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The Limits of Open Source - Impact on Software Industry

The dividing line between where open source is appropriate and where it is not is the distinction between software that is generic infrastructure versus that which is essential (unique) to the very nature of the business itself. Open source has or can have an important role to play in the infrastructure arena but will never, as long as the world's economy is dominated by market processes, play any significant role in those areas that are central to the unique characteristics of commercial organizations and allow one company to differentiate itself from another or gain a strategic competitive advantage in it's market area.

Open source terrorizes Microsoft, not because it's inherently anti-business, but because Microsoft's entire software line is purely infrastructure and thus the natural territory of open source. Immediately Linux threatens Windows and Apache is IIS's largest obstacle. In the long run, there is an already existing open source competitor to most Microsoft products though most are not as developed as Linux or Apache.

Open source theoretically threatens the entire software industry as it exists today. By "software industry" I'm thinking every company that sells (licenses) largely the same software to two or more customers. This potentially includes all companies that sell true commodity shrink-wrap software to shareware to vertical market consulting firms that sell "packages" that are source code modified for each customer. If more than one company uses a product, then that product is not unique to any company and starts to look like my loose definintion of infrastructure. Extensive customizations unique to a customer start to move closer to core business processes. If however, the developer retains ownership of the code, and is free to add any good ideas they get from one customer to common code sold to any future customers, then it's not unique or at least not anymore.

The theoretical threat is greatly reduced by practical obstacles to open source. Generally this is the high cost of developing new high quality software. Where a project can start small and grow incrementally over time, the open source model is likely to work well. Where a product is needed quickly with a very high level of functionality from day one, it's hard to see how open source can solve the problem except where a mechanism exists to coordinate the potential beneficiaries.

Over a long period of time, dedicated programmers may contribute large amounts of time to an open source project. With one exception*, I've never heard of anyone putting significant sums of money into a new product, software or otherwise, for the purpose of giving it away. Whether it's a large software company investing its development dollars in a new product or a couple of programmers using their life savings to start a new company, if the product is highly marketable, anyone with a trace of business sense knows the real profits are to be made in license fees, not service and support. This is especially true of low priced, simple products, aimed at a mass market. As products become more complex (and expensive) the opportunity for service and support fees increase as well.

*Sun bought StarOffice, gives it away, and turned it into OpenOffice. There does not appear to be any direct revenue model other than a limited amount from service. I assume Sun is motivated by survival. Microsoft's monopoly grows faster than the legal system can deal with it. The current monopoly case is about operating systems. When the case began there was still competition in desktop office suites. Today, with their Apple share in addition to their Windows share, MS Office has more of the desktop market than Windows does of the operating system market, even when considering desktop machines only. Without a viable office suite for Linux and Solaris, there is no chance these will successfully compete with Windows as a desktop / laptop operating system, thus regardless of the outcome of the monopoly case, Windows is left as the only non server operating system (with Macintosh hanging on to a few percent).

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