Creuna - Blog om digital kommunikasjon

Some people make great software and try to make money by selling it as compiled (runnable, but not readable) programs. Others make great software, then give it away for free, and even let people both see and reuse their source code as they see fit.

These are the two typical ways of distributing software today. It’s commercial and secretive versus free and open. It’s business versus community. You might even say it’s capitalism versus communism. That’s the simplified, black and white way of seeing it, a way of seeing that misses out on the complexities and nuances of software development and distribution today.

It seems quite natural that when you spend lots of money and effort on developing a product, you want to be able to make money by selling it. And since it’s difficult to make money from the product if it’s easy for your competitors, or even individual users, to copy your software, you naturally feel inclined to protect your intellectual property by only distributing it in an unreadable form. This is the traditional software business model, that we are all familiar with. Developers know how to make money from their software, and customers know who to bark at when it doesn’t work.

Then there is the open source beast. State of the art software given away for free along with its blue prints. open source software is a disruptive phenomenon to the traditional software industry. Suddenly lots of people, and even large, well established companies are giving away their products and revealing their trade secrets. Today you have free alternatives to almost every mainstream computer program, both on the desktop and on the server side. Most notably you have the Linux operating system and the OpenOffice.org office application suite. How can this be?

Quite a lot of open source software is developed through some kind of community collaboration process. Groups of developers get together to develop the software of their dreams, either for fun, pure altruism or dire need. When what you need is not available or too expensive, why not make it yourself? If you make a good program and make it freely available, then others might use and improve it too, and before you know it, you have the most widely used web server or a nice little object database. This is cooperation, and there is nothing strange about that. People have been cooperating to achieve their goals since the dawn of ages. A mammoth is just too much for any of us guys or girls to handle alone, so we get together and drive it off the cliff together.

But companies usually don’t cooperate. (Except for illegal price fixing.) Companies compete to sell as much as possible at the highest possible price. When they give something away, it is usually part of some devious marketing entrapment scheme. And when they enter into the open source market and start giving away their most valuable assets, their software, that is usually nothing different. They give away software because they want to sell something else.

You see it everywhere. I got a free alarm system in exchange for signing up for an expensive security service, and my mobile phone, which cost me exactly NOK 1,-, is paid for through an over priced monthly subscription. Printer makers sell their printers at a loss, but make up for it with the sales of expensive replacement ink cartridges. The practice of giving something away in order to sell more of something else is a common business model today.

The Norwegian company eZ Systems freely distributes their open source content management system eZ Publish. Most users never pay a dime to use it, but corporate users with special needs when it comes to support and uptime can buy expensive service and support packages. MySQL AB, the Swedish makers of a widely popular open source database system, distribute a community version of their system while making money from an enterprise version with extra features and mandatory support packages. The company was recently acquired by Sun Microsystems for a considerable sum.

Sun is an interesting case to look at when you want to understand the free and open source software game. Sun made a gazillion dollars during the dot com era, which to a large degree was powered by their servers and their flavor of Unix operating system called Solaris. After the dot com bust, they suffered massive losses and struggled hard to re-position themselves in the new and much tougher market. One of their moves was to sponsor an open source version of the Solaris operating system, called OpenSolaris. By doing that, they made their server ecosystem more open and accessible, widened their user base and probably sold a few extra servers and plenty of services as a result.

Selling complimentary products and related services might not be the only reason to give away your software. Hurting your competitors can be just as rewarding. That could well be the reason why Sun launched their most successful free software project, the OpenOffice.org suite of office productivity programs. OpenOffice.org is a highly capable alternative to Microsoft’s Office application suite, and runs on all main operating systems, including Linux. Thanks to OpenOffice.org, Linux is now a feasible alternative to Windows and Mac OS as a desktop operating system.

Sun has also released their Java implementation as open source. Java has always been more or less free, so cost wise this changes nothing, but it is probably a move intended to strengthen the OS independent Java platform’s position against Microsoft’s .NET platform.

Hopefully this article has shed some light on why giving away state of the art software is a sound and not so uncommon business model. By giving away the core product, you gain a much bigger user base than would have been possible with a traditional model, which again increases your base of potential customers for add on products and services. It’s all about gaining traction and volume for the totality of your business.