208 lines
11 KiB
HTML
208 lines
11 KiB
HTML
<?xml version="1.0" encoding="UTF-8"?>
|
||
<html newsdate="2008-12-02">
|
||
<version>1</version>
|
||
|
||
|
||
<head>
|
||
<title>What makes a Free Software company?</title>
|
||
</head>
|
||
|
||
<body>
|
||
|
||
<h1>What makes a Free Software company?</h1>
|
||
|
||
<p>The debates on the <a
|
||
href="https://blogs.fsfe.org/greve/?p=251">European Software Strategy</a>
|
||
came across several issues that are of general interest, but the debates
|
||
themselves cannot be disclosed for reasons of procedural confidentiality.
|
||
Instead, this article takes one issue and discusses it from a personal
|
||
perspective.</p>
|
||
|
||
<p>Although it seems somewhat antiquated today, <em>How do you make money
|
||
with <a href="/activities/wipo/fser.html">Free
|
||
Software?”</a></em> was a very common question just a few years ago. Today,
|
||
that question has evolved into <em>“What are successful business strategies
|
||
that can be implemented on top of Free Software?”</em></p>
|
||
|
||
<p>This question is a lot more focussed already, and came up several times
|
||
during the discussions around the European Software Strategy, with pointers
|
||
to noteworthy contributions from various people, such as <a
|
||
href="http://blogs.the451group.com/opensource/2009/02/23/on-open-source-business-strategies-again/">Matthew
|
||
Aslett</a>, <a href="http://carlodaffara.conecta.it/?p=104">Carlo
|
||
Daffara</a> or <a
|
||
href="http://news.cnet.com/8301-13505_3-10168267-16.html">Matt Asay</a>.
|
||
Another person who recently took a shot at answering this question is <a
|
||
href="http://www.thondomraughts.com/2009/03/making-money-with-free-software.html">Anoop
|
||
John</a>, who I met in <a href="https://blogs.fsfe.org/greve/?p=144">Kerala
|
||
two years ago</a>.</p>
|
||
|
||
<p>After several years in the field, helping entrepreneurs find business
|
||
models that work for them, discussing the question of Free Software
|
||
companies, and the diversity of a community that is both commercial and
|
||
non-commercial at the same time, a few things occurred to me that I wanted
|
||
to share.</p>
|
||
|
||
<h2>Point 1: Think clearly</h2>
|
||
|
||
<p>In order to develop business strategies, it is first necessary to have a
|
||
clear understanding of the different aspects that you seek to address.
|
||
Unfortunately this is not made easier by popular ambiguous use of some
|
||
terms for fundamentally different concepts and issues, e.g. “Open Source”
|
||
being used for a software model, development model, or business model.</p>
|
||
|
||
<p>These models are orthogonal, like the three axes of the
|
||
three-dimensional coordinate system, their respective differentiators are
|
||
<strong>control</strong> (software model), <strong>collaboration</strong>
|
||
(development model), <strong>revenue</strong> (business model).</p>
|
||
|
||
<ul>
|
||
|
||
<li>The <strong>software model</strong> axis is the one that is discussed
|
||
most often. On the one hand there is proprietary software, for which the
|
||
vendor retains full control over the software and the user receives limited
|
||
usage permission through a license, which is granted according to certain
|
||
conditions. On the other hand there is Free Software, which provides the
|
||
user with unprecedented control over their software through an ex-ante
|
||
grant of irrevocable and universal rights to use, study, modify and
|
||
distribute the software.</li>
|
||
|
||
<li>The <strong>development model</strong> axis describes the barrier to
|
||
collaboration, ranging from projects that are developed by a single person
|
||
or vendor to projects that allow extensive global collaboration. This is
|
||
independent from the software model. There is proprietary software that
|
||
allows for far-reaching collaboration, e.g. SAP with it’s partnership
|
||
program, and Free Software projects that are developed by a single person
|
||
or company with little or no outside input.</li>
|
||
|
||
<li>The <strong>business model</strong> axis describes what kind of revenue
|
||
model was chosen for the software. Options on this axis include training,
|
||
services, integration, custom development, subscription models, “Commercial
|
||
Off The Shelve” (COTS), “Software as a Service” (SaaS) and more.</li> </ul>
|
||
|
||
<p>These three axes open the space in which any software project and any
|
||
product of any company can freely position itself. That is not to say all
|
||
these combinations will be successful. A revenue model based on lock-in
|
||
strategies with rapid paid upgrade cycles is unlikely to work with Free
|
||
Software as the underlying software model. This approach typically occurs
|
||
on top of a proprietary software model for which the business model
|
||
mandates a completed financial transaction as one of the conditions to
|
||
grant a license.</p>
|
||
|
||
<p>It should be noted that the overlap of possible business models on top
|
||
of the different software models is much larger than usually understood.
|
||
The ex-ante grant of the Free Software model makes it generally impossible
|
||
to attach conditions to the granting of a license, including the condition
|
||
of financial transaction. But it is possible to implement very similar
|
||
revenue streams in the business model through contractual constructions,
|
||
trademarks and/or certification.</p>
|
||
|
||
<p>Each of these axes warrants individual consideration and careful
|
||
planning for the goals of the project.</p>
|
||
|
||
<p>If, for instance the goal is to work with competitors on a
|
||
non-differentiating component in order to achieve independence from a
|
||
potential monopolistic supplier, it would seem appropriate to focus on
|
||
collaboration and choose a software model that includes a strong Copyleft
|
||
licence. The business model could potentially be neglected in this case, as
|
||
the expected return on investment comes in the form of strategic
|
||
independence benefits, and lower licence costs.</p>
|
||
|
||
<p>In another case, a company might choose a very collaborative community
|
||
development model on top of a strong Copyleft licence, with a revenue model
|
||
based on enterprise-ready releases that are audited for maturity, stability
|
||
and security by the company for its customers.</p>
|
||
|
||
<p>The number of possible combinations is almost endless, and the choices
|
||
made will determine the individual character and competitive strengths and
|
||
weaknesses of each company. Thinking clearly about these parameters is key
|
||
to a successful business strategy.</p>
|
||
|
||
<h2>Point 2: Freedom moving up the stack</h2>
|
||
|
||
<p>According to Gartner, usage of Free Software will reach 100 percent by
|
||
November 2009. That makes usage of Free Software a poor criterion for what
|
||
makes a Free Software company. Contribution to Free Software projects seems
|
||
a slightly better choice, but as many Free Software projects have adopted a
|
||
collaborative development model in which the users themselves drive
|
||
development, that label would then also apply to companies that aren’t
|
||
Information Technology (IT) companies.</p>
|
||
|
||
<p>IT companies are among the most intensive users of software, and will
|
||
often find themselves as part of a larger stack or environment of
|
||
applications. Being part of that stack, their use of software not only
|
||
refers to desktops and servers used by the company’s employees, but also to
|
||
the platform on top of which the company’s software or solution is
|
||
provided.</p>
|
||
|
||
<p>Maintaining proprietary custom platforms for a solution is inefficient
|
||
and expensive, and depending upon other proprietary companies for the
|
||
platform is dangerous. In response, large proprietary enterprises have
|
||
begun to phase out their proprietary platforms and are moving towards Free
|
||
Software in order to leverage the strategic advantages provided by this
|
||
software model for their own use of software on the platform level. These
|
||
companies will often interact well with the projects they depend upon,
|
||
contribute to them, and foster their growth as a way to develop strategic
|
||
independence as a user of software.</p>
|
||
|
||
<p>What makes these enterprises proprietary is that for the parts where
|
||
they are not primarily users of software, but suppliers to their downstream
|
||
customers, the software model is proprietary, withholding from its
|
||
customers the same strategic benefits of Free Software that the company is
|
||
using to improve its own competitiveness.</p>
|
||
|
||
<p>From a customer perspective, that solution itself becomes part of the
|
||
platform on which the company’s differentiating activities are based. This,
|
||
as stated before, is inefficient, expensive and a dangerous strategy.</p>
|
||
|
||
<p>Assuming a market perspective, it represents an inefficiency that
|
||
provides business opportunity for other companies to provide customers with
|
||
a stack that is Free Software entirely, and it is strategically and
|
||
economically sane for customers to prefer those providers over proprietary
|
||
ones for the very same reasons that their proprietary suppliers have chosen
|
||
Free Software platforms themselves.</p>
|
||
|
||
<p>Strategically speaking, any company that includes proprietary software
|
||
model components in its revenue model should be aware that its revenue flow
|
||
largely depends upon lack of Free Software alternatives, and that growth of
|
||
the market, as well as supernatural profits generated through the
|
||
proprietary model both serve to attract other companies that will make
|
||
proprietary models unsustainable. When that moment comes, the company can
|
||
either move its revenue model to a different market, or it has to transform
|
||
its revenue source to work on top of a software model that is entirely Free
|
||
Software.</p>
|
||
|
||
<p>So usage of and contribution to Free Software are not differentiators
|
||
for what makes a Free Software company. The critical differentiator is
|
||
provision of Free Software downstream to customers. In other words: Free
|
||
Software companies are companies that have adopted business models in which
|
||
the revenue streams are not tied to proprietary software model licensing
|
||
conditions.</p>
|
||
|
||
<h2>Up next</h2>
|
||
|
||
<p>But every company naturally needs a differentiator that provides its
|
||
unique sales proposition, the one thing that it can do better, cheaper,
|
||
faster than anyone else and that provides the reason for customers to
|
||
choose that particular company over another.</p>
|
||
|
||
<p>Traditionally, many IT companies have relied upon proprietary software
|
||
models and patents for uniqueness and differentiation. This is particularly
|
||
apparent in the venture capital environment, and lack of these sources of
|
||
uniqueness is often perceived as a strategic weakness.</p>
|
||
|
||
<p>So in one of my next articles I am planning to show how differentiators
|
||
used by Free Software companies can be as strong as those of proprietary
|
||
companies, and that the differentiators of proprietary companies are often
|
||
much less unique than it appears.</p>
|
||
|
||
</body>
|
||
|
||
<tags>
|
||
<tag key="front-page"/>
|
||
<tag key="competition">Competition</tag>
|
||
<tag key="enterprise">Enterprise</tag>
|
||
</tags>
|
||
|
||
<author id="greve" />
|
||
</html>
|