Comments on: how does a software company make money, if all software is free?

By: nev

nev — Tue, 15 Apr 2008 14:56:17 +0000

I love this — there’s a lot of goodness on both sides, but I think the real question is “who is going to be installing software in the future?”.
From a consumer point of view, the only software people actively pay for (i.e. not as part of buying a new PC) by and large is game software, or maybe some specialized tools to support their hobbies (music, photography, that kinda thing). Used to be you had to pay extra for an MP3 encoder. Or a mail client. Or a word processor.
Oh, and many of those things are moving online (almost everyone I know uses a webmail client at home, rather than Outlook Express or Thunderbird). Flickr stores more photos than Photoshop Elements.
And guess what — most people don’t care whether their software is Open Source — they want it to be as cheap as possible, that’s all. So, they will use OpenOffice — because it’s free, not because of its philosophy.
As for businesses — I think the “we can sue someone” argument doesn’t hold much water — license agreements make it clear you can’t sue for anything, and sueing a big consulting firm tends to be an exercise in washing dirty linen in public.
The thing businesses tend to care about is risk — which for software purchases are more about long-term costs. Using Microsoft technologies is relatively safe because you can always find people who know the technology to support it. You can buy books on how to configure it. Other companies in your business sector are using it without huge flameouts.
Some Open Source products have reached the “low-risk choice” status — Apache, PHP, Linux on the server. Those products have grown through word of mouth, rather than marketing — marketing to software folk must be very hard.
As for what Microsoft should do — well, if we knew that, we wouldn’t be wasting our time reading blogs, now would we?

By: hugh macleod

hugh macleod — Sun, 13 Apr 2008 02:13:16 +0000

Steve, I totally concur. Rock fucking on.

By: steve clayton

steve clayton — Sun, 13 Apr 2008 01:46:22 +0000

@vruz some people are proud to work here and things are changing. people expect this to happen overnight…that’s like saying “i want to lose 20lbs” and expecting it to happen overnight. it doesn’t…it takes work and there will always be setbacks. multiply that by 70k employees or so and it’s quite an interesting challenge.
i think (maybe hope) that people 5 years from now will notice a very different microsoft. one that is more open than you could imagine right now.
time will tell.
@Dennis — spot on as usual

By: Gordon Taylor

Gordon Taylor — Thu, 10 Apr 2008 22:53:11 +0000

Microsoft is an old company. They have a huge legacy anchor encrusted with the barnacles of a million ‘social contracts’.
The software world outside of Microsoft has moved. Microsoft’s ability to remain happy, successful and interesting is directly tied to how willing they are to cut that anchor loose and catch up.
The MBAs need to let go of the cash cow of the past, and allow their brilliant people to work outside of the legacy theory of 20 years of reverse compatibility.

By: Dennis Howlett

Dennis Howlett — Thu, 10 Apr 2008 19:43:58 +0000

Change at MSFT? It’s the same for them as it is with any company in the same position. Change the DNA. It’s really that simple.
I could also add: change the Techmeme algorithm so it recognizes there’s more to the world than Google.

By: Peter Gold

Peter Gold — Thu, 10 Apr 2008 18:35:01 +0000

I remember a tale told to me a long time ago. I don’t even know if it were true.
Kwik Fit (big retailer in car tyres)made no money per se on selling tyres. They made money because the customer paid on the nail whereas the retailer paid the manufacturer on 60 days so they actually made their money from having cash in the bank.
A more recent example, I was with a big retail client this week who ‘claim’ the real money is made on the product accessories rather than the main product!
So, one day MS software will be free and we’ll pay for services, storage etc.
Great post.….

By: Cal

Cal — Thu, 10 Apr 2008 15:49:51 +0000

It looks like the entire Open Source Movement is a large-scale version of the age-old marketing technique known as the Loss Leader.
Marketing methods arise from the unforgiving and immutable laws of economics. Die-hard OS True Believers can ignore these laws only for so long before reality catches up with them.

By: Jamie

Jamie — Thu, 10 Apr 2008 12:41:10 +0000

It strikes me that MSFT’s success in the next thirty years is going to be driven more by internal organizational issues than it is by products and marketing. They’re big now. Are they going to become GM or not? It’s up to them. It feels like they are heading in that direction (although I’m an outsider, so I really don’t know).

By: Dave Armstrong

Dave Armstrong — Thu, 10 Apr 2008 12:08:11 +0000

Interchangeable parts, Microsoft Software, and Building Social Contracts On A Common Ground
“Interchangeable parts are components of any device designed to specifications which insure that they will fit within any device of the same type.“
Eli Whitney saw the potential benefit of developing “interchangeable parts” for the firearms of the United States military, and thus, around 1798, he built ten guns, all containing the same exact parts and mechanisms, and disassembled them before the United States Congress. He placed the parts in a large mixed pile and, with help, reassembled all of the weapons in front of Congress. The Congress was immensely impressed and ordered a standard for all United States equipment. With interchangeable parts, the problems that had plagued the era of unique weapons and equipment passed, and if one mechanism in a weapon failed, a new piece could be ordered and the weapon would not have to be discarded.
How can worldwide commerce function without the Interchangeable Parts of Microsoft Office Documents and the server software it runs on? We already know that to fractionate communication leads to failure. It’s sort of like the Intel Chip. Why would you make a different OSH version of the Intel chip so that hardware and software were no longer compatible? It is not about who makes it, how much it costs, or how well it works, but about building social contracts and ecomomic products on a common ground. Build together and thrive…
Best Wishes,
Dave

By: vruz

vruz — Thu, 10 Apr 2008 09:36:33 +0000

whilst we are at it, this is another thing Microsoft has to change, completely:
http://vruz.tumblr.com/post/31299907
it’s not just bad PR
can this situation be reverted ?
given enough time, I sure hope it will (but then I’m pathologically optimistic I know that time alone won’t fix it.
hope you succeed in your endeavour

By: Paul

Paul — Thu, 10 Apr 2008 04:54:00 +0000

First let me say I'm glad you're getting the gratis/libre distinction. The intentional, malicious, continued misrepresentation of this by the opponents of F/OSS is what I find most infuriating. Steve Ballmer is not an idiot, he knows perfectly well the distinction. Nobody is giving the software away, except Mark Shuttleworth(and he has his own reasons). I've purchased many iterations and distributions of Linux and Star/Open Office over the years. Q: "What has got to happen at MSFT if it wishes to remain a relatively happy, successful, interesting company for the next thirty or so years?" A: They must come to realize the value of service. As in "customer" service. They'll have to rethink their whole business model because licensing will not be the cash cow it was two years ago. I think Vista was a big mistake, from the "customer" service angle. I'm not in development but I'm in a .Net shop and there is zero talk of when they'll go to Vista. Server 2000 in the server room and XP on the desktop seems to be working fine. Not to mention the re training costs for 30,000 desk jockeys. You not being a tech guy may not see that. Office 2007 is nothing like Office 2000, seriously. So who's footing the re train bill if this enterprise goes to Vista, not MS. That's what I mean by "customer" disservice. And this will have to come from the top. Gates and Ballmer, being 'boomers', may very well retire in the next 2 - 5 years and then the fun will begin. I believe, with no insight except hope, that who ever comes up will not be so completely invested in the "old school". They can look at it from the view of we don't seem to be making as much money as we were let's fix that from in here. And I say more power to 'em.

By: Dave O'Flynn

Dave O'Flynn — Thu, 10 Apr 2008 04:15:03 +0000

I spent the best part of 8 years working with Windows, both as a "regular" Win32/COM/MFC developer and as a fairly hardcore kernel developer. In both cases, the only community I experienced was almost completely external to Microsoft. Most helpful information came from external sources, and you'd never expect MS to fix problems you encountered. It's recently gotten a bit easier to submit bug reports for some products, but just try googling for "microsoft bug report". Not the actions of a company encouraging conversation. Working, as I do now, in a company that builds on Open Source is different. If there's a bug in a library we use, I can fix it myself. I can talk to the people that wrote the software and discuss hows, whats, and whys. There's a lot fewer middlemen, and frankly it's just a lot more fun.

By: astine

astine — Thu, 10 Apr 2008 04:08:28 +0000

Ok, that was why OSS exists and persists in the market. Hackers write stuff for themselves and each other, that for them, is damn fine software, but has this grown into such a big thing and what can Microsoft do about it?
Well, the reason it is a big deal is obvious. It is a resource that exists and in a free market, any free resource is going to be utilized. OSS provided many things and depending on your needs and resources, it may be a better investment than the proprietary alternative. Restrictive licenses are more difficult for small companies to deal with than for large ones and may be more of a threat than lack of market testing. Sometimes its the only real alternative for those on a budget, (take Asterisk for instance.)
Ultimately, I think that reason that Linux in particular is so big, is actually because of Microsoft. Microsoft is by far, the most dominant player in the operating system market and as such, it has a lot of say in the IT industry. Companies like IBM, Oracle, HP, et. al. all have to work around Microsoft’s offerings when selling their products. This gives them an incentive to undermine Microsoft’s place in the market. The most obvious solution, promote Linux.
For example, the relational database market (Oracle, SQL Server) is split into two submarkets, the enterprise and the commodity markets. Oracle used to push it’s enterprise software on expensive Unix systems and it’s commodity on Windows. Then Microsoft started offering SQL Server to the commodity Window’s user market and Oracle’s pushing of Window’s backfired. Oracle changed its strategy and began to offer Linux instead.
IBM explicitly gives to OSS to undermine its competition and create a platform on which it will be more free to offer its own products.
In the end, I don’t believe that Microsoft maintain the position that it has in an over OSS dominated market. So much of its income relies on cornering key areas of the market and pressing the advantage that companies will find it easy to continually undermine it by pushing OSS. I find it doubtful that Linux will ever take the coveted title of mainstream desktop, but if it ever does, it will probably be too late to salvage Windows as a product.
That is, to make money out of OSS, you make products that utilize OSS. Microsoft specializes in making products on which other companies build their products. So for Microsoft to utilize OSS to a great deal, they would have to change their business model grandiosely and would ultimately sacrifice a lot of profit. If Linux and OSS continue to grow, Microsoft will probably have to embrace them and incorporate them into their own product stacks. There would probably be a lot of money in this through service fees, and proprietary extensions, (MS Linux would be very popular I think, and a particularly nasty blow to IBM and Oracle,) but I don’t think it would be as profitable as the current model.

By: astine

astine — Thu, 10 Apr 2008 03:07:26 +0000

Are people still asking this question?
I suggest reading “The Success of Open Source” by Steve Weber. He answers it pretty clearly.
You can also read “The Cathedral and the Bazaar” and “Homesteading the Noosphere” by Eric S. Raymond but that one is a little dated.
in brief, the reason OSS exists, is because people choose to make it. When individuals get involved in OSS, they are not usually attempting to drive some market revolution, they are attempting to solve some problem of their own.
Linux happened because Linus Torvalds wanted a Unix system on his PC. Other people wanted the same thing so they helped him out. Eventually it grew into something that could compete with commercial Unix.
Apache HTTPd happened because the NCSA stopped supporting its public domain web server. A bunch of ‘techies’ rallied to save and extend the old server, and their product grew to dominate its market.
Many hackers enjoy writing software in their free time, (not just any software, but software the appeals to them,) and the most effective way to do this is as an OSS project so they can benefit from other’s interest in what they are doing.
Finally, the third reason that hackers write OSS is because it is a good career decision. Not, “writing OSS is a good career,” but “writing OSS, helps ones career.” It is the easiest way to gain experience, improve one’s abilities, and prove one’s worth. The average job out of college is gruntwork, or worse, vaporware, and not very impressive on a resume. Contributions to OSS give off ‘hacker cred’ and make someone more employable, especially by the companies fro whom hackers want to work.
Plus, if someone gets lucky and creates something truly important, it can be very good for him. I believe Linus Torvalds is currently worth tens of millions. Guido van Rossum, (creator of Python) is in charge of Google’s latest marketing venture, a webapp hosting business aimed at undermining Yahoo’s S3 venture, and I’m sure the pay he receives in no small matter. OSS is not a way to make billions. It is a way to get employed by someone who makes billions.
With this in mind, it should be obvious why OSS sucks at marketing. The reason is, that with the exception of certain companies, and certain individuals, OSS hackers are more interested in what other OSS hackers think than what the rest of the ‘n00b’ world thinks. The Gentoo community would probably be thrilled if Debian users, en mass decided to switch to Gentoo and declare it the better Linux distro. If a bunch of Windows users switched to Gentoo, you can bet that there would be trouble. OSS is by geeks for geeks and while many do have the non-technical end user in mind, most don’t. Its not that its an elitist operation, its just that there is more glory and its much easier making something that other hackers will use rather than some clone of some proprietary piece of business software you don’t actually care about.

By: vruz

vruz — Thu, 10 Apr 2008 02:00:10 +0000

Believe me I want Microsoft to thrive and succeed, just but not at the high cost of worldwide unhappiness.
By the way, didn’t my constructive, and thoughtful previous post reach you ?
I don’t see it approved, did I say something wrong ?
Were you really looking for thoughtful advice ?
Or is it that it didn’t match the point you seem to be trying to make about the marketing naiveté of open source proponents ?