LWN: Comments on "Why Making Money from Free Software Matters (The H)"

Why Making Money from Free Software Matters (The H)

Trelane — Thu, 29 Apr 2010 00:19:02 +0000

Glad to hear things are progressing! Yay GOOG! :)

Why Making Money from Free Software Matters (The H)

Trelane — Thu, 29 Apr 2010 00:15:47 +0000

I like that "itches" line at the end. I shall need to remember it in the future!

A couple of points

man_ls — Wed, 28 Apr 2010 06:22:18 +0000

I'm also not considering consulting and development revenues, because those are labour-intensive and low-margin.

Consulting is definitely labour-intensive, but not low-margin -- you can ask Oracle or SAP, or even Red Hat. Their hourly bills are easily above 300% what a fully-loaded senior consultor makes. Good consulting (straight from the software publisher) is very well paid.

Also, not all games have a short product lifecycle; online games like WoW or Second Life last for decades, and it is for them where free software makes more sense. But here your argument still stands (for other games free software has not succeeded).

Why Making Money from Free Software Matters (The H)

dskoll — Tue, 27 Apr 2010 22:04:56 +0000

Sun was not a software company; it was a hardware and software company. Any company can suffer from management or other problems; while proprietary software can be hugely profitable, it doesn't mean it must be. However, free software is never hugely profitable, certainly not at the levels proprietary software has reached.

Office suites are not basic infrastructure... that was my point. I've never used KOffice, and I don't know if "GNOME Office" even exists. I get the impression, though, that OpenOffice is by far the biggest and most capable free office suite.

And video games have a short life cycle because of the nature of the product. Video game fads come and go; some video games last about as long as movies. It has nothing to do with the fact that they're proprietary.

I doubt it'll take this long...

drag — Tue, 27 Apr 2010 21:04:30 +0000

Going after or blaming the 'US' for all of this is a mistake.

The people who are after passing things like the ACTA are absolutely a global community and they use the USA government as a vehicle because it's currently the most influential and is the most friendly for them for various reasons, not to mention that many of them are in the USA (of course).

But it can just as easily be the EU folks being their vehicle AND it certainly would NEVER get done without the full cooperation of the governments in Europe.

I doubt it'll take this long...

dmaxwell — Tue, 27 Apr 2010 20:32:36 +0000

There is a broad spectrum between "slavishly adopt nasty secret anti-consumer treaties strong armed by the US behind closed doors" and "invalidate US copyrights just because". Suppose a few large markets among other things decided they don't need to please the US on this as much as they have in past and try some true copyright reform. Say they have a system where copyright only lasts 25 years and can be renewed once if it is still profitable for the copyright holder. Under that system, those two old ladies wouldn't be able to terrorize people for singing "Happy Birthday" around a campfire. There are many such possibilities where many US copyrights would (eventually) no longer be valid in those jurisdictions. And if the US continues as it has been, this could start happening sooner than you think.

Why Making Money from Free Software Matters (The H)

lmb — Tue, 27 Apr 2010 20:28:54 +0000

It is surprising that people who adovcate using OSS because it drives down cost then wonder why one can "make" less money from it. The two seem to be obviously identical.

It is quite hard to build a substantial business with revenues like the proprietary companies have on Open Source. That is actually inherent in the very model.

It is possible to build sustainable models for maintenance, support, customization deals, which is what RHT and NOVL's Linux businesses do. And, of course, consulting, with many many small and large shops doing it.

There is simply no need - and I argue, no place - for a 500 pound gorilla controlling who gets a banana and who doesn't.

The financial benefits from Open Source accrue in a much more decentralized fashion; instead of spending money on commodity, it can be spent elsewhere, on customization, on support, or on totally different projects that matter more to the organization (or the individuals). It does not accrue centralized, but down-stream, and my guess would be the savings and total economic surplus are also huge.

It does mean the political clout game needs to work differently; a 500 pound gorilla can give some banana peels to lobbyists, but the many small companies benefiting from Open Source do not translate to such strong, direct political influence for F/OSS. This may need fixing somehow - probably F/OSS would still be beneficial to the users if they spend a fraction of what the licenses would cost them on political lobbying in OSS favor (and still avoid paying for all the corporate overhead and for other people's shareholders instead of their own).

Why Making Money from Free Software Matters (The H)

tzafrir — Tue, 27 Apr 2010 20:16:06 +0000

So how could a large software company like Sun ever fail if the software business is so profitable?

As for OpenOffice:

1. And if there was no OpenOffice, many more efforts would have gone into "GNOME Office" and KOffice
2. Office Suits are "basic infrastructure"? So how come StarDivision (and later on: Sun) were selling licences of them? In fact, MSOffice it was a major source of income for Microsoft at the time.

Also:
"Short product lifecycle" for proprietary video games are mainly because they are proprietary.

Why Making Money from Free Software Matters (The H)

Zack — Tue, 27 Apr 2010 20:01:30 +0000

>Oh really? Let's ask Microsoft about your "downwards spiral"...

I'm not sure whether you are missing my point or whether I am missing yours.

Microsoft's sales might be soaring, but that has very little bearing on what I wrote. Microsoft is not as much of a software house as it is a marketing and lobbying company. Whether the latter activities are more commercially successful than the former is not that relevant to the question of whether it is detrimental to the larger system.

On the other hand, they do have products that can serve to illustrate my point.

There is very little to functionally add to present day word processors
so the easiest way for a Microsoft to maintain the dominant position of their word processor is by skewing standards and introducing incompatibilities with their own and their competitors products and market it aggressively through network effects.

>Proprietary software is a proven, long-term, sustainable business model and doesn't require the shenanigans that you describe to maintain.

So, actually, some of the most prominent examples of long-term sustainable business models apply exactly the sort of shenanigans I described to maintain.

Proprietary software is not only detrimental because it doesn't allow sharing with the proverbial neighbour, it also is detrimental because it is damaging to the entire industry in the long term.

Why Making Money from Free Software Matters (The H)

dskoll — Tue, 27 Apr 2010 17:36:40 +0000

If proprietary software fails to make a profit, you go out of business. Free software is almost guaranteed to be unprofitable. (Note that I'm specifically concentrating on companies whose end-product is software. I realize that most software is for in-house use only and is a cost, not a revenue source. I'm also not considering consulting and development revenues, because those are labour-intensive and low-margin.)

I just don't see how free software can leverage the enormous magnification of effort that proprietary software does. Lots of people have tried to come up with creative, profitable business models built around free software, but few have succeeded, and certainly they've never had anywhere near the financial success of proprietary software vendors.

Free software is enormously successful in infrastructure, because everyone needs it and it doesn't really hurt anyone to release the code for free. It's less successful at the application level (if Sun hadn't purchased StarOffice, I doubt we'd see and open-source OpenOffice). And it's completely unsuccessful where large development costs combine with a short product lifecycle and no possibility of support revenue (video games, for example.)

Why Making Money from Free Software Matters (The H)

chromatic — Tue, 27 Apr 2010 17:05:33 +0000

Are you accounting for all of the proprietary software that fails to generate profit?

I doubt it'll take this long...

bronson — Tue, 27 Apr 2010 16:06:43 +0000

> When governments will finally see that they are helping the US and killing the local firms by enforcing copyright of Microsoft and Oracle

Um... are you suggesting that countries should somehow invalidate all copyrights held by Microsoft and Oracle?

Why Making Money from Free Software Matters (The H)

bronson — Tue, 27 Apr 2010 16:01:21 +0000

Oh really? Let's ask Microsoft about your "downwards spiral"...

http://www.informationweek.com/news/hardware/desktop/show...

The fact is, proprietary software has sustained a huge number of companies large and small for decades, and shows little sign of faltering (yes, there are signs on the horizon that service-based or appstore-based sales will take over, but the numbers don't show that yet).

Proprietary software is a proven, long-term, sustainable business model and doesn't require the shenanigans that you describe to maintain. Just because some companies have treated their customers badly doesn't mean that you can claim that it's all fiction.

Why Making Money from Free Software Matters (The H)

vonbrand — Tue, 27 Apr 2010 15:34:49 +0000

I beg to differ. Both with closed and open source the vast majority of the work done is in-house, for local use only. That you don't see on the balance sheet of the visible players. Some of that "escapes" (and might get included), other parts are specifically contributed to upstream. The advantage of open source is that it is normally much easier to contribute.

Why Making Money from Free Software Matters (The H)

dskoll — Tue, 27 Apr 2010 14:32:11 +0000

Here's my data point:

I have spent about $1500 on free software. All of that was via voluntary donations to free software projects; I have never purchased a support contract.

I've donated a few hundred bucks to the FSF, and we've had a corporate LWN subscription for a few years.

I have spent about $50 on proprietary software; that was back in 1981 when I purchased the EDTASM assembler for my Coco. Since then, I've spent nothing on proprietary software other than the very-hard-to-avoid (Coco ROM BASIC, BIOSes in my PCs, Nintendo games for my kids, etc.)

You may find this surprising given my other postings, but it's perfectly rational. It makes perfect economic sense for me not to pay for software, just as it makes perfect economic sense for me to run a company that sells proprietary software.

It makes no economic sense for me to donate money to free software projects. That was done out of a sense of moral or ethical duty, just as giving to any other charity would be.

I suspect I'm an outlier in your poll. :)

Why Making Money from Free Software Matters (The H)

dskoll — Tue, 27 Apr 2010 14:24:04 +0000

What is your point?

My point is that it is anywhere from 50X to over 10,000X as profitable to write and sell proprietary software than to attempt to profit from producing free software. (Note that I'm restricting this discussion to organizations that produce software as the final end product. I'm not considering the case of embedded software where the end product is not purely software.)

And unless people's psychology changes or the laws of economics are overturned, I can't see this changing.

Why Making Money from Free Software Matters (The H)

mjg59 — Tue, 27 Apr 2010 14:16:02 +0000

I think that's somewhat unfair now. Google's just resubmitted their suspend blocker code, and this time I think we're in pretty good agreement about it.

Why Making Money from Free Software Matters (The H)

SEJeff — Tue, 27 Apr 2010 13:52:44 +0000

Sorry, Android works with no one but google and their hardware vendors on the kernel... Thats why there is so much animosity towards their project from upstream kernel.org. They don't play nicely with others.

Why Making Money from Free Software Matters (The H)

paulj — Tue, 27 Apr 2010 12:47:18 +0000

Interesting poll to ask of those at your next free software geek meet-up (virtual or real):

"How much money have you personally given to software organisations in the last x years? How much of that to proprietary software vendors? How much to free software vendors and organisations?"

Amongst people I know I get the anecdotal feeling people spend *way* more on things like Apple OS-X and even Windows than they ever spend on RedHat/Novell/Canonical support contracts, or LWN, FSF, etc.. donations. It'd be really interesting if LWN and /. would conduct such a poll.

Why Making Money from Free Software Matters (The H)

Zack — Tue, 27 Apr 2010 12:36:33 +0000

>>So is it sustainable?

>Darn right it is.

I'm not so sure about that. It seems that mainstream popular software reaches a point where there is really nothing substantial left to add. From that point onward it needs to be sold on the merits of insubstantial changes, market lock-in and other consumer-unfriendly practices.
This usually means that any extra programming effort is rendered obsolete and only an ever diminishing fraction of the engineering force is needed for fixes and trivial maintenance. But to keep this profit generating machine going, a lot of marketing and strong-arming is needed, necessitating the replacement of developers with salesmen and lawyers, leading to a company where only paperwork and hot air is produced, but no actual innovation takes place anymore.

So, yes, it is "sustainable" for a single person as he can join early, cash out at the right time, and retire or alternatively hop from company to company. But from a long-term perspective, popular proprietary software is a downwards spiral for (the smaller) IT related businesses in general as well as the consumer; generating profit by not actually producing anything anymore at the expense of innovation and by scorching the earth for potential competitors.

Why Making Money from Free Software Matters (The H)

davidw — Tue, 27 Apr 2010 12:02:12 +0000

No one is arguing that no one makes any money at all from open source.

However, Linux is also something of an exception in that it's one of the most important and visible projects out there. Also, Linux is a good case in point: the initial development work that was sunk into it was mostly, as far as I know, done 'for free' (i.e. subsidized by Finland, Linus' parents, etc...), and only later because it became so huge did Linus get something back. How many free software projects does that happen with? There are no guarantees that merely sticking a proprietary license on something will make you loads of money: most of those projects fail too. However, it is a good guarantee that if your product is popular and people are buying it, you will make some money from it. In other words, the feedback loop between popularity and the developer getting money is pretty tight, whereas with open source, it's kind of open, and most of the benefits are probably going to people saving money, with little ability to funnel that money back into development of the product.

Why Making Money from Free Software Matters (The H)

Hanno — Tue, 27 Apr 2010 11:57:33 +0000

But how does that promote the idea that you can make money from free software?

We seem to be misunderstanding each other. OSS developers are being paid for their work, so they are making money. What is your point?

Why Making Money from Free Software Matters (The H)

Hanno — Tue, 27 Apr 2010 11:55:14 +0000

And where is this a problem?

My original point was, companies are making money selling products using Linux, but to maintain the software that is integral part of their products, they have to hire developers. And there you have one very healthy business model for open source. Yes, people do get paid for doing OSS. Quite a lot of people, actually.

Why Making Money from Free Software Matters (The H)

dskoll — Tue, 27 Apr 2010 11:54:37 +0000

So is it sustainable?

Darn right it is. People are much more willing to pay for support and upgrades of proprietary software than free software. Also, with proprietary software, the software author is the only one who can provide updates and upgrades; he/she doesn't have to compete with others who could equally support or upgrade the software.

Why Making Money from Free Software Matters (The H)

dskoll — Tue, 27 Apr 2010 11:52:37 +0000

But how does that promote the idea that you can make money from free software?

Why Making Money from Free Software Matters (The H)

davidw — Tue, 27 Apr 2010 11:50:52 +0000

There are tons of cases where no adaptation is necessary, and where it makes economic sense to "free ride".

Why Making Money from Free Software Matters (The H)

Hanno — Tue, 27 Apr 2010 11:46:14 +0000

To use free stuff, you must adapt it your needs. Oh, hello GPL.

Why Making Money from Free Software Matters (The H)

tzafrir — Tue, 27 Apr 2010 11:42:03 +0000

Get paid for once? Sure. Continue to get paid for? Hmm....

If you want to make users keep buying new versions, you compete not only with all others in the market (proprietary and free alike) but also with previous versions of your software, that might be "good enough". So is it sustainable?

Why Making Money from Free Software Matters (The H)

davidw — Tue, 27 Apr 2010 11:35:22 +0000

Exactly. For people thinking "Oh, I don't really need all that money, I just want a decent living...", you can scale the numbers the other way, too:

If N people need something, you can sell it as a proprietary solution fairly cheaply, because you can divide the costs up N ways. If on the other hand, the product is to be open source, you probably won't be able to recoup your costs, as the developer, from more than one of the potential clients (assuming you're not making some really difficult to use/set up consultingware system), so you'll have to ask that one guy to foot the bill for the development of the whole thing. Ouch! That's a lot of money: he'd do better off to go to the proprietary vendor who is selling for less because he hopes to recoup the costs from N-1 other customers.

Sure, that's all simplified, and it is blatantly obvious that open source software has an important role to play, and is not just some blip on the radar screen, but my point stands that it's way simpler (although neither *simple* nor *easy*) to do something proprietary if you want to create some new software and get paid for it.

Speculating on free public goods

dskoll — Tue, 27 Apr 2010 11:32:23 +0000

If there's anything that the financial industry has taught us...

Actually, if there's anything the financial industry has taught us, it's that you shouldn't look to the financial industry for wisdom.

Why Making Money from Free Software Matters (The H)

dskoll — Tue, 27 Apr 2010 11:31:18 +0000

OSS is part of infrastructure these days. Go in a shop and try to find e.g. a TV, blu ray player, DSL router or cell phone that doesn't run Linux. A substantial amount of products does today.

There's a big difference between making money using OSS (especially embedded in products whose main point isn't really the software), and in writing and selling a software product as OSS.

Any company that doesn't use OSS where possible is throwing money down the drain. But I don't believe that most proprietary software companies would benefit financially from open-sourcing their products. On the contrary, I think they'd lose huge amounts of revenue.

It makes clear economic sense to use free stuff; it's much less clear that it makes economic sense to offer free stuff.

Why Making Money from Free Software Matters (The H)

dskoll — Tue, 27 Apr 2010 11:26:59 +0000

The company I work for makes quite decent money developing free software. How? By using it!

We do that too. It would be foolhardy not to. However, I still contend that it's far easier to make a lot more money with proprietary software than with free software. The reason is that with free software, about the only sources of revenue are consulting, customization, support, and maintenance. All of those are labour-intensive and relatively low-margin activities.

In my case, I probably would have accepted a year's salary (let's say $100K) to write and GPL my commercial product. But by taking it proprietary, we've made 50x that amount in sales, because each additional sale, once the software is written, is essentially free. It's this huge leverage of effort that makes the proprietary business model so attractive. And given human nature and economics, I don't see that ever happening with free software.

Why Making Money from Free Software Matters (The H)

niner — Tue, 27 Apr 2010 10:33:58 +0000

Cheaper and better. We can afford to pay for development because we have no license cost and much more, because our processes run extremely efficient due to software doing exactly what we need. We scratch every itch and without itches, you can concentrate much better on making profit.

Why Making Money from Free Software Matters (The H)

davidw — Tue, 27 Apr 2010 09:43:09 +0000

It sounds as if you save some money by using free software, but how do you actually make it? What do people pay you for? Services - and you are able to deliver them cheaper because of free software? Or something else?

Why Making Money from Free Software Matters (The H)

Hanno — Tue, 27 Apr 2010 09:39:51 +0000

Says Sony: "Linux has achieved world domination everywhere except on desktop systems."

OSS is part of infrastructure these days. Go in a shop and try to find e.g. a TV, blu ray player, DSL router or cell phone that doesn't run Linux. A substantial amount of products does today.

So yeah, there is a surprisingly big bunch of companies making money of OSS today. These companies pay developers to write and maintain their OSS. They compete with each other, yet they collaborate as well (as an example, see the recent LWN article about MeeGo that describes how Android, Palm and Meego work together on the Kernel).

Linux is not the underdog anymore, it's the hidden champion. Things aren't so bad as many think.

Why Making Money from Free Software Matters (The H)

niner — Tue, 27 Apr 2010 07:16:53 +0000

The company I work for makes quite decent money developing free software. How? By using it! We write the software and patches because we need it. And we release it as free software not only to give back to the community, but to also lower our own development costs. And I'm sure, there are many companies that do just the same.

So maybe people just don't go far enough looking for the sustainable model. Just taking the standard model of the software development business and replacing "proprietary" with "free" may not work. But free software allows for quite different methods. Most of all software as a business enabler instead of core business. Collaborating on the software and competing in the primary business.

We for example help developing a CMS, publish Perl modules and test and patch the Linux distribution we use because that helps us creating and hosting websites for our customers. Competing hardware companies contribute to the Linux kernel, because they want it to support their hardware.

Not the only one

man_ls — Tue, 27 Apr 2010 06:23:36 +0000

Alfresco is another high profile free software company -- I read somewhere that they had bets with Red Hat about who toppled $1B/yr first.

I don't know on your business area, but a lot of business software would not be hurt if it was free software (although they might have to change their business model radically). Like SAP or Oracle DB (if they had better support).

It's quite true that people are quite cheap when valuing software, especially free software; even though they will then pay outrageous rates to consulting companies to write poor software to do the same thing, only worse. It's sad.

I doubt it'll take this long...

khim — Tue, 27 Apr 2010 06:22:23 +0000

I don't expect that to happen in our lifetimes, of course. It may take a century or more to reverse current accepted thought in the role of governments to protect irrational markets.

Well, it depends on many factors. Right now the status quo can not be changed because US play pivotal role on world market. US is losing this role. If some big enough and influential enough country will defy the the US demands for long enough and abhor the copyright for long enough the industry can do a flop like it did with chemical industry (British and French firms controlled 90% of world market in 1862 but only about 2-3% in 1873). It's easier to move the software development around then chemical factories.

But with software there is still a ton of scarcity.

You can say this again. The best way to explain the point I've ever seen:

It is rather ironic that a group of economists, who are also college professors and earn a substantial living teaching old ideas because their transmission is neither simple nor cheap, would argue otherwise in their scientific work.

It's from this book - read and weep.

Open source alone would probably be able to defeat the Microsofts and the Oracles (to the point were they determine that FLOSS is actually sustainable for themselves, not until destruction...) of the world... but it cannot defeat the Microsofts and Oracles of the world working in any reasonable time frame (say a decade or two) with Governments colluding internationally to protect their markets through a bizarre web of laws surrounding copyrights and patents.

Yup. But it's only till governments are playing the same games. When governments will finally see that they are helping the US and killing the local firms by enforcing copyright of Microsoft and Oracle... the flop can happen quite fast as I've pointed out above...

Why Making Money from Free Software Matters (The H)

dskoll — Tue, 27 Apr 2010 01:09:41 +0000

This is how companies like (well there is only one big one so far) like Redhat can sustain making money with software that they give away for free.

Red Hat is about the only example I can think of making serious money. There may be a handful of second-tier players like Sugar CRM, but the sad fact is you will not make much money selling free software.

...figure out a way for the costs of developing software to be distributed over a large number of users in a similar fashion to proprietary software without having to invoke government enforcement as proprietary software does.

In my opinion, it's impossible. I run a software company whose product runs on Linux. We even ship with source code. However, it's not open-source.

When I had the idea for my commercial product, I posted about it on the mailing list for the (GPL'd) core product. I was asking for donations to develop the product and release it under the GPL. No-one was willing to pay for the development time.

I went ahead and wrote it anyway, and so far we've sold many millions of dollars worth of traditional proprietary software, created employment, and built a company. This would not have happened had a few people on the mailing list been less cheap.

My heart tells me that Free Software is best. I wrote and continue maintain several GPL'd products and a bunch of Artistic-licensed Perl modules, and I love doing that. But the reality is that there's no sustainable business model around free software unless you are there at the right time as Red Hat was. Proprietary software development is simply orders of magnitude more profitable.

Speculating on free public goods

dmarti — Mon, 26 Apr 2010 22:47:35 +0000

If there's anything that the financial industry has taught us, it's that you can make money from the fact that a price goes down, not just when it goes up. So how do you make money when public information appears?

Kragen Sitaker has a thought-provoking piece on an instrument called a Dominant Assurance Contract that lets you speculate on whether or not a public good will be created.