Subject: CNET: The coming open monopoly in software
From: "Karsten M. Self" <kmself@ix.netcom.com>
Date: Thu, 25 Oct 2001 00:26:48 -0700
Thu, 25 Oct 2001 00:26:48 -0700
CNET is running a very good article on the coming "open monopoly" in
software.  It does a very good job of explaining what the credible
benefits of free software are, what its appeal to major commercial
vendors is, and what reasons Microsoft has for its vehement opposition
to free software.  This syncs well with by own views, and what I've seen
of other company's position or strategy papers on free software.  It
also addresses a number of questions which have circulated on this list
recently.

I'd recommend adding this to your whitepaper arsenal.

Kudos to Petr and Tim.


http://news.cnet.com/news/0-1275-210-7632187-1.html?tag=bt bh

    The coming "open monopoly" in software
    By [20]Petr Hrebejk and Tim Boudreau
    October 24, 2001

    According to a recent report by Forrester Research, 56 percent of
    Global 2500 IT executives surveyed said their companies were using
    open-source software--that is, software in which the source code is
    not controlled by a single vendor. Had that survey been conducted as
    recently as three years ago, the percentage would most likely have
    been zero.

    It's not hard to understand why open-source software, such as the
    Linux operating system and the Apache HTTP server, is growing in
    popularity among corporate IT departments. When source code is open,
    any developer is free to read, redistribute and modify it. This
    leads to faster bug fixes, improved software and lower development
    costs.

    What's perhaps less understandable is why many traditional IT
    vendors are also jumping on the open-source bandwagon. For example,
    last December, IBM announced that it was investing $1 billion in
    Linux in 2001.  Aren't these vendors concerned that open-source
    software will undermine the traditional proprietary software model
    on which their businesses are based? Why are these IT giants joining
    open-source efforts? Can any company really profit from open-source
    software? And if not, why would anyone want to develop it?

    To answer these questions, it's useful to first examine the position
    of the one major IT vendor who has come out strongly against
    open-source software: Microsoft.

    An economic analysis of open source In the world of PC-based
    software, Microsoft enjoys what economists call a "natural
    monopoly." This natural monopoly has occurred as a result of several
    factors, including barriers to market entry (such as the cost and
    inconvenience for existing customers to switch operating systems)
    and barriers to competition (such as patents and proprietary
    source-code control).

    Microsoft's natural monopoly has also been sustained by a basic law
    of software economics: as a vendor's business grows, the average
    cost of reproducing its software decreases. With downloadable
    software, vendors can produce virtually unlimited copies of their
    software, and each download reduces the unit cost for producing that
    software. At the same time, each unit downloaded increases the
    barrier to competition.

    This situation creates strong momentum for the monopoly holder--but
    only as long as it is competing against other companies that follow
    the same business model.  In the open-source community, today's
    software vendors are facing a competitor that has no stock, no
    owner, no board of directors--a competitor they cannot buy, and one
    they can't attack in a price war because the competitor's products
    already sell for nothing. It is predictable that in such a market
    there will be one winner.

    The current monopoly holder, Microsoft, has chosen to address the
    competitive threat of open-source software by urging government
    regulatory intervention.  Jim Allchin, the company's Windows
    operating-system chief, was quoted by Bloomberg News earlier this
    year as saying: "Open source is an intellectual-property destroyer.
    I can't imagine something that could be worse than this for the
    software business and the intellectual-property business." He added,
    "I'm an American, I believe in the American Way. I worry if the
    government encourages open source, and I don't think we've done
    enough education of policy-makers to understand the threat."

    But what about the other big companies? Why would they join the
    open-source movement? Aren't they equally threatened? No, because
    they are not the monopoly holder.

    These companies spend a lot of money on market analysis, and they
    understand that, in the end, there will be a monopoly again. The
    one-winner principle still applies. To them, the world will not
    change greatly whether open-source or proprietary software is
    running the world's computers.  The end result will still be
    decreasing average costs, and the same barriers to entering the
    market will still apply.

    What is different, however, is that in an open-source monopoly the
    barriers to participation and influence will disappear. This will be
    a different kind of monopoly--an "open monopoly"--from which no
    vendor can be excluded from participating, including the big
    companies now joining the open-source movement.  They have much more
    to gain by breaking the existing monopoly and replacing it with the
    new open monopoly.

    Now let's examine one of our other questions: Why would anyone want
    to develop open-source software?

    All participation in open source can be traced to self-interest, and
    participation in open-source software development can be seen as a
    kind of barter trade. Participants donate the code they've developed
    in exchange for value: the opportunity to be part of something
    bigger than their own work, to influence the direction of a project
    to suit their needs and to achieve some measure of social status
    among their peers.  Result? Both the participant and the open-source
    project get what they need.

    One such benefit that all participants and users get from
    open-source software is robust, modular and stable architectures.
    The reason for this is that all of the participants need to have
    their needs met.  Modularity both reduces the learning curve
    required for participation and allows individual participants to
    concentrate on the functionality that directly serves their needs.
    And stability is in the interest of everyone.

    Profiting from open source Which brings us to the profit question:
    How can a company increase its profits by working in open source? To
    answer that question, we have to go back again to basic economics.
    Profit is the difference between cost and revenue.  A company can
    increase its profits by either increasing revenue or decreasing
    costs.  And open-source software enables a company to reduce its
    costs. How?

    Think of it this way. What happens when a software project is more
    maintainable, more self-managing? When geography is less important?
    When companies need fewer buildings, less energy and have more
    choice in the labor market? What would happen if all software
    projects were built on more robust, maintainable architectures?
    Those sound a lot like things that lead to cost savings.

    Now consider this. Given that the people most likely to participate
    in an open-source project are also users of the application being
    worked on, what would happen if the customers for a software product
    actually participated in its design and creation? It would be
    impossible to create a product that is not what the market wants! In
    the open monopoly, IT vendors will still be able to sell support,
    configuration, consulting and extension software commercially, and
    their businesses will be that much more robust and profitable.

    We've shown that there are a number of motivations for both
    traditional IT vendors and developers to get involved in open
    source.  But ultimately, market forces will determine the outcome.
    In this case, time is on the side of open source.

    Historically, market economies favor monopolies when infrastructure
    is needed.  Consider the history of AT&T, utilities or railroads in
    America.  But the infrastructure building period ends at some
    point--and we are rapidly approaching that point in the software
    industry.

    Today, most of the Internet runs on open-source software. BIND, the
    software that allows computers and Web sites to have names instead
    of numbers, is open source.  So is the aforementioned Apache, the
    Web server that runs 67 percent of the Web sites in the world. So,
    if you've bet your business on the Internet in any way, you've
    already bet your business on open-source software.


    who's speaking?
    Petr Hrebejk is a senior software architect and developer on the
    open source NetBeans Tools Platform project at NetBeans, working for
    Sun Microsystems in the Czech Republic.

    Tim Boudreau is a software developer, writer and marketing manager
    on the same project, also working for Sun Microsystems in the Czech
    Republic.


-- 
Karsten M. Self <kmself@ix.netcom.com>       http://kmself.home.netcom.com/
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