When I've spoken at Open Source Business Conference, LinuxWorld, OSCON, or other open source conferences, I like to use the entertainment industry as a perfect example of what is happening to the software industry, or should. With every new technology - from the player piano to radio to cassette tapes to CDs to p2p file-swapping - the music industry has fought technological progress (and consumer convenience). The movie industry has been the same - from The Jazz Singer to betamax to DVDs to simultaneous day-and-date release - Jack Valenti and Crew have fought technology progress (and consumer convenience).
Fortunately for both parties, they've lost. Today, the movie industry makes a large majority of its money from the rentals aftermarket (60%+). The music industry? The shift to the dreaded CD, as just one example, vastly inflated the size of the market. It's unclear, given these industries' tremendous errors of judgment over the past few decades, that every one of them isn't fired. (Perhaps starting with the Sony executive who came up with the brilliant "rootkit" idea. They win the Bozo Award for 2005.)
In software, as you can see from this slide I use, it's no different. However much Microsoft et al. may want to control how/when/why software is used, the world is moving past them. If they're lucky, they'll get slapped around, get wise, and then get on board. If they're unlucky, they'll get mowed over.
Back to the entertainment industry (this time, the movie industry, in particular). As December's Fast Company reports,
The curtain is rising on Hollywood's "third act," and the drama is most stunning when you briefly recall the plot points of the first two. In the Old Hollywood of the '20s through the '40s, the seven studios...exerted awesome control ovre talent as well as movie theaters. Every week, about two-thirds of all Americas went out to the movies to see...well, whatever was playing at the neighborhood movie house. Because the moguls tightly controlled the costs of making films, and since they hardly had to spend on advertising, nearly every release made money....In the software context, this is roughly analogous to the shift away from large up-front license fees to an emphasis on maintenance and support revenues.The Old Hollywood system fell apart in the '50s when the studios were forced to divest the movie houses and let the stars become free agents. The studios' fall was accelerated by the rapid and inexorable rise of television, which decimated the movie-going audience. But eventually a new Hollywood emerged, and it was as brilliant and astonishing an invention as the original. [The industry consolidated into massive conglomerates] that combined them with TV and cable networks, cable and satellite connections, and video-rental stores. Now...the oligarchs have a 96% market share of the box-office take. They collect 98% of the national prime-time television advertising dollars. And they have 80% of the subscribers to pay-TV services....
This system has been imploding for two reasons. First, it depends on mobilizing a mass audience through mass marketing, and that's a daunting task these days [given how fragmented the viewing audience has become, with so many competing options]....Second [and hugely important for open source, nearly every movie loses money on its theatrical run these days....The theatrical release has become a loss leader to promote the studios' real money-maker, the DVD, which in turn often serves as a loss leader for Wal-Mart to draw in shoppers.
In other words, the software industry is shifting onto open source's home territory, and the smaller, more nimble competitor with a ready-made overhead to live off this kind of revenue stream will win. Ties goes to the disruptor.
Posted by Matt Asay on November 24, 2005 12:03 PM
