Open Sources | Rodrigues & Urlocker » Making money with open source: Stanford Law School paper

January 30, 2007 | Comments: (0)

Making money with open source: Stanford Law School paper

TAGS: Open Source

I guess you have enough family dinner conversations about open source, someone in the family is bound to write a paper on the topic at some point. And so my brother has. Clark is finishing up his law degree at Stanford, heading to Wilson Sonsini to join its Technology Transfer group this summer, and has written a few papers on open source (I'll be posting his GPLv3 paper as soon as he gets it to me). This particular one is entitled "Monetizing Free and Open Source Software: The Red Hat Solution."

Clark hasn't bitten as hard on the Open Source Belief Cookies as I have, and so his paper tends to be a bit more measured as what you'll normally read here. :-)

Clark's central thesis is simple:

It is this Paper’s working thesis that the ability to directly monetize FOSS promises a level of FOSS innovation beyond what other economic and development models might lead to, and that for certain categories of software development Red Hat’s model is instructive as to how companies can successfully monetize FOSS and spur this innovation. Nonetheless, Red Hat’s experience also has its own set of limitations, and these limitations suggest that more traditional proprietary models may be the only viable alternative for other categories of software development. Indeed, this mixed bag of results similarly obtains when applying Red Hat’s experience to the controversial area of digital media.

Clark points out that open source will continue to grow, with or without the ability to directly monetize open source, but that there are good reasons to want companies and individuals to make money from it:

Several reasons suggest that the ability to directly monetize FOSS would be a good thing for the marketplace, and should thus be encouraged if a sustainable business model exists for doing so. For instance, leaving FOSS projects in the hands of FOSS elites can bring with it certain problems. One common complaint is that FOSS projects tend to serve higher-end users better than they do the average consumer. Because FOSS elites control and dictate the FOSS projects, they tend to focus on elite problems and elite solutions, and the resulting FOSS project may neglect the needs and preferences of the average consumer.

Hence, “it is not surprising that the open-source movement has been most successful in the development of operating systems and server application software that respond directly to the needs of IT professionals and other computer experts.” While some end user applications are licensed as open source, many of these started out as proprietary products and then went open source only once the proprietary version had met commercial failure (e.g., the Star Office Suite and Netscape).

Conversely, when companies are able to directly monetize a FOSS project, they will necessarily target their products and innovative efforts to the average consumer’s needs. Thus, though serving the high-end user is an important goal of some FOSS projects and should remain so, arguably, from a normative standpoint, finding ways to monetize FOSS is also a worthy goal because it would help focus a commercial entity’s innovative efforts on solving the problems and needs of average users, and creating FOSS projects to do so. Indeed, according to one study, the historical record of many important inventions shows that typical profit motives drove the major technological improvements in areas such as petroleum refining, paper making, railroading, and farming. The stimulus for the technological innovation was the recognition of a costly problem to be solved or a potentially profitable opportunity. While some of these opportunities were certainly in terms of high-end users, accessing the average user is likely a more costly problem to be solved as well as a potentially more profitable opportunity.

Nor are open source millionaires the answer to the problem, necessarily:

Relying solely on companies’ strategic interests in developing FOSS projects also seems problematic in certain respects. If companies, for instance, are focused on adopting FOSS mostly as a means to undercut and replace existing proprietary software, this direction of innovation may be less than ideal. It may allow greater innovation on top of the FOSS project because it may be easier to develop products and services on top of the FOSS project given its open nature, but the underlying FOSS project may receive less than ideal amounts of resources given that the companies’ main money-making products and services are those on top of the FOSS project, not the FOSS project itself. Companies may thus contribute just enough to FOSS projects in order to keep them as viable alternatives to proprietary options and to support their money-making higher-end products and services, but may contribute less than they would if the underlying FOSS project were directly monetizable itself. Arguably, if it were, companies would devote greater resources to it and greater innovation would ensue.

With this in mind, Clark traces the mechanics of Red Hat's licensing model, a model that I admire a great deal.

The paper is worth downloading and reading. I've been involved in the business of open source for nearly 10 years, and I found some of Clark's commentary novel and interesting. The rest, as I told him over dinner, was rubbish. ;-)

Posted by Matt Asay on January 30, 2007 04:33 PM

RATE THIS ARTICLE: