One may wonder why would someone invest time and money into software that is going to be given away. Profitability of the Open Source model always has been a major source of questions. In a recent study, about 38% of the programmers involve in open source were paid for collaborating in those projects (Lakhani and Wolf, 2007: 9). Who's paying those developers to build new software? Ubuntu server host thousands of gigabytes of data that all the users can access freely. All this has a cost, and someone need to pay for it.
The open source economic model can be divided in two aspects: why does company pay for developing open source software, and how corporation like Canonical, the corporation behind the Ubuntu project, intend to profits on building such a project.
First of all, to understand why a company would invest in open source development, we need to take the point of view of the client. With proprietary software, large enterprises are paying large amount of money for licenses, so they get involve in open source project for their own benefits. Software only have a marginal cost for distribution, so all the money made through the selling is profit once the development has been paid for. Large companies, exploiting thousands of workstation are paying a large share for the development of a product. And they can't influence the final product.
That's the reason that many of them, instead of paying for license, are paying developers to help improve Open Source project. The final product of Open Source project doesn't have a licensing cost, so all they have to do is to pay for the developer. Moreover, having their own developer on the project give them the opportunity to influence and control the final product through their participation, a power that they would not have through proprietary software.
Often many corporations have developers involved in a project. In those cases, we can affirm that open source development is mutually funded. Since most corporation involved aren't selling the software, but using it to improve their productivity, there is no reason not to cooperate (Moreira de Sa Coutinho, 2006).
The second reason a corporation will get involve in funding of open source projects is the derived service they intend to sell. For example, Canonical Corporation have been funding the Ubuntu project since the beginning and has yet to see profitability, but they expect to meet it soon (Shankland 2008). How? By selling support service to corporation. As Krishnamurthy put it:
Enterprises are also willing to pay for long-term agreements with distributors to ensure that their products get updated regularly. This is what Canonical Corporation is exploiting. Selling desktop software isn't an option anymore, as Mark Shuttleworth, the founder of Ubuntu and Canonical note it:
So far, this has been a viable economic model that is growing and getting more and more success. Open source software is not only for hobbyist anymore and business can be build around those models.
The open source economic model can be divided in two aspects: why does company pay for developing open source software, and how corporation like Canonical, the corporation behind the Ubuntu project, intend to profits on building such a project.
First of all, to understand why a company would invest in open source development, we need to take the point of view of the client. With proprietary software, large enterprises are paying large amount of money for licenses, so they get involve in open source project for their own benefits. Software only have a marginal cost for distribution, so all the money made through the selling is profit once the development has been paid for. Large companies, exploiting thousands of workstation are paying a large share for the development of a product. And they can't influence the final product.
That's the reason that many of them, instead of paying for license, are paying developers to help improve Open Source project. The final product of Open Source project doesn't have a licensing cost, so all they have to do is to pay for the developer. Moreover, having their own developer on the project give them the opportunity to influence and control the final product through their participation, a power that they would not have through proprietary software.
Often many corporations have developers involved in a project. In those cases, we can affirm that open source development is mutually funded. Since most corporation involved aren't selling the software, but using it to improve their productivity, there is no reason not to cooperate (Moreira de Sa Coutinho, 2006).
The second reason a corporation will get involve in funding of open source projects is the derived service they intend to sell. For example, Canonical Corporation have been funding the Ubuntu project since the beginning and has yet to see profitability, but they expect to meet it soon (Shankland 2008). How? By selling support service to corporation. As Krishnamurthy put it:
"Enterprises are willing to pay for accountability. When they have a problem, they do not want to send a message to mailing list and wait for support that may or may not be of the highest quality. They have no interest in sifting through technical FAQs to find the answer. Therefore, there is money to be made in services such as support for installation, answering technical questions and training employees to use the product."(2007: 283)
Enterprises are also willing to pay for long-term agreements with distributors to ensure that their products get updated regularly. This is what Canonical Corporation is exploiting. Selling desktop software isn't an option anymore, as Mark Shuttleworth, the founder of Ubuntu and Canonical note it:
"I don't think it will possible to make a lot of money, or maybe any money, selling the desktop. We're not going to try to make money selling the desktop. We force ourselves to look to services-oriented business models. I remain confident this is the right business model for the industry. Linux is the forcing function that (means) the broader software industry will shift in business models away from licensing the bits and to services." (Cited in Shankland 2008)
So far, this has been a viable economic model that is growing and getting more and more success. Open source software is not only for hobbyist anymore and business can be build around those models.
Krishnamurthy, Sandeep. 2007. An Analysis of Open Soure Business Models. In Perspectives on Free and Open Source Software, ed. Joseph Feller, Brian Fitzgerald, Scott A. Hissam, and Karim R. Lakhani, 267-278. Cambridge, Massachusetts: The MIT Press.
Lakhani, Karim R., and Robert G. Wolf. 2007. Why Hackers Do What They Do: Understanding Motivation and Effort in Free/Open Source Software Projects. In Perspectives on Free and Open Source Software, ed. Joseph Feller, Brian Fitzgerald, Scott A. Hissam, and Karim R. Lakhani, 3-21. Cambridge, Massachusetts: The MIT Press.
Moreira de Sa Coutinho, Joao. 2006. Le logiciel libre (1) Aboutissement du Capitalisme. March 4. http://www.domainepublic.org/capitalisme.html.
Shankland, Stephen. 2008. Ubuntu 8.10 due Thursday. Profits? Not so fast. Business Tech - CNET News. October 27. http://news.cnet.com/8301-1001_3-10075890-92.html.
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