Subject: Re: Returns to service professionals (was Re: New ESR paper: The Magic Cauldron)
From: "Tim O'Reilly" <>
Date: Mon, 28 Jun 1999 08:13:30 -0700

Frank Hecker wrote:
>  One possible response (made by Nicholas
> Petreley, among others) is that in the existing proprietary software
> industry the likelihood of achieving high returns is decreasing for most
> everyone except Microsoft (and Microsoft employees), so that moving to
> libre software is arguably no worse than the alternative of continuing
> on the present path, and could well be better.

I strongly agree with Nick.  The Software Publisher's Association
does an annual survey of its membership; I saw a copy last year,
and it was truly shocking how much revenue per employee has
shrunk (average now around $100,000!), and how few software
companies are profitable.  This is an ugly industry.  The words
that Tacitus applied to Vespasian (or one of the Roman emperors)
apply equally well to Bill Gates: "He made a wasteland, and he
called it peace."

> A complementary response
> (and the one ESR makes) is that increased use of libre software is
> (directly or indirectly) opening up lucrative new business opportunities
> that did not previously exist

I agree completely that this is the where the meat is these days.

> Another
> alternative argument is that lucrative opportunities exist for companies
> not in the business of providing or supporting libre software but rather
> using it as a major component in providing net-based services (e.g.,
> Yahoo). (Now that I'm officially an AOL employee, this alternative hits
> closest to home for me :-)

I have been making this argument for some time; I'm delighted to
see it coming from someone else.  This is why I think it's WAY
more important for us to keep the software at the heart of the
Internet Open Source than it is to beat Windows on the desktop. 
I first made this argument, to an unenthusiastic Linux crowd,
back in 1997, at the same Linux Kongress in Wurzburg where Eric
first delivered The Cathedral and the Bazaar.

Obviously, it's great how much success Linux is seeing against
Windows, but I continue to feel that the real threat is in the
web space.  And it's not just a threat from Microsoft--IIS vs
Apache, or ASP vs Perl--it's a threat from the builders of what
I've called "the next generation of computer applications".

After all, more people are buying computers these days to use
email and web sites like Amazon and Yahoo than they are to use
Windows or Microsoft Office.  Even though they are using Windows
to get there, it's somewhat incidental to them.

What's really interesting to realize is that none of these
companies "distributes software" in the traditional sense. was deployed without any distribution, but it sure
as shooting is a new software application.

What bothers me is that because these companies don't distribute
software, but instead provide services, they don't think about
how to keep the ecosystem healthy, and how dependent they are on
the open source community for the platform they've built on.

After all, Yahoo, Amazon, and even AOL (which I believe runs a
much-hacked version of sendmail somewhere down deep) have
critical parts of their infrastructure on Open Source.  Yahoo is
very largely open source; Amazon has told me about 70% of the
software they use is OS.

So one of the challenges is to get these people to participate
more in the OSS community.

Unfortunately, this doesn't just mean "give some patches back to
Apache or Perl", it really means "open source some of your
applications."  Where is the  Open Source e-commerce shopping
cart, or affiliates program?

I fear that these companies consider their applications as their
competitive advantage.

As a result, I've started to see a further consequence of the
analogies between the PC hardware industry and the software
industry that I outline in the article I wrote for Open Sources
Just as the proprietary Microsoft software empire was built on
top of the open PC hardware specification, we're seeing new
proprietary "infoware" applications being built on top of the
open specifications and software of the net.

To me, all the arguments about maximizing programmer/fsb revenues
misses the point.  You don't maximize revenue in isolation.  One
of the great strengths of open source software has been that it
has enriched the entire software ecosystem, the ecosystem in
which anyone building computer products--whether free or
proprietary--operates.  A rich ecosystem makes everyone rich.

I guess I see the Internet still in one of the "robber baron"
periods, where everyone thinks of what they can take out of the
ecosystem--after all, it's free, a land of opportunity--and
doesn't worry about the long-term consequences.

Think strip mining, clear-cutting, commercial farming with heavy
use of chemicals, etc. and you'll see much of the motivation
that's behind a lot of the Internet startups.  None of them has
thought much about what the landscape will look like when all the
clear cutting is done and the topsoil is gone.

My point:  the open source community does think about these
things.  Unfortunately, it spends most of its energy thinking
about them in the context of the previous generation of
applications (Windows, operating systems, et al) and not enough
thinking about where the internet is taking us.

All of which is to say that I think that Nick (as reported by
Frank) is right:  the money isn't in software, it's in providing
net-based services, and the question we ought to be spending some
time on is how open source plays in that space.  What kind of
licenses, and what kind of business models, make sense when
software is key to a company's success, but *software
distribution* isn't a significant revenue vector for that

Tim O'Reilly @ O'Reilly & Associates, Inc.  
101 Morris Street, Sebastopol, CA 95472   
707-829-0515 ext 266, Fax 707-829-0104,