Luke Hohmann on Licensing

Artima has an excellent interview with Luke Hohmann regarding software licensing. Luke states that he isn't quite convinced that there are any viable open source business models to date.

“Bill Venners: In your book, Beyond Software Architecture, you write, "As of the writing of this book, I know of no provable long-term sustainable business models for open source software."

Luke Hohmann: I think it's too early to see if a purely service-oriented model based on open source is economically stable. I think we have some evidence with companies like SleepyCat software that some open source business models proving sustainable. I'm not convinced that RedHat is sustainable. I hope that they are. It's just that a pure service-model offering is a really tricky business to get big and successful.“

What Luke is missing is that there are plenty of pure service businesses out there that do quite well. This model may be new to the software industry, but it isn't by any means new to the business world. However, it is true that service based business don't scale anywhere near as well as product businesses. The reason is quite simple, producing quality products is generally just a matter of getting the design right. Once the design is good to go, production can usually be automated with existing equipment, making the cost of producing additional products relatively low. This is especially true for the software industry, where product production costs can easily get down to the pennies per unit (and that assumes you aren't using ESD). However, in the service industry, adding additional customers generally means more employees, which means more office space, more insurance to pay, more potential lawsuits, more mouths to feed, etc. Where a machine might be able to whip out 1000 units in the space of an hour (which could mean $400,000 in potential profits if you are selling copies of office), a single person can probably only service a handful of people in the space of an hour. Even if you charge your customers $10,000 per call, you still are not going to make anywhere near the same amount of money. Moral of the story, don't expect the next Microsoft to come from the open source community. It just ain't going to happen.

[1] http://www.artima.com/intv/license.html

3 Comments

  • The dual-licensing model, like Sleepycat (and MySql, QT, etc) works a little better. License under GPL, and for anyone who doesn't want to GPL their own code, sell a commercial license.



    Doesn't exactly work for enduser software but it's great for libraries.

  • You are confusing gross profit with profitability. Well-run consulting firms are among the most profitable in the world.



    The marginal cost of software is very low, but there is a huge up-front cost to extending it's reach. A large fixed cost plus small variable cost.



    Consulting firms have minimal fixed costs and a large variable cost. The key then becomes managing your pipeline to make sure your consultants are always fully engaged.



    Plus, Microsoft is in a league of its own in the software industry. It's inaccurate to generalize their success across the software industry.

  • Open source software is not a product. It is an economic effect. Programmers are getting paid to product open source software by companies that want to commoditize their competitor's complementors. The result of this is that the compeitor's revenues for the now "free" function drops. Open source is a comptetitive strategy and not the artifacts it produces.

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