Once More unto the Breach

Open Source Software Economics in Pictures

Updated [22-Mar-2010]: Added a little text around the Ohloh javascript widget so Google Reader sees a URL to follow.

Recently, I've encountered several technologists that still don't understand open source software economics and got suitably cranky about "people giving away software for free" and "destroying the value of innovation". I thought it time to try to reach for an easier way to demonstrate what's happening in the industry in pictures.

Everyone is familiar with the idea of a normal "bell curve" distribution representing R&D investment over time. As a technology is better understood and a product succeeds in the marketplace, R&D investment increases, and over time as new technologies advance, the R&D investment in the original technology and product wanes. The integral represents the total R&D investment over time. The function can also represent the "knowledge" gained or the increase in the intellectual asset base.

Good companies develop and invest in new successive waves of sustaining technologies. So, looking at Microsoft's success with PC operating systems, DOS was replaced by a greater investment in a more innovative Windows, was replaced by a larger investment in a more innovative NT.

This also fits nicely with Christensen's original observations about incumbent companies being good at sustained innovations and well run companies knowing how to jump from technology to technology along a sustaining innovation path. This all makes sense when considering a single company's R&D investment. It applies equally well to Sun Microsystems when considering that the steeper slope of successive sustaining innovations was on the hardware side versus the slower (but not inconsiderable) investment from SunOS (a BSD variation) to Solaris.

The investment curve for projects like Linux and Apache, with lots of individual and corporate contributors, still looks like a bell curve, but the contributions might better be viewed as a stacked bar chart. Individual contributors invest to meet their specific needs. Because there is enormous overlap in their common needs, they all share the overall investment.

Individual contributors get enormous return on their investment. (One gives a few bug fixes to the Apache httpd team, and in return one gets an entire HTTP daemon.) Corporate contributors give for the same ROI. They get enormous return on their investment in technology they use in a product complement space or as a component in their overall solution to the customer. (Before someone takes issue with my Red Hat example above below, understand the "solution" in the customers mind was "UNIX-like servers on inexpensive 'PC' hardware" and not "Linux".)

Christensen was careful in subsequent work to point out that the disruption wasn't about technology but about business model. The disruption often started when someone assembled standard cheaper lower performing parts into a solution that solved a completely different need with a very different cost basis. The new solution begins its own sustaining innovation curve until the new technology can compete with the incumbent compared against the criteria about which the customer/consumer cares.

The disruptive business model isn't about Linux so much as the ability for corporations to do collaborative development at the component/complement level in a "frictionless" well-managed Internet-enabled community. (The original OSF/1 shared-development of a UNIX-like replacement failed: too few players, too much politics.) Linux is a much stronger disruptive business solution as a way to handle a particular sourcing problem.

It would be interesting to consider the difference between projects with enormous inbound code contribution (versus all the other strengths a well run community brings to the table) distributed across a wide group of players like we see in the Linux and Apache projects, versus projects managed more tightly by a company like MySQL was. Another interesting attribute of this collaborative business model to investigate is how contribution mutates over time. Christensen's work demonstrated that an incumbent gets in trouble when they begin to over-deliver on functionality for attributes their customers consider important. The customer can't absorb the sustaining technology innovation any faster and literally won't pay for it. The slope of the sustained innovation of the competing technology is sufficient to cross into the space covered by the incumbent's solution.

In a shared collaborative development environment, however, because the technology isn't being driven by a single corporate entity, the community of corporations collectively contributes to their own needs and the technology may (i) stabilize where it needs to stabilize, and/or (ii) be taken in new and interesting directions. There is less pressure (if any) to over-deliver with new innovation. The consumers are the developers, but it's a very broad community indeed. This is what I believe just happened with the MeeGo announcement and the combining of the Nokia Maemo and Intel Moblin projects. This is a great inflection point for Linux into the new mobile Internet device space.

One only need read the report from the Linux Foundation charting the growth statistics in the Linux kernel to understand the enormous value generation happening release-on-release, four times a year. Using the Ohloh rules-of-thumb of US$55,000 per person year one gets US$142M of value creation in the 2.6 Linux kernel. The fact that some business models have been destroyed (Sun), or threatened (Microsoft) doesn't mean there's not enormous ongoing value creation in the technology.

Ohloh value chart for Linux 2.6 kernel.

Neither is intellectual property being "destroyed". Again, this is a disruptive business model discussion. Intellectual property is a business choice made on how a company will protect certain intellectual assets as legal property. Which assets to protect, and how, and which property to defend is a business choice based on the cost model a business uses with respect to turning assets into value propositions customers will buy. When a group of companies chooses to collaboratively develop a technology complement/component, they're making a business model choice on how they will selfishly share certain intellectual assets. Nothing was destroyed along the way.

OSBC Keynote Competition between Sun, Microsoft, and IBM — IBM Won

I continue to stand in awe of IBM's ability to market. Here's how the line-up of executive keynotes went down this morning at OSBC.

First up was Jonathon Schwarz, Sun CEO. Jonathon always gives good presentations, although he seemed a little brittle this morning. His messages this morning:

• It's all about the cloud.
• We are it.
• It's still about business.
• [Please] buy our hardware.

Microsoft stepped in with Robert Youngjohns, President of Microsoft North America. An excellent soft speaker that quickly established his historical geek credentials and breadth of technology interests beyond Microsoft tech. He apparently even worked at both Sun and IBM. His messages this morning:

• It's all about interoperability.
• We get it [finally].
• It's still about business.
• [Please] buy our software.

Robert Sutor, IBM VP of Open Source and Linux, then finished with a virtuoso performance. It was about collective action. His messages this morning:

• It's all about open source and open standards.
• Linux is an amazing mature flexible solution for the world's information processing problems. "It's not a hammer, but a collection of fine tools." Our involvement in the Linux community is ten years old.
• It's NOT about business. It's about solving hard problems. [A nice paraphrase of Drucker's the purpose of a company is not to make money.]
• We [collectively] have the tools to solve these problems. We [IBM] can help you.

I think the only time he actually mentioned IBM was when he said in passing that they had broken the petaflop barrier last year. It was masterful. It was designed to remind you that IBM has depth of technology experience, and the tools (people, hardware, software, knowledge) to help you with your information management problems. It was a conversation starter between the company and customers. It wasn't about selling technology but rather tailoring solutions — just tell us what you need.

It doesn't matter what you think about each company. Good executive keynotes are performance art delivering a marketing message. (Bad executive keynotes are product announcements to audiences that paid good money to learn something other than the latest thing they're going to be forced to buy.) While all three presenters today are consummate performers, one message was about solving problems, the other two about selling stuff.

Long after Sun's been cut up for parts the way DEC was, and long after Msft stops trading, IBM will still be humming along as a technology solutions company with a mixed-margin portfolio offering, terrifying as that might seem for some. Well done, Bob.

A Standards Primer

Photo by Dauvit Alexander

I have recently had several long discussions about the motivations and machinations that surround the development of technology interoperability standards. Over the past few years, I've also captured a lot of ideas and experience on the blog. I pulled it all together into one place in the following paper, "Understanding Technology Standardization Efforts" (PDF 86.2K).

For the record, I was a long term participant in the POSIX and UNIX standardization efforts. I was a working group participant, balloted many pieces of the standards and their amendments, and participated in the management of the standards effort at the IEEE as both an inaugural member of the Project Management Committee and a voting member of the Sponsor Executive Committee. I was an international participant at ISO, as document editor, and participated on behalf of three different national body delegations (Canada, U.S., UK) over a number of years. I began my participation in 1989 as a customer (working for EDS with GM and the U.S. government as their primary POSIX-interested customers), but quickly ended up as a vendor, working for MKS developing a conforming POSIX.2 implementation that formed the basis of implementations from IBM, DEC, HP, UNISYS and Sun. In 1995, I put my money where my mouth was on the importance of applications portability, standards and the coming juggernaut of NT and co-founded Softway Systems, implementing the POSIX and UNIX standards on NT to enable UNIX applications to be directly migrated to the platform. A large amount of free and open source software was incorporated into the product. Softway Systems was acquired by Microsoft in 1999, and I worked there for five years. Over the years I've been in regular contact with people standardizing C#/CLI, the Linux Standards Base, and ODF.

Several friends and colleagues from the standards world have reviewed the paper and provided excellent comments. The paper is much better for it. All mistakes obviously remain my own.

FTC Settlement on Patent Abuse and Standards (and Open Source Implications)

Andy updegrove posted great news this morning on his standards blog. The US Federal Trade Commission (FTC) announced its resolution that a patent licensing promise made by a patent holder in a standards setting process is binding on a future holder of the patent.

National Semiconductor participated in an IEEE standards effort to develop the 100 Mbps "Fast Ethernet" specification in 1994. Two key (pending) patents were under their control, and they licensed them clearly, cleanly, and cheaply for US$1000 flat one-time fee to all takers. The patents changed hands, first to a group (2002) that wanted to change the licensing deal, then to N-Data (2003), a patent troll that was aggressively pursuing a changed expensive license.

Andy sums it up best:

"[T]he reliance upon promises made with respect to patents is of concern not only in the standard setting context, but with respect to open source software as well. The details of the settlement will provide significant guidance as to how the regulators would view similar conduct in an open source setting. Moreover, in the case of N-Data, the FTC has acted aggressively while acknowledging that the actions at issue might not rise to the level of violating relevant antitrust laws. In doing so, the Commissioners provide strong assurance to participants in standard setting that the FTC recognizes the importance of standards in the modern world. Finally, the details of the actual settlement demonstrate a willingness on the part of the FTC to craft a detailed and savvy set of requirements that addresses the realities of actual licensor-licensee conduct in the marketplace."

This is great news in the context of patent promises made to open source developers from the likes of IBM and Sun Microsystems, and through mechanisms like the Open Invention Network and the Linux Foundation's Patent Commons Project. It removes FUD slung around with respect to patents and intellectual property in both the standards arena and open source project communities. Each is a collaborative effort with significant economic importance and impact. Each will hopefully see the intellectual property landscape a little more clearly now.

Full details on Andy's blog.

GOSCON Discussion on Open Document Formats

Deb Bryant is blogging, which is great news. Deb is of course the creator and executive director of the Government Open Source Conference (GOSCON) that is held each year in Portland, OR.

The closing session of last Fall's conference was an executive panel on open document formats that included representatives from Sun, Microsoft, IBM, and Adobe. Deb's latest post points to the video of the panel, as well as the ongoing GOSCON forum discussion between the panellists. If you're interested in either the open document standards debate or government involvement in free and open source software, I would encourage you to have a read.

MySQL and Sun

Sun Microsystems wants to acquire MySQL AB for US$1Billion. Stephen O'Grady (Redmonk) posted his always excellent deal analysis on his blog. I would urge you to have a read. (It also is a great collection of the relevant URLs.) I'll fit a few extra observations around it. Jonathan's blog post sets the tone for Sun, while Zack's post sets the MySQL perspective straight. But first, congratulations to Monty Widenius and David Axmark for their original vision, and to Mårten Mickos, Zack Urlocker, and Brian Aker and the rest of the team that has built so much value into MySQL AB. Congratulations also to Sun for having the vision to acquire MySQL.

Christensen is the first to point out in his presentations that what he originally called “disruptive technology” in The Innovator’s Dilemma was later observed to be a “disruptive business model” by Andy Grove during a presentation at Intel. (The book had already gone to print, and so we now have loads of technology companies running around thinking their technology is more important than their business models.)

Christensen models demonstrate that a disruptive business model generally begins with an inexpensive “inferior” technology offered at a lower price in a different margin business model that enables customers either to do something they’ve never been able to do or to avoid the expensive control point. The “inferior” technology matures as the business grows and eventually the business grows into mature markets (i.e. the business model is disruptive). Think Linux from undergraduate project in 1991 to the IBM and Red Hat/MSDW Wall Street keynotes at LinuxWorld in 2002. So too with MySQL.

Oracle hammered away at the message that MySQL was missing key features high-end relational databases needed to support mission critical applications. But MySQL is the Web’s database. It was created with a different vision and goal in mind, and enabled an entirely new group of customers to make it the “M” in LAMP. It is gaining the features needed to eventually allow it to be an Oracle replacement, but that isn’t the goal today, nor has it been the business model. This means that any way Oracle executives try to measure the database (transactions, scale out, etc.) or the company (units, revenue, etc.) will leave them scratching their heads. To Oracle’s credit, they quickly understood that it isn’t that MySQL is free or open source software that’s their [future] problem but the business models around it that are disquieting, and so adjust their rhetoric accordingly.

I raised questions about cultural mixing when Red Hat acquired JBoss, but I think it is less critical this time or rather my questions about the processes and values with respect to customers will be less of an issue. MySQL should be a separate enough line of business for the foreseeable future.

I think Stephen’s analysis from the Sun angle is perfect. Sun continues to evolve its solution to customers to enable it to be the heart of the Web. Owning a word in the customer’s mind is the pinnacle of marketing excellence. But complex network computing solutions aren’t quite as simple as “Kleenex”, “Xerox” or “Escalator”.

IBM evolved to be a company that offered their customers all the technology choice AND the expertise to knit it together into a coherent unique customized solution. It doesn’t matter how imperfectly true that statement may or may not be -- but rather what customers perceive it to be. That doesn’t mean IBM isn’t happy to push an IBM-centric technology agenda, but it’s the customer relationship that’s important (since they’re the people with the money and the choice) and IBM focuses on ensuring they have the breadth of product offering to best map their customers’ self-selected heterogeneous needs. They are no longer the “Selectric” company and have even evolved with the networked IT world to be more than the “mainframe” company. IBM continues to build their message around open systems, standards, and open source, which suits their customer’s heterogeneous decisions. IBM is the “data center” company.

Sun is also evolving its message and its offerings to suit their customers heterogeneous web-based applications needs. They’re building relationships with IBM, Microsoft, the Linux community, and now they’re acquiring MySQL. Sun is in a position to deliver a heterogeneous technology base to their customers’ heterogeneous needs and to shape a marketing message that began as technology slogans around “the network is the computer” and “the dot in Dot Com” into a customer centric idea like the “Web” company. That doesn’t mean they won’t meet severe competition from IBM for which idea word is more important in customers’ minds, but they’re still in the game after being counted out too many times in the past.

Acacia Patents, Red Hat, and Novell

Groklaw reports a patent infringement suit has been launched against Red Hat and Novell over Linux.

Take a deep breath. Be calm.

When the SCO Group suit was first launched, I was still at Microsoft. A number of people in the strategy team where I worked were excited because "finally the free and open source world was going to understand the importance of intellectual property." (These Microsoft employees didn't appreciate exactly how careful the community is about IP.)

I pointed out the following logic back then: IBM was investing a billion dollars in Linux. IBM could therefore allow a certain amount of legal debate to occur to determine how real a case SCO Group may or may not have had. A few millions in legal fees pales in comparison. In an absolutely worst case scenario, IBM could acquire SCO Group for O(US$150M) or less after a couple of years of legal punishment and the problem would go away. Again, a few millions in legal fees would be a cheap exploration. The SCO Group suit was NEVER a threat to Linux growth and deployment. Did the FUD slow the adoption curve, no doubt. But did it make any material difference in the use and growth of Linux? Hardly. And it's over now.

Microsoft should itself understand this business calculus around IP. They offered a lot of money to settle the Eolas suit. Eolas got greedy and refused the settlement. They "won" a half billion dollars in court. Now, when you're about to pay out a half a billion dollars, you can afford to spend a few millions more contesting the decision. Indeed, with that sort of money at stake you can afford to hire the cream of the graduating classes of Harvard, Yale, and Stanford Law to spend some time getting creative.

The U.S. Supreme Court continues to involve itself in the broken patent system. The Linux Foundation and the Open Invention Network are both geared for this particular fight. I have confidence that the Groklaw community will step into the breach of reporting and investigation again. IBM, Intel, and HP have a vested interest in the outcome, and nobody plays IP games the way IBM does. Over the next few weeks, lawyers will come together behind the scenes from all the interested parties on the defending side. Hopefully egos won't be too large, and a coherent plan of negotiation will emerge.

Some of the more interesting questions for me will be:

• Why Red Hat AND Novell?
• Why not Microsoft? (Acacia went after Apple who settled. Microsoft would seem to have deeper pockets than Red Hat or Novell. It would seem to be the more interesting business discussion.)
• If Microsoft is not involved, should they be? If Apple settled, and then this suit settles, Microsoft should know they're next on the list. Or are they trusting IBM et al to win this one for them?

To quote one of my favourite lawyers in this space:

“If the F/OSS community wants to be in commercial space, community members will have to learn to deal calmly with IP litigation. The F/OSS production model will work where it makes sense, and it will not work where it doesn’t. It’s really just that simple. Particular claims in individual suits—even one against a flagship program such as the GNU/Linux OS—will not determine the fate of the community. Such cases present factual issues that will get resolved one way or another; they do not represent a crisis for F/OSS production as a whole. Norm entrepreneurial rhetoric that plays off such cases should be treated as entertainment. Enjoy it if you like it, take inspiration from it if you must, but don’t confuse it with the way things actually get done.”

I'm sure some former colleagues at Microsoft are excited. Mr. Smith and Mr. Ballmer most assuredly. But just as with the SCO Group litigation, there is no reason to celebrate. They shouldn't confuse this with "the way things actually get done." Pax.

SCO Group Finale!

Stephen Shankland says it all. 

Copyright ©  Despair, Inc.

Update (24-Sep-2007, 19:35):  A friend pointed this comic out.  I got into this battle while I worked at Microsoft and SCO Group first sued customers.  I pointed out it was a suicidal thing to do if they were a "real" company, and not the anti-VC (i.e. a company that acquires old technology and litigates money out of the marketplace.)  Vendors will occasionally sue customers in 1:1 situations e.g. a license dispute, in a similar way that customers occasionally sue vendors in one off disputes for non-performance, but a vendor NEVER sues customers over general things like IP infringement.  It sets a tone for all customers that is ... suicide.  Your top sales people will simply leave.  They know customers are now viewing business with the vendor as possibly tainted by lawsuits.

I also pointed out that IBM wasn't going to let anything bad happen.  A company investing a BILLION dollars in Linux could afford to weather even a few tens of millions of dollars of legal debate over several years while they determined how bad it may or may not really be.  Frustrating and distracting?  Certainly.  So what?  The customer is king. 

IBM Joins OpenOffice.org (The Quick Analysis)

It's official — IBM has joined the OpenOffice.org project. [There's good reporting and analysis from Andy Updegrove and Redmonk's Stephen O'Grady.  Update (12 Sep): Here's Andy's interview with IBM's Doug Heintzman, Director of Strategy for the Lotus division.] 

Here's the back of the envelop analysis.

From the OpenOffice.org community perspective, I'm guessing Louis Suarez-Potts (OO.o Community Manager) is feeling good to get a new injection of code/energy.  This is great for the community.  The OpenOffice suite keeps getting better and better, but new blood with new code could provide a much needed boost.

Overall Sun Microsystems is probably [very] happy IBM is supporting OpenOffice.org directly.  This is a much better situation than IBM building some form of ODF development platform inside Eclipse.org to enable ODF over OOXML, with OpenOffice.org hit as collateral damage.  [This would be sort of ironic since Eclipse helped to pull the Java centre-of-gravity away from Sun, and Visual Studio was collateral damage (or icing depending upon one's perspective).]  Collaboration is the much stronger market play here for Sun and IBM, and most importantly OO.o users and customers.

From the IBM perspective, this is brilliant business as usual.  ODF is the global leverage they need to crack open the Microsoft Office marketplace.  (I've written ad nauseam that ODF and Microsoft Office is just another example of Christensen economics in motion.  Microsoft has over-delivered on Office.  They mistakenly think more innovation faster is the answer.  Let the chips fall where they may.)  IBM will likely use OpenOffice to front-end Lotus and the Domino server product lines, and anchor their business messages to their customers's needs around standards and open source software, much the same as they do with Eclipse and the Websphere developer world.  Their claims are that much stronger with this announcement.

Sun gave Gnome a huge leg up about four years ago when they contributed a wealth of their accessibility technology R+D.  IBM will now contribute the same into OpenOffice.org.  It means they can easily manage their way through U.S. government procurement regulation in this space.  Once again brilliant IP management from IBM, and good for OO.o users and customers.  [For those that have heard me present, this is exactly what I mean about having a mature intellectual asset strategy, and being generous exactly in order to play to win.]

A strengthened OpenOffice.org will help Novell immeasurably to keep their distance with Microsoft on the desktop.  Novell has done a lot of work with OO.o in the past.  They have a great desktop Linux product.  They can simply take a ride on this one and eat the benefits.  There's really nothing Microsoft can say here.  Regardless of any agreements around OOXML that Novell may have with Microsoft, Novell comes out clean on the ODF front as customers demand it.

I noticed the press release includes a quote from Beijing's Redflag Chinese 2000 Software Co., Ltd., the makers of Redflag Linux and RedOffice.  This is significant.  Apparently last November I was one of the first people to blog about the document format work in China that led to a Chinese national standard (UOF).  Redflag Chinese 2000 was implementing UOF in Red Office (the Chinese packaging of OO.o).  There is work afoot to harmonize ODF and UOF.  And clearly Redflag Chinese 2000 remains committed to the OO.o effort.

So despite the bluff and bluster, the OOXML camp inside Microsoft should not be sleeping well at this point. 

"Don't blink.  Blink and you're dead.  Don't turn your back.  Don't look away.  And don't blink.  Good luck!" — the Doctor

Microsoft Whining for Sympathy about OOXML

So what's the real message with Microsoft's open letter whining about IBM and ISO and the Microsoft driven OOXML standard? 

• IBM is out performing us? 
• We need sympathy after our record quarter? 
• People should ignore our anti-ODF lobbying in Massachusetts because that was just business as usual? 

This is professionally embarrassing.  It is certainly not the company for which I used to work.  (CNet article is here.)