Eric Raymond, Part III: “Open-Source makes good business sense!”

Part III (Part I, Part II)

I will here consider Eric Raymond’s discussion of classic open-source business models and outline his arguments for commercial open-source development over closed-source in his essay, “The Magic Cauldron.” I will then outline the impact that his own work has had in shifting corporate strategy within the software industry, as detailed throughout the second edition of The Cathedral and the Bazaar, and in his essay, “Revenge of the Hackers” in particular.

Raymond contends that the traditional closed-source software industry largely operates under the “persistent but unfounded delusion that it is a manufacturing industry.” (120) In reality, software is a service industry. He calls this the “factory model”: a company sells its product for a high initial price, then makes its service (technical support, updates, etc.) free or nearly free. But this doesn’t make any sense for contemporary complex software, for which 75% of the cost is in maintenance, not development. The implication, for Raymond, is clear: most businesses would benefit by open-sourcing their software, thereby reaping the rewards of a huge, free, highly-motivated developer base, which would result in faster, more reliable development (and thus more secure software). He also claims that 95% of software is developed for in-house use, not direct sale. His basic claim, then, is that open-source development almost always out-performs closed-source development, that the benefits to the developing company outstrip the advantages that its competitors could potentially gain by copying their software—because actually implementing the free code for other applications requires development time, and if other companies are constantly trying to implement their competitors’ software, they will remain perpetually behind, as Raymond claims the Soviet Union was during the Cold War, as a result of copying American technology instead of implementing their own (he sites a former KGB officer with regard to this point). Therefore open-sourcing one’s software is a prudent business move whenever a company has something to sell beyond the product itself. Some of his examples:

1. Use open-source software to maintain a market leader position, with which to sell other, closed-source variants. For instance, give away browser software to end users, but sell the accompanying server software. This was Netscape’s business strategy with Mozilla, and Microsoft’s with Internet Explorer (though IE remains closed-source, and indeed remains significantly behind open-source browsers in terms of features, security, and speed).

2. Give away software in order to sell hardware to run it.

3. Sell material accessories to accompany software. This can scale from mugs and T-shirts to entire lines of books (as with the enormously successful O’Reilly & Associates, Inc.)

4. Give away software that accesses data, then charge for the data. This can be reformulated for any service: the front end is free, but the real value is in the content.

5. Use software to disrupt competitors’ monopolies, and thereby indirectly reposition your own company within the market (i.e., use open-source software to shape the market rather than compete directly). This was Netscape’s strategy vis-a-vis Microsoft with Mozilla (very effective in the long term, but only after Netscape folded, after publication of this book.) Another recent example that post-dates Raymond’s book: Sun’s successful incursion against Microsoft Office’s hegemony with

What these plans, and many more, capitalize on is exposure: software that reaches a larger user base can be capitalized upon by a company that has a project to sell other than the software itself. And free software will disseminate faster and be developed quicker if it’s open-source rather than closed-source.

Beyond the benefits of open-sourcing, then, Raymond emphasizes the “financial irresponsibility” of allowing one’s company to rely on closed-source software, which one has no control over with regards to future compatibility, features, bugs, and security threats. Stated more simply, using open-source software can allow a company to escape vendor lock-in (the primary means by which companies like Apple and Microsoft make money).

In comparing open-source and closed-source business strategies, Raymond notes that open-source is the prudent choice wherever network effects are in play (i.e., a larger user base, or larger developer base, would be beneficial), or where reliability, scalability, or security are critical. There are, he admits, certain cases where closed-source software makes more sense, though they are rare. In particular, he believes that open-source will come to completely dominate in the realm of infrastructure (the Internet, networking, operating systems), mostly dominate middleware (databases, development tools), and have mixed results in applications (specific use programs). Indeed, since the latest version of this essay (2000), things have played out largely as he predicted, with the exception of operating systems, in which the closed-source Windows still dominates.

In the 1990s, two landmark events caused a broad perceptual shift in the software community in favor of open-source. The first was the release of the Linux kernel, widely perceived as the centerpiece of an operating system that outperformed all of its closed-source counterparts (Unix, Macintosh, Windows, DOS, etc.). This is the event that Raymond cites as opening his eyes to the possibilities of the bazaar model of software development. The second event was the announcement by Netscape Communications in 1998 that they would release the source code of their flagship product, Netscape Navigator, transforming it from a closed-source to an open-source product. For a major corporation to “bet the farm” on open-source was truly significant. As it turns out, the publication in 1997 of Raymond’s essay, “The Cathedral and the Bazaar,” played a key role in the gamble of the Netscape executives. Not only did Raymond’s essay sway them; they contacted him and relied upon him as their primary consultant when orchestrating both the announcement and the transition.

Raymond claims that he saw this as a huge make-it-or-break-it moment for the open-source community, an opportunity to re-brand and consolidate the entire movement. He seized the moment to lead a PR campaign directed not only toward hackers (in order to steer them away from the Richard Stallman, anti-capitalist rhetoric) but also toward CEOs (in order to convince them that hackers were mostly okay with commercialization and business in general, and that open-source software could be profitable). The culmination of this campaign was the book form of The Cathedral and the Bazaar. Writing in the second edition of 2000, Raymond is ebullient: everything seems to be going according to plan! Mozilla (created to handle the open-source version of Navigator), however, failed to save Netscape, which was disbanded by parent company AOL Time Warner in 2003. In the years since, however, Mozilla’s open-source products (particularly their Firefox web browser and Thunderbird email client) have captured a significant share of the popular user base. The subtitle of Raymond’s book is “Musings on Linux and Open Source by an Accidental Revolutionary.” Like many revolutionaries, he may have been overly optimistic in his opening volleys; the revolution he champions may still be broadcast on YouTube, but colonizing the noosphere—however joyous an activity—is still a long, muddy slog along the digital frontier.

The book is available on Amazon.

An online version of the essays collected in the book are available from the author’s site, here.


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  1. […] Part III, I will cover Raymond’s discussion of open-source business models and the role that his own […]

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