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Making money on a free lunch
Donald
K. Rosenberg
Stromian Technologies
August 1999
The software may be free, but that doesn't mean you can't
make money in open source. Consultant Donald Rosenberg tells how a
developer with open-source skills can choose among various business
models and licenses. Developers wanting to become software vendors will
have to decide how much control they want over their software, from full
proprietary protection to a completely open license (GNU General Public
License), or degrees in between, such as the Mozilla Public License.
Donald introduces you to the key licenses and explains how they differ
from one another.
It's true that open-source software is free for the taking and that
millions of copies of open-source programs, drivers, scripts, and
extensions are downloaded over the Web with no money changing hands. It's
also true that open source is a growing market, and that more people are
making money at it. So how do you , a developer, go about it?
The simplest, easiest way is to keep on doing what you love: writing
code. There is a growing demand for people with your open-source skills.
Your chances are greater than ever of finding a job using your expertise
in Linux, sendmail, Apache, Perl, Scriptics, or Python. You can be a
regular employee or a contract employee, moving from job to job.
But you're probably reading this because you want more independence and
would like to go into business for yourself. As an employee, you need one
main thing: your expertise as an open-source expert. As an independent
developer, however, you will need not only your open-source expertise, but
also the ability to be your own boss, marketer, salesman, and business
manager (are you sure you want two full-time jobs?). In short, you're
going to have to go beyond being a developer.
Types of businesses
One
possibility would be to sell Penguin mugs, t-shirts, and such to the
open-source community and to anyone else who wants them, but this business
would make minimal use of your developer skills. Strategies that would
call on both your open-source and business skills would be:
- Systems integrator or Value-Added Reseller (VAR). Any
salesperson in a new business has to be an evangelist: You will have to
promote both your business and open source. A systems integrator sells
and installs computer systems, both hardware and software. You can set
up small businesses with remotely-manageable, never-reboot Linux
systems, or you can install Internet (Web and e-mail) operations in any
size business. You are buying, reselling, and adding your expertise to
deliver the best solution to the customer's problems. To help developers
get into this business, some Linux lovers have set up a Web site telling how to run a
Linux consulting business.
- Help desk or training (support). This business is not
installing new systems, but helping users keep their open-source systems
running. Unlike smaller systems integrator operations, your support
organization will need to hire people to man the phones (around the
clock for important customers); training can be done remotely or on
site. You will need to plan on pricing and procedures for sending out
personnel to solve problems on site as well. Your business might
contract directly with end-users, or subcontract to a systems integrator
to provide the support for the integrator's customers.
- Custom software development. Think of yourself as a systems
integrator without the hardware sales. You custom-produce applications
or Web sites to solve the customer's problem. You might be working
directly for the customer, or for the end-user's systems integrator. If
John Ousterhout is right about the growing role of scripting in
application development, there will be plenty of work for Scriptics,
Perl, and Python developers. If you are careful to work strictly with
open-source licenses, you will be able to re-use your work for other
customers and build up a collection of solutions. If you are working
with proprietary software, be sure to have your customer agree how much
of the work you will be able to keep title to, so that you can use it in
future projects. If nothing is said in the contract about who owns the
resulting work (such as, "this is a work made for hire," meaning the
customer owns it), then the presumption is that you, the developer, have
title to the work, and you can then grant permission for the customer to
use it in the form of a non-exclusive license. One change that open
source will make in this market is that developers will no longer be
able to keep their customers captive by having closed or obscure code
that no one else can understand. If you are following open-source
procedures (that is, supplying unobscured source code), then you will
need to rely on good service and pricing, besides good product, to
retain your customers.
- Hardware vendor. The hardware comes with an operating system,
of course, and often with additional software. Systems integrators don't
make much money on hardware (they add value in understanding what the
customer needs, installing it, and making it run), but notice that both
resellers and manufacturers are doing well with hardware carrying
open-source software. Cosmos Engineering began by selling hard drives
with Linux installed and moved on to computers; VA Linux and TurboLinux
(formerly Pacific HiTech) are doing well selling systems. Manufacturers
of specialized hardware, such as Cobalt Networks and Whistle
Communications (now part of IBM), provide a complete Internet-server
installation, ready to plug in. You can use off-the-shelf hardware and
open-source software to make a ready-to-run product. You make your money
on the value you add in tuning everything to work together efficiently,
right out of the box. Your customers will be both end-users and systems
integrators (the integrators will provide any customization needed by
their end-user customers). End-users could include any business, but
especially ISPs.
- Software publisher or Independent Software Vendor (ISV).
There is money to be made in distributing open-source software; the key
is to add value in addition to the bare software. The most familiar
example is Red Hat Software, which makes money distributing Linux in
boxes while it gives it away over the Internet (and while other people
sell Red Hat Linux on $2 or $3 disks). But having a leading brand does
not mean there is no room for others. Users obviously have different
preferences, and the smart publisher will serve those preferences. SuSE
is doing well around the globe; Caldera has targeted the wing-tip crowd;
TurboLinux has moved from a hardware vendor to a Linux publisher with
its namesake distribution; and Slackware and Mandrake have loyal
followings. A software publisher can publish the work of others, or it
can develop its own products. This is the high-wire act of computer
marketing. Profits are higher here, but risks are greater, and problems
of marketing and distribution are at least as difficult as the
development problems. It is hard to get both right. If you're publishing
a distribution of Linux, at least your customers know what Linux is; if
you're publishing applications, the education burden is all yours.
Listening to users
And now
a word of caution: Be sure your product is something other people want.
People who truly love technology--like developers--admire technical
accomplishment and ingenuity for their own sake. Add to this prejudice the
pride of parenthood, and you have a serious blind spot. End-users--who
don't spend every waking moment thinking about cool software and who focus
instead on making their own lives and work easier--do not admire
technology just because it can be done. They are unlikely to understand
your product unless they can relate it to their own needs. These people
are your customers.
With proprietary software, you test the market by putting out your
software as an executable, as time- or function-limited shareware or as
freeware, and then follow up with your takers to see how they like it and
are using it. Start with a few customers, and listen carefully to their
reactions. Ask them what changes they would like--you may be surprised to
find that they want the software to be simpler. If they want it simplified
and say their friends would like it, you may have a horizontal application
on your hands (or even a killer app!). But if they want customization of
it, you may be headed down the road to becoming an integrator rather than
an application vendor.
In these small-scale beginnings you will be more successful if you
stick with a niche market, generally building on your own expertise in
that niche. Because a niche market is a small, specialized neighborhood,
you can hope people will talk about your product and bring you more
customers. Finally, if you did have a widely popular product, a Very Large
Software Company might start to integrate your functionality into their
Very Large Product. You are safer in a niche.
With an open-source product, your software is immediately available to
anyone who can find it. Although feedback from the development community
will give you some guidance on what end-users will want, remember that
unless it's a tool, developers are not end-users. Just as with a
proprietary product, you will have to promote your product to the niche
users most likely to want it, and you will have to heed their suggestions
about the product. A niche strategy lets you focus your resources for the
best results.
Going to market
How
rapidly can you get up and going? While open-source developers like to
point to shorter development times and higher quality of their software,
the truth is the newly-formed companies that make the most noise are those
with products that have been around the longest and have a proven market.
Because the developer/sysadmin niche is probably the most heavily
developed part of the open-source market, it's not surprising that the
marketed products described here are tools rather than end-user
applications.
Scriptics Corp. was set up to commercialize Tcl/Tk. The core product
remains free; Scriptics does training, enhancements for niche markets, and
other customization. In-house programmers and a useful Web site help keep
future development centered on Scriptics.
Sendmail, Inc. commercializes the famous sendmail program by providing
consulting, a large part of which involves installing and configuring
sendmail for sysadmins.
Sleepycat Software started with a shorter time frame, and from a
smaller base. Like the founders of Scriptics and Sendmail, the founders of
Sleepycat originated their software as an open-source project (Berkeley
DB) and then formed the firm to commercialize it. Their database is
available under an open-source license to any user or vendor who agrees to
pass along all the source code for the product and any modifications.
Sleepycat will issue a special license to those vendors seeking to keep
their modifications private. This is an OEM license; that is, Sleepycat
software becomes part of the vendor's product. As copyright holder,
Sleepycat can distribute its software under any license it chooses.
Digital Creations puts out the open-source Zope application server. The
software is free, and there are no license fees on the derivative Web
sites. The tool attracts attention to the company's Web site development
business and serves as an advertisement for the technical prowess of its
inventors. Users may take advantage of the free software, but Digital is
betting some customers would rather not go to the effort of learning and
using it, but would rather hire its creators for the job.
Types of licenses
It's the
open-source licenses that make open-source software so different from
other software, and these licenses are hard for both insiders and
outsiders to understand. Just remember that the license you choose will
depend on what sort of business you want to run. Before we talk about
specific licenses, remember this: Always put a copyright notice on your
software. If you really intend to make money with it, register the
copyright to increase your chances of winning any future disputes.
As copyright holder, you acquire a set of rights, any of which you can
pass on (or not) to the people to whom you license your software.
Proprietary software licenses, for instance, pass on very few of these
rights to customers. As a copyright holder, you can even use different
licenses with different types of customers. For instance, you could use
the GPL for customers who agree to keep the product and changes to it
open, and another license (BSD-type or X license) for customers who want
to keep the source code for their changes to themselves. All three of the
licenses described below are approved by the Open Source Initiative as conforming to
the Open Source Definition.
-
GNU General Public License
(GPL)
If you want your software to take advantage of the
expertise of the programming community, and have the widest possible
distribution, choose the GNU GPL. Developers will be more likely to
contribute if they do not feel that their contributions are going to be
taken private by someone, and you will enjoy unhindered distribution of
your product. Development effort will center on you (as long as you keep
in touch with your developer community). You'll make money, not on the
software itself, but on supplying it in convenient, tested form, in
proprietary enhancements (which must not be compiled or statically
linked with the GPL'd code), and in customization. You can feed these
improvements back into the GPL'd code as the program makes progress.
-
BSD or X License
If your
end-users are vendors who intend to modify your product and sell it to
their market, they may prefer this type of license, which keeps
modifications private. The vendors then know they are the exclusive
purveyors of their enhancements. There is, however, an incentive for the
vendors to feed their improvements back into your code: Once their
proprietary improvements have been imitated by their competitors,
they'll grow tired of supporting the changes themselves. Once the
advantage of a change is gone, it's easier for the vendor to make it
public and to move on to other private improvements in search of a
competitive advantage. The X Window System
License for X11R6.4 at the Open Group site is the simplest example
of a BSD-type
license.
-
Mozilla Public
License
This license enables you
to protect your code while sharing it with others. Your software (and
any improvements to it) are divided into two parts: the protected
("covered") portion and the contributed portion. If people want to
modify and distribute the protected portion, they can, so long as they
also distribute the source code for the modifications. If they want to
change the software but keep their modifications private, they can
distribute them without source code and must access the protected code
only through its API. If they need to make changes to the API of the
protected code, they can, as long as they distribute the source code to
those changes. This license makes a neat bridge between the fully-open
world of the GPL and the closed world of the BSD/X licenses.
Proprietary opportunities with
open-source software
Finally, there are opportunities to
make money with proprietary binaries using your knowledge of open-source
software. For instance, Loki Entertainment Software noticed that games
were popular with Linux users, and that many popular games were not on
Linux. They licensed the porting and distribution rights for Civilization,
Railroad Tycoon, and other games; did the porting; and then licensed to
Macmillan Publishers the exclusive distribution rights for these Linux
games. Macmillan had experience bringing Red Hat Linux into wide
distribution, and it fed the Loki games into this channel. Result: Now you
can buy the Linux version of Civilization anywhere. Loki is working to
expand its market by involving Yellow Dog Linux in porting the games to
the PowerPC. All of this was done in a year.
The new marketplace
As the
Linux market grows, there will be more users than Linux experts. This will
provide opportunities for the integration and support businesses described
above. The value that open-source people place on personal independence
makes it likely that most of these businesses will be small.
The open-source community has long been working and waiting for the day
when Linux becomes widely used, and developers will be able to develop for
a popular platform on which no vendor has a secret advantage. But the
vendors in this new world may find it looks much like the world we now
have. There will be no Very Large Software Company to scare ISVs into
sticking to the niches, but any vendor with a horizontal product (that is,
one in wide use), will face a host of competitors. Both the number of
competitors and the availability of useful free products will help drive
down application prices and profits. And vendors of widely-used
proprietary products who keep their prices too high may find their
products cloned! As a result, vendors will find they can make more money
in the niches--where they are today.
One of the largest shifts in the software world (if it happens) will be
the migration to Web-based applications. Linux is a natural for such an
environment because of its remote-management capabilities. This predicted
shift will involve not just a different technology, but a new economic
model as well: Application software will become less of a product and more
of a service. Competition between application vendors might take place
along one of two different lines: as proprietary products, available from
a single vendor or its multiple online service dealers; or as open-source
products, maintained and improved by the community, but available from
integrators or support organizations. These organizations will receive
annual fees in return for installing and supporting the applications in
their customer organizations.
There are no guarantees you'll make a fortune in open-source software,
but there are increasing opportunities to make a living in this new world.
Just keep your eyes open, find a need, and fill it.
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