 |
The
Challenge of the Open-Source Business Model
By
Jay Hollander
Jay Hollander, Esq. is the principal of Hollander and Company LLC, www.hollanderco.com, a New York City law firm concentrating its efforts in the protection and development of property interests relating to real property, intellectual property and commercial interests, as well as related litigation.
The content of this article is intended to provide general information relating to its subject matter. Providing it does not establish any attorney-client relationship and does not constitute legal advice. Personal advice in the context of a mutually agreed attorney-client relationship should be sought about your specific circumstances. Summary: The "open-source" movement
-- where computer software source code is freely transferable
-- has gained momentum, thanks in large part to the success
of the Linux operating system. This article explains the
history of the open-source movement and how this new business
model is having a significant impact.
Introduction
Even as the Justice Department battles mightily in its quest
to dethrone Microsoft as the ruler of the software operating
system and Internet browser industry, a larger battle is playing
out in the background with even broader implications for licensors
and licensees of software. This is the battle between closed-
and open-source software, that is, between software where source
code is closely guarded by the licensor, and software where
the source code is freely transferable and available for review.
Software,
essentially being intellectual property, is not normally
sold but, instead, licensed, an agreement conveying usage
rights rather than ownership of a program. More to the
point, what is usually licensed is the object code version
of the software, that is, the executable code that runs
the program when selected by the user or licensee. What
is not usually licensed and what is typically most closely
guarded, is the source code, the human-readable text version
of the code, which allows programmers and users to see
what instructions actually make the program behave as it
does. This is because exclusive access to this source code
has been the key to continuing revenue streams by software
vendors.This type of licensing arrangement has assured
these vendors that, among other things, no one will be
easily able to copy what they've done exactly as they've
done it. This, in turn, greatly increases the difficulty
of a would-be competitor improving on the software without
starting from scratch, a barrier to competition that can
make or break the success of a software vendor's effort.Witness,
for example, the sustained failure of IBM'S OS/2 operating
system, which tried valiantly -- and at great expense to
IBM -- to dethrone a closed system that had become an industry
standard, namely, Microsoft's Windows. Ironically, by contrast,
the well-known emerging open-source operating system, Linux,
has fared much better despite lack of access to Microsoft
source code, precisely because its source code is open,
or available to all those who want to use it, modify it,
customize it, etc. Linux's source code is essentially free
in two senses: You can get it free and the code is free,
meaning open. Linux belongs to no one, or, more accurately,
to everyone to improve on or modify as they see fit, the
only caveat being that they also make their contributions
open.If you are a licensor, the time is fast approaching
when you will have to decide if you will continue to license
traditional closed-source software or migrate to the small
but growing numbers of open-source software providers programs.Where
did open source come from? And how should you decide which
path to go down now, open-source solutions versus closed?
The
History of Open Source
Many
may think that open-source software is a new phenomenon
that is only just now bursting on the scene. But in actuality,
open-source has been around for a long time.The Internet
traces its routes back to ARPANET, which was started as
a research project on networking by the U.S. Department
of Defense in the late 1960s, with individuals and universities
later joining the project. Source code was shared freely
by all in what was then a relatively small community of
programmers, all collaborating freely and working to build
up a pool of knowledge in this new field.In fact, one could
argue that the Internet was built -- and flourishes --
on the back of the open-source model. E-mail largely depends
on open -- source Sendmail, the "postal system" of the
Internet. Apache, an open-source server, is the No. 1 web
server used in the world today, with 55 percent of the
market by early 2000, according to a February 2000 Network
Web Server Survey.Today, you will find that many substantial
organizations and businesses, including NASA, Northern
Telecom, Disney, Ernst & Young, Nasdaq, the IRS, Boeing,
Amiga and GE are choosing to use open source software as
part of their solutions.
A
New Business Model
Let's
say you are a licensor, making your money the old-fashioned
way, through control of source code, and the repetitive
licensing of vanilla or customized versions of software
products to a variety of customers, together with licenses
of periodic update releases with new features. What does
the open source movement hold in store for you?In the last
year or two, a number of open-source companies have formed,
seeing a new business opportunity. Noting the difficulty
average users face in installing and using Linux, vendors
such as RedHat, Caldera, SuSe, Corel, and VA Linux began
making and selling their own collections of Linux bundled
with application programs, including user-friendly installation
programs, Windows-like graphical interfaces, and Office-type
applications. Each distribution, as they are called, is
aimed at a different market, RedHat, for example, the market
leader, is aimed at corporate users, but each distribution
has the Linux kernel and so are largely compatible. They
are considerably cheaper than Windows, probably the single
largest expense in a computer system next to the hardware.By
definition, these open source companies are not really
dealing with copyrighted software in the traditional sense.
Rather, they use freely available source code and make
their primary money off of delivery of versions that are
easier to install and use, and which they will support.These
distributors eschew large development expense and, instead,
sell installation support, reference guides and customer-service
packages, so that individuals and businesses can purchase
whatever level of support they feel they need, from none
to 24/7. Some offer customization. These companies are
building their new business model, therefore, not primarily
on developing software for license, but on providing available
inexpensive software in a convenient package to businesses
and to those who can't face the technical challenge of
downloading and installing it themselves.By definition,
open source programs minimize copyright-related protections
since open source is generally subject to the GNU General
Public License (GPL), popularly known as "Copyleft." an
alternative to traditional copyright protection. Under
this system, an original work may be copyrighted provided
that distribution terms are added giving everyone the right
to use, modify and redistribute the program's code or any
program derived from it, so long as the distribution terms
are unchanged.Similarly, open source minimizes and largely
abandons source code-related trade secret protections.
The
Future of Open Source
Will
the new business model succeed? Some wonder what will happen
when software improvements solve the ease-of-use issue,
which will inevitably happen. If the customer no longer
needs help installing Linux, for example, what happens
to the companies that are depending on installation and
support as the foundation of their business?Proponents
of open source rely on the fact that most PC users probably
never will reach a totally support-free skill level since
they certainly haven't with closed source products.Other
companies are not leaving it to chance and are creating
a hybrid business model, incorporating aspects of the closed
and open source models.Corel Corporation, for instance,
allows free download of its distribution of Linux, like
other open-source vendors. It charges for manuals and support,
like other open-source vendors. But, Corel goes further
and offers to bundle "enhanced" versions with additional
proprietary software that are sold in the traditional fashion.
In this way, even if users can get a different Linux distribution
elsewhere, to the extent they like Corel's bundled programs,
they will come back to Corel for enhancements, upgrades
and new features to these proprietary programs.Open source
software is typically released "as is", with no warranties.
RedHat, for example, expressly states that its software
is provided to you "as is" and without warranty of any
kind. However, like the shrink-wrap licenses of the closed-source
companies, the law isn't quite that simple. The business
model of offering free software along with installation
and support may be characterized in many ways as essentially
as a service contract, which, under most state laws, carries
a warranty of workmanlike performance. In this way, licensees
may not be totally without protection if buying it, and
licensors may not be totally free of liability if they
offer it.
So,
whichever side you choose in this complex issue, open or
closed, choose from a base of accurate knowledge and keep
up with developments. The landscape is changing fast. And
the stakes are huge. Copyright © Jay Hollander, 2007. All Rights Reserved.
![]()
![]()
|
