Subject: Reasons why being proprietary hurts you more than it helps
From: Russell Nelson <>
Date: 1 Jun 1998 15:34:06 -0000

	Reasons why being proprietary hurts you more than it helps

Businesses exist to make money.  They engage in activities that
advance them towards that goal, and refrain from activities that
don't.  Therefore, the only sensible reason for holding information
proprietary is to protect your business from activities which would
reduce its profit.

One reason is simply because you can -- because property rights exist.
Another is because it is traditional and expected.  Another reason is
because someone told you to -- perhaps an investor or other trusted
party.  But these reasons aren't sensible unless they advance the goal
of making money.

The big fear of any company is competition.  Every good capitalist
wants to buy in a free market, and sell as a monopoly.  Any hook that
keeps out the competition has been used, and holding information
proprietary is one of them.  However, there is no such thing as a free 
lunch, and keeping information proprietary has its cost.

When you don't tell people how to use your product in the manner
*they* wish, you are imposing a cost on them.  You are requiring them
to abandon their chosen method of using your product, and pick up your
method.  This has a learning curve associated with it, so they will
not buy your product as quickly as they might.  It may make their use
less efficient, so that they cannot afford to buy as much of your
product.  It may drive them to your competition, who might also be
holding information proprietary, but whose approved method is more in
line with the customer's chosen method.

Many companies are proud of their engineering, and rightfully so.  It
is a mistake, however, to presume that you know the customer's
business as well as the customer.  Some customers may have innovative
(and profitable!) uses of your hardware.  If you hold information
about the product proprietary, you will never know about these
customers, because they will simply not exist.  Yes, you can use a
nondisclosure, but there are costs and risks to using them.  If you
execute a nondisclosure with everyone, then what are you not
disclosing if everyone can find out about it?

Other times a customer needs to make your product work in their
environment, and alas, your engineering has a flaw.  The less you tell
that customer about your product, the less likely they are to be able
to fix the flaw for you.  Many, many times I have had packet driver
bugs fixed, not just by amateur hackers, but by paying customers.  The
value of even a single fixed problem is inestimable.  It is extremely
difficult to decide which customers are able to fix bugs.  Only
universal nondislosure can solve that problem.  And you'd be surprised
by who fixes some problems.  Someone in MIS at (a national automotive
repair chain) whom I had never heard from before, sent me a bug fix
for the token ring packet driver which allowed it to run under Netware
as well as TCP/IP.

The discussion so far has assumed that not voluntarily disclosing
information actually succeeds in keeping customers (aka potential
competitors) from learning anything they need to know about your
product.  This is not the case.  I can assure you that "no reverse
engineering" terms are universally ignored by everyone concerned.  The
first thing an engineer does is whip out the reverse compiler to see
how the code operates.  This is not hearsay.  When I was consulting
for (a silicon valley fabless design shop), I actually saw a
reverse-compiled listing of the 3C509 driver less than a week after
3Com started distributing it, with notes as to how the product worked.
I produced my own source of MS-DOS which could be modified and
assembled.  I know someone else who did the same thing.

Customers have been known to reverse-engineer products also, but they
usually have less economic incentive.  For a while, Diamond held back
their variable VGA clock interface as proprietary.  The information
itself was widely available anyway.  Connectix didn't want to release
programming information for their Quickcam, but users
reverse-engineered it.  Eventually they released programming
information after the horses had left the barn.

The benefits, then, of protecting intellectual property through trade
secrets are slim compared to the costs.  A company that wishes to
compete with you must make substantial investments in mechanical and
electrical engineering, plastic molds, certification, prototyping,
production, sales, and marketing.  Another few thousand spent on the
due diligence of reverse-engineering the competitor's products is lost
in the noise.

Holding back information as proprietary helps you, but only a very
small amount.  You have hurt the competitor, but you have also hurt
yourself.  There is no track record which associates proprietary
information with greater success in the marketplace.  3Com gives away
information on how to program their network adapters.  So does SMC.
So does Intel.  You've heard of them, right?  Kodiak didn't.
Thomas-Conrad didn't.  Where are they?  on the other hand,
Allied-Telesyn tried to hold information as proprietary, but they
succeeded anyway.  And Racal-Interlan gave away information but has
left the Ethernet market.  Digital Equipment is a big fan of
proprietary information, but you'll notice that their sun has set.

It's not clear that proprietary information helps you.  It's not
strongly clear that disclosing information helps you either, but it
certainly makes customers happy when they know they can always get
support from a third party.