When Nobility reaps Profits

Open-source software (OSS) has been the lifeblood of several breakthroughs in various scientific applications. For example, the Android smartphone in your hand has been built with open-source software. OSS is one of the most important reasons due to which mammoth corporations have not stifled the software industry. For every second person reading this who has completed a course in machine learning and deep learning, they have open-source software to thank.

 

For those unfamiliar with open source software, you can think of it as creating Coca-Cola, giving away the recipe for free and letting the world improve it. There is a faction of software developers who defend open-source software aggressively and feel that all code should be free and available to the public. However, the reality is that open source software cannot win every battle. For example, the majority of computer users in the world have bought into the Windows ecosystem and its ‘sweet suite’ of Office products.

 

Open-source software is an expensive proposition for the developer. There are several costs involved. The first and foremost is that of the developer or his team’s salary (nobility rarely pays off!). The other costs of development can include skyrocketing infrastructure costs, R&D costs and additional staff. For independent developers, these costs can be the death knell in potential groundbreaking code. Developers have to look for innovative ways of raising money without making their software proprietary and betraying their morals. There has always been strong support for the open-source community. Large organizations support OSS in different ways. Google conducts the Google Summer of Code for college students to contribute code to selected organizations. Google bears the stipend paid to the students. Mozilla Open Source Software (MOSS) also does its bit by supporting development in various tracks. However, many organizations not get recognized for their code or have slow growth curves.

 

Let’s take the example of Android. Google spends billions of dollars in R&D to maintain and improve the Android OS while keeping its source completely free. However, being one of the ‘Goliath-like’ corporations, they can earn their money from other avenues. They solve this by commercializing the Play store. But we cannot ignore the fact that the Play store and google maps would not have the same recognition if not for the existing android user base, which makes up 85.9% of the global market. The example above is one of the many instances where open-source software has flourished with competition and has been able to convert enough users to be profitable by other means.

 

As a contrasting example, we should look at OpenSSL. OpenSSL is a cryptographic software library that secures communication over computer networks. It probably protects every purchase you make online after hours of mindless surfing. It’s used by most Fortune 500 companies. One would assume that such an essential software is well funded and maintained by a full team. But that is not the case. For most of its history, OpenSSL only had money to fund one employee’s salary, which was through consulting contracts. The donations it received never crossed $2000 a year. However, after OpenSSL was in the news for a security bug, ‘Heartbleed,’ things changed for the better as people noticed the fact that a single employee had somehow managed to maintain the code only with a single bug. But, even then, OpenSSL has just enough money to sustain itself for a short time. The bitter truth is that OpenSSL can be counted among the lucky ones who received enough attention to support its survival. However, a lot of developers suffer from a very different fate due to lack of funding.

 

Open-source software is a very tricky business model. It needs money to sustain itself but cannot charge its consumers. Several models have been tried over the history of the movement. Ubuntu, for instance, is funded by Canonical, which in turn is backed by its wealthy owner Mark Shuttleworth, a true believer in the open-source movement. Ubuntu has based its business model on providing extended security support for its older operating systems as companies prefer to upgrade their infrastructure at their leisure due to the resources required to complete the task. However, Ubuntu would never be successful without the support it receives from Canonical.

 

In recent years, Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) have emerged as one of the more successful models to sustain open-source software. SaaS (Software as a Service) has monetized OSS products by which centrally hosting the software and shifting its maintenance costs to the provider. GitHub is the most successful example of this model. It recorded healthy profits over the years (except 2015) and now has been acquired by Microsoft.

 

Fedora, an open-source Linux distribution, is distributed by Red Hat. Looking at its growth, Red Hat has performed very well over the years and has gradually increased its revenue to about $3.4 billion in 2019. Although Red Hat eventually succeeded, a few OSS companies lose their funding because of investor expectations when they go public. Since their core product is free, it becomes difficult for them to appease investors with their R&D instead of steady profits and growing revenue.

 

A solution to this problem could be hidden in the startup business model. Every developer could be offered a stake in the company, while the salaries could be paid using subscription or the freemium model, thereby offsetting any issues related to immediate funding. The infrastructure costs incurred could be pushed onto the customer. Companies could also make money by providing training services to organizations who want their IT employees to master the software. The stake of the employees would ensure that none of them loses the motivation or the drive to put in their best effort. In case of a buyout or venture capital firm interests, the interested employees could cash out. This model ensures that everybody is happy.

 

The use of open-source software by companies in their IT requirements has been on the rise. Previous security concerns have been dwindling due to efficient security algorithms. Another bone of contention for companies was that they had to use excessive tech support due to the generalized nature of the software. However, companies and some governments too, are realizing that the cost of tech support is outweighed by the cost of proprietary software. OSS has a major advantage over proprietary support, i.e. innovation arrives much faster due to streamlined deployment. Lastly, open-source software has always been the underdog for large organizations as well as individuals due to the zero advertising.

The open-source movement has always faced difficulties in proving itself as a business. However, the nobility behind it cannot be ignored. GitHub started an archive program to store public code repositories created by various developers around the world in an Arctic storage vault (down the road from Svalbard Seed Vault). The code vault captures the essence of open-source software, i.e. to maximize progress as a community by building upon shared knowledge.

 

 

 

 

References:

  1. https://www.fordfoundation.org/media/2976/roads-and-bridges-the-unseen-labor-behind-our-digital-infrastructure.pdf
  2. https://www.toptal.com/finance/venture-capital-consultants/open-source-software-investable-business-model-or-not
  3. https://blog.timescale.com/blog/how-open-source-software-makes-money-time-series-database-f3e4be409467/
  4. https://archiveprogram.github.com
  5. https://hbr.org/2011/03/open-source-software-hits-a-st
  6. Cover image source – https://www.wikiwand.com/en/Open-source_model

 

 

 

 

 

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