I read two stories about companies adopting Open Source this week which give some interesting food for thought when juxtaposed.

The first is a blog post on C|Net from Matt Asay titled Ballmer: We'll look at open source, but we won't touch where he writes

Ballmer lacks the imagination to conceive of a world where Microsoft could open-source code and still make a lot of money (He's apparently not heard of "Google."):

No. 1, are our products likely to be open-sourced? No. We do provide our source code in special situations, but open source also implies free, free is inconsistent with paying for lunches at the partner conference. (Applause.)

But at least he's willing to work with those who do grok that the future of software business (meaning: money) is open source:

The second is an article on InfoWorld by Paul Krill entitled Sun lays off approximately 1,000 employees which contains the following excerpts

Following through on a restructuring plan announced in May, Sun on Thursday laid off approximately 1,000 employees in the United States and Canada. All told, the company plans to reduce its workforce by approximately 1,500 to 2,500 employees worldwide. Additional reductions will occur in other regions including EMEA (Europe, Middle East, Africa), Asia-Pacific, and Latin America. Reducing the number of employees by 2,500 would constitute a loss of about 7 percent of the company's employees.
He also addressed the question of whether Sun should abandon its new strategy of giving away its software. Sun will not stop giving it away, according to Schwartz, citing a priority in developer adoption.

When it comes to the financial benefits of Open Source, you need to look at two perspectives. The perspective of the software vendor (the producer) and the perspective of the software customer (the consumer). A key benefit of Open Source/Free Software to software consumers is that it tends to drive the price of the software to zero. On the other hand, although software producers like Sun Microsystems spend money to produce the software they cannot directly recoup that investment by charging for the software. Thus if you are a consumer of software, it is clear why Open Source is great for your bottom line. On the flip side, it isn't so clear if your primary business is producing software.

Matt Asay's usage of Google as an example of a company "making money" from Open Source is a prime example of this schism in perspectives. Google's primary business is selling advertising. Like every other media business, they gather an audience by using their products as bait and then sell that audience to advertisers. Every piece of software not directly related to the business of selling ads is tangential to Google's business. The only other software that is important to Google's business is the software that gives them a differentiated offering when it comes to gathering that audience. Both classes of software are proprietary to Google and always will be.

This is why you'll never find a Subversion source repository on http://code.google.com with the source code behind Google's AdSense or Adwords products or the current algorithms that power their search engine. Instead you will find Google supporting and releasing lots of Open Source software that is tangential its core business while keeping the software that actually makes them money proprietary. 

This means that in truth Google makes money from proprietary software. However since it doesn't distribute its proprietary software to end users, there isn't anyone complaining about this fact.

Unlike Google, Sun Microsystems doesn't really seem to know how they plan to make money. There is a lot of data out there that shows that the Sun Microsystems' model of scaling services is dying. Recently, Kai Fu Lee of Google argued that scaling out on commodity hardware is 33 times more efficient than using expensive hardware. This jibes with the sentiments of people who work on cloud services at Microsoft and Amazon that I've talked to when comparing the use of lots of "commodity" servers versus more expensive "big iron" server systems. This means Sun's hardware business is being squeezed because it is betting against industry experience. Giving away their software does not fix this problem, it makes it worse by cutting of a revenue stream as their core business is turning into a dinosaur before their eyes.

The bottom line is that giving something away that costs you money to produce only makes sense as part of a strategy that makes you even more money than selling what you gave away (e.g. free T-shirts with corporate logos). Google gets that. It seems Sun Microsystems does not. Neither does Matt Asay.

Now Playing: Inner Circle - Sweat (A La La La La Long)



Saturday, July 12, 2008 9:50:17 AM (GMT Daylight Time, UTC+01:00)
you are a regular know-it-all, Dare...
Saturday, July 12, 2008 10:02:11 AM (GMT Daylight Time, UTC+01:00)
Put another way...


Good post, Dare.
Brett L.
Saturday, July 12, 2008 10:48:36 AM (GMT Daylight Time, UTC+01:00)
I've been making this point for a very long time, but never managed to do so as succinctly.

Two thumb up.

Rob L
Saturday, July 12, 2008 11:14:15 AM (GMT Daylight Time, UTC+01:00)
In truth Google makes money from proprietary software. However since it doesn't distribute its proprietary software to end users, there isn't anyone complaining about this fact.
I think you are mistaken about this.
Saturday, July 12, 2008 4:41:55 PM (GMT Daylight Time, UTC+01:00)
way back in the fall of y2k, i was in college and attending an early demo of the original xhox and someone asked the question: Will Microsoft ever open source the OS and allow games from the open source community?

The answer was no because open source is not a valid business plan.

I don't think the audience liked the answer then, and still doesn't, but one microsoft has not wavered on.
Saturday, July 12, 2008 6:35:38 PM (GMT Daylight Time, UTC+01:00)
Joel Spolsky sums it up nicely in his Strategy Letter V:

Demand for a product increases when the prices of its complements decrease. ... In general, a company's strategic interest is going to be to get the price of their complements as low as possible.

As you pointed out, it makes sense for consulting companies (like IBM) to commoditize software, just like it makes sense for software companies to commoditize hardware. One of the primary reasons Microsoft has become such a large and profitable company over the past several decades is because of the plummeting price of hardware. If the average family couldn't afford a computer at home, no one outside of the industry would know who Microsoft or Bill Gates or Steve Balmer was.
Saturday, July 12, 2008 7:12:34 PM (GMT Daylight Time, UTC+01:00)
Very well done post. Thanks!
Hamilton Turner
Sunday, July 13, 2008 12:10:28 AM (GMT Daylight Time, UTC+01:00)
Ever living, ever fearful, Rastaman Vibration.

Stomp down on Babylon from within. Now seen?
Sunday, July 13, 2008 3:01:09 PM (GMT Daylight Time, UTC+01:00)
Having left the b0rg to explore open source, I'm finding the open source world much less pure than one would expect. Many open source companies that develop software act very much like proprietary ones in the enterprise, where GPL is often a poison pill allowing the vendor to claim "free and open source" but still extract license revenue from a non-GPL version on the side. Clearly GPL does not mean "free and open" for everyone! Just as you demonstrate for Google, you have to look closely at open source offerings to judge whether they really are.

Others like WSO2 have a model of development and support services where our primary business is incubating top talent and monetizing the relationship between this talent and an enterprise. In this light writing open source code has to be seen as a way to train world-class developers.

This is not to say Microsoft wouldn't benefit from opening some sources. There already is a large amount of free stuff from Microsoft that adds incremental non-monetary value to the core proprietary platforms, and for some of these secondary parts of the business open source could provide huge benefits.
Tuesday, July 15, 2008 3:21:44 AM (GMT Daylight Time, UTC+01:00)
These open source fellas are so desperate that they are running on "our enemy's enemy is a friend" mentality. At the rate they are going, soon we'd hear them calling Apple an open source company as well.

This Matt Asay guy in particular is a joke turning his blog into a propaganda machine against Microsoft, especially SharePoint. A quick look at his background reveals he's working for Alfresco, an open source product competing with SharePoint. Surprise, surprise.
Delio Cessa
Thursday, July 17, 2008 1:19:48 AM (GMT Daylight Time, UTC+01:00)
Great post (and blog).

A bit more sarcastic of a perspective: http://fakesteve.blogspot.com/2007/11/mind-blowing-refrigerators.html
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