today, we
need software to do
business! Indeed, we need it so badly that even though most
businesses don’t sell software, any business of 50 people or
greater is likely to employ a programmer, web designer, or a
script-programming systems administrator^[5]

Another interesting data. This is certainly true of some companies I know. What diffenentiates these smaller companies though is being able to grasp the concept and being able to actuate it.

Certainly this is the case in China where leveraging IT is an issue. It is also where I see entrepreneurs (like myself) have a chance. Open source can be an ally as we shall see.

Obviously, it would be a mistake to Open Source
your business differentiators, because then your competitor’s
business might use them to become as desirable to the customer as
your own business.

This is key!

Open source and close source is not an either-or decision as many make it to be. There is an equilibrium point. Right now what we are seeing is an increase in importance in open source and a decline in close source. It will take a while before the equilibrium point is reached.

Perhaps 90% of the software in any business is
non-differentiating. Much of it is referred to as infrastructure, the base upon which
differentiating technology is built.

The open source activists can read it as meaning 90% of software can eventually be opensource!

Now the real question for business is if they need a software not available open source now what do they do? They could wait for someone to develop it, or they could buy a close source product. The smart company however should develop and open source it. Sounds counter intuitive? The economic paradigms for software development might provide some clues.

• Retail.
• In-House and Contract.
• Efforts At Collaboration Without Open Source
  Licensing.
• Open Source.

The paradigms are different in

• How they distribute the cost of development.
• How they distribute the risk of failure.
• Their efficiency in funding software development rather
  than overheads of the process.
• The degree to which others can be excluded from using the
  software.

The next few sections of the article goes on the discuss the different paradigms.

Note that the argument are in the software user perspective. So if I am starting a software company based on open source, I still need to figure out a model and how to make money from it.

Open Source is generally
not a good mechanism for
developing differentiating software.

What can I gather from this statement?

Open source is a strategy for company that software is the enabler. So a company that generate profits from elsewhere can fund an open source development.

So for an open source software company an idea is to find such company to fund a project. For now this company may need to be an evangelising company, marketing the benefits of open source and getting funding companies onboard.

How is this different from selling close source development? Indeed there is no need to incur the overhead of educating open source.

So the article looked at, among source of fund, Companies With a Single Open Source Program As Their Main Product which can be divided into several
categories:

• Mixed Open Source and proprietary licensing model.
• A core Open Source program with proprietary software
  accessories.
• Pure Open Source plus services model.

The rest of the article are very much evangelical arguments for open source that can be employed for telling people (including customers) about open source.

Fruit for thoughts for company wishing to adopt an open source strategy directly or indirectly.

I am thinking hard…