The Open Source Paradigm II

The customers for a particular open source product generally identify themselves: they search for the product in a directory of open source software, and then they download and test the software. If tests are successful, they deploy it. Thus they gain a continuing interest in the product. At that point if they desire additional features to the product, they have an incentive to become co-developers of the software they are using.

The companies that join open source collaborations are seeking to use the software in a non-differentiating, cost-center role. Their profit-centers are things other than software, and software is for them an enabling technology. In order to continue to operate their profit-centers, they must make some investment in their cost centers. In the case of differentiating software, they have little choice but to make use of the in-house or contract development paradigm, because they need to prevent their differentiators from falling into the hands of their competitors. For their non-differentiators, they have the choice of the retail or open source paradigms.

The Open Source Paradigm I

In this model, multiple entities come together to develop a software product. Generally the initial development is done by a single entity as in the in-house and contract development paradigm, and the software is released to the public as soon as it is useful to others, generally before it would be considered a finished product and thus much earlier than a retail product would be released. Once the software is useful, other entities make use of it. Only when the software becomes useful to others does the open source paradigm work fully, because only then will other parties have an incentive to use the software. Once they are using the software, these other parties will have an incentive to extend the software to implement additional features that are of interest to them. This extension is performed by the customer's own employees or contractors under the customer's control.

The incremental cost of adding a feature is much smaller than the cost of the entire development. Parties that create modifications have an incentive to write them in such a way that they will be accepted by the other developers on the project and will be merged into the main body of source code that is shared by all developers. Thus, open source tends to foster a community of developers who make contributions to a useful product. The cost and risk of developing the product is distributed among these developers, and any combination of them can carry on the project if others leave. Distribution of cost and risk begins as soon as the project is mature enough to build a community outside of its initial developer.

Open source is developed directly by its end-users. For example, Apache web server features are added by the companies that need those features to operate their own web sites, or sometimes by contractors working for those companies.

Efforts At Collaboration Without Open Source Licensing

Consortia used to be the standard means of collaborating between companies upon software development. Closed consortium software (gated communities) has a record of titanic failures (Taligent and Monterey intended to create a replacement for Unix, but Linux replaced them) and it is the wrong structure for the development of non-differentiating software. A consortium costs more because there are fewer members to share cost and risk than with an open source project and more structure and overhead as well.

Digital economy

Money management in the creative and conventional economies does not substantially differ. Thinking and creating are not free. Research represents a long and strenuous process of investment (time and money). The cost of operating a business with intellectual assets only is lower than the cost of starting a conventional business which uses both physical and intellectual assets. The former also has the advantage that it can delay paying for the intellectual assets, or pay them with equity. But the insubstantial nature of these assets deters would-be investors, and even those who have a stake in the business have problems in valuing it and their share. That is why patents, copyrights and trademarks have seldom been used as collateral for loans and, when they are, their value is underplayed.

One of the fields where more intellectual assets are used is the digital economy. With regard to the research in software industries, I shall further develop a separate chapter in which I shall describe the main types of innovation and the impact of open source.