Open Source Briefing - Report & THANKS

Patrick Balfour patbal4 at
Sun Dec 22 04:03:29 EST 2002

At 12/21/2002 08:12 AM, David Gibson wrote:
>On Thu, Dec 19, 2002 at 10:40:39PM +1100, Steve Jenkin wrote:
>> [snip]
>> After my 'What is OpenSrc' slide I got the (predictable) question -
>> "How do they make money from _giving away_ their work?"  - A
>> question I didnt have a good (&short) answer to.  The group tonight
>> came up with a good one - Open Source is not about selling
>> (thousands of) _product_ - it is about selling a service.  Your
>> ability to add features, customise or install a package.
>This is a very interesting question, and one that's frequently asked,
>but rarely answered well:  the only good and short answer is "that's
>the wrong question" [1].  Of course you can't just say that to someone
>who asks, you have to correct the misunderstanding that made them ask
>the question in the first place.

When asked that question, you must consider the mind set of the asker. The asker is totally grounded in the ' my company must make a profit'  mode and has trouble understanding any other approach to life.  Their primary goal, every working day, is "How do I make a profit on my work today?" and "What can I do to enhance my (company's) profitability?"

So, what is the Open Source  (free software in their mind) business model, taken in that light? What is M$ business model with IE, ICS,  Media player? Do they expect to make a profit from those products by giving them away? No, but they most certainly expect to enhance the profit in other areas of their business, based on increased size and loyalty of their customer  base, due use of the 'free' products. Proof of engineering excellence, good will,  and name recognition are tangible returns of free software. The money that these products cost to develop and maintain never comes from the actual product itself, either in the development stage or later in the distribution stage. The profit from these products is intangible and comes from other areas of their business that are enhanced by the 'free' products.

General Electric spends millions of dollars a year on public image &  'good will' advertising, and also on advertising to convince consumers of GE's excellence in engineering and quality of their products. What is their business model for that expenditure? Where is the profit in "good will" and "customer education"?

The open software authors gain great personal satisfaction,  great personal recognition, and greatly enhance their future earning power by the personal investment  of time and effort in their  'free' software creation efforts. 

Open Software is a predictive business model   creating and demonstrating the technical excellence and mastery of the author's skills and capability. It also generates 'customer good will' for the author (and/or author's company). This is no less of an investment than other companies make to achieve the same goals. Where the money came from to support this investment is unimportant.  You can sell "pie in the sky", "sizzle", "future earnings" every day of the week. These ideas have tangible value.

The real question in the users mind (which is not necessarily the one he vocalizied) has nothing to do with a schism in the software industry, but "Is it safe and cost effective to use this piece of software in MY business" Or put another way, "Why should I use your product instead of your competitors? 

With ANY product that a customer acquires, machine tools, delivery trucks, office equipment, software, etc., what the customer really wants to know is "Is this software legitimate and does this software have real value to me if it is free?"  But, after the acquisition and implementation of the product, they no longer care where it came from, how much profit was generated to the provider, or any of those issues, only "is this product making my business profitable?".  The origin of these products are a non-issue with them. What they certainly do remember though, is if the solution they have chosen cost them much less than a proprietary solution would have, and what the ROI (or perceived ROI) is.

Short Answers:
1. We are altruistic, giving according to our abilities, just like B.G. giving money to India.
2. We are selfish, using open source data formats in government allows me as a citizen to have more access to government services.
3. We are frugal, our government it wasting huge amounts of money on proprietary computer products that could be spent with much better results in other areas.
4. We are arrogant, our products are so superior to commercial products that we don't understand how you could even ask that question.
5. We are cheap, The implementation and maintenance of our product is similar or slightly less than that of the proprietary solution, but the cost of the product itself is 90% cheaper.

We in the computer industry often times become too self centered with our own vanities and problems and business models and our struggle to dominate our own industry. For me to believe that the end user really gives a shit about the internals of my industry, is quite arrogant. He only cares about his own industry and his own problems.

Patrick Balfour
Software by Balfour
Norman, Oklahoma, USA

>The trouble is that the question assumes that there's a "they" - the
>software industry, who write software 'cos that's what they do - and
>an "us", who use software to do whatever it is we do.
>With free software, the point is that once you have it, you don't
>necessarily care how it came to be, or whether the author's business
>model is sustainable (or even if they had a business model, or indeed
>a business):  once you've got it you can do what you want to do with
>it.  And free software for doing a whole lot of useful things does
>exist - this is an empirical fact.

>But then, how it came to be becomes less mysterious when you stop
>thinking in terms of a software industry: maybe someone just like us
>wrote it because they wanted it, and since trying to sell it would be
>altogether too much hassle (after all, like us, they're not in the
>business of software), they decided to let similar people (that's us)
>use it too.
>Which, of course, isn't to say that business can't be done in all
>sorts of ways related to open source software: writing or altering it
>for pay, providing support for it, consulting as to whether a package
>to do "X" exists and if so where.  However, business is not something
>intrinsically necessary to open source software as it is to
>proprietary software.
>Under various circumstances, any of those may or may not be viable,
>but that's really not "our" problem.
>So the moral of the story is that if "how do they make money giving it
>away?" is the wrong question, perhaps "how the hell do they get away
>with charging so f*ing much for software?" is the right one.  Just
>consider the gross margin on Windows or Office compared to practically
>any other product on the face of the Earth, and the second question
>seems a much more obvious one to me.
>[1] Well, that or "Mu" for those who've read "G\"odel, Escher, Bach"
>or enough Chinese philosophy to know what that means.
>David Gibson                    | For every complex problem there is a
>david at     | solution which is simple, neat and
>                                | wrong.
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