Can open source companies innovate?

When it comes to open source vendors and innovation, Bill Gates doesn't waver. At Microsoft's annual Professional Developers Conference (PDC) recently, Gates said: "I don't think that someone who completely gives up licence fees is ever going to have a substantial R&D budget and do the hard things, the things too hard to do in a university environment."

JBoss CEO Marc Fleury seems to agree with the idea that building quality software calls for dedicated developers. He calls his company's business model "professional open source", and he prides himself on hiring programmers to work full-time on open source code. But can the classic open source business model really provide the kind of revenue needed to support true innovation?

You can't make money giving away products. You can, however, profit by selling support and services around those products, and that's the way many open source companies, including JBoss, are run. Customers can download the code for nothing, but if they want somebody to call when things start falling apart, they have to pay.

The interesting thing about this model is that when you strip it down to brass tacks it looks an awful lot like an insurance business. Pure open source companies are in the preventive maintenance business.

Also, simply adding features isn't innovation. Innovation means taking risks. It means R&D, which might lead to marketable products or it might not. It's a gamble. In short, innovation is expensive.

So it seems to me that, unless I'm missing something, Gates might be right. Without additional revenue from software licences, "pure" open source companies have two options: either charge support fees that are substantially higher than those of proprietary software vendors, or else forget about innovation.

Which leads me to my next question: is that situation so bad?

Let's say this is the shape of the software industry for the next 10 years. A proprietary company comes up with an innovative idea and it's successful. The open source community scrambles to duplicate this idea. Eventually the open source version matures, it catches on, the product category becomes commoditized, and customers gravitate toward the lowest-cost option. Meanwhile, a new innovative idea has come along. Rinse, repeat.

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