Don't waste your time

Posted Jul 16, 2002 22:34 UTC (Tue) by DeletedUser2603 ((unknown), #2603) [Link]

As pointed out by Michael Sims on the FSL-discuss mailing list, Joel Spolsky argues convincingly that it's often in a company's interest to release open or free or Free software to sabotage a competitor and to make the things that complement what the company is selling widely available at a low cost: http://joelonsoftware.com/articles/StrategyLetterV.html

In my opinion, Microsoft did exactly that in the browser wars through price dumping and bundling schemes, but that is pretty far from Microsoft adopting any of the present open code models. I actually think that Bill Gates told the truth when testifying that [Microsoft] 'did not try to monopolize the browser market'. Sabotaging it for everyone else was good enough. But I think only very well-funded companies can apply strategies like that. Using a large amount of R&D on developing competing products just to kill of competitors seems far fetched for SMEs.

The situation I am interested in is another one, where an oligopoly is present with few players offering the same kind of off-the-shelf software product. The companies make a good revenue because of the lack of competition. Have you ever wondered why software is soo expensive? Why would any of these companies expose itself to the great business risk that opening the code represents?

It is easy for IBM to adopt open source and free software, because IBM is NOT an off-the-shelf software vendor or developer acting in an oligopoly. Microsoft, however, make a great deal of money selling calculus programs (Excel) in a limitied market. Excel could be vastly improved by the global developer community, should it be released under the GNU GPL. Still, Microsoft chooses to keep Excel proprietary software. Why is that?

If you are the only company opening your code in a limited market you will not gain from opening the code, at least not in a short-term perspective. Opening the code is a one-time decision, hence tit-for-tat decisions can not be made (I know the Nash equilibrium problem related to this simplification). The situation described is an oligopoly (actually it is a duopoly), very common in the proprietary off-the-shelf software business (i.e. QuarkXpress ./. PageMaker). Suboptimization will not lead to a release of the source code but a well-kept proprietary source code. Releasing the code may decrease development costs, speed up development, increase security and everything else that Raymond brilliantly observes, but revenues will diminish to a vanishing point (free is not gratis, I know, but still...) and may even kill the company. Remember - the companies are in the business of selling software, not hardware or services. Still, I think that in the long run Company A and B would benefit from releasing their code. But I can not see that happening without external, third-party intervention, because of the possible short-term consequences.

There is a twist, though, making your point possibly better than mine, proving me to be as you would put it - 'clueless' .-)

As observed by Marshall Van Alstyne, there is an "inter-network" effect wherein the demand economy of scale crosses distinct market types.

See:
http://papers.ssrn.com/paper.taf?abstract_id=249585

Best regards

Mikael Pawlo