HBS Open Source Case: Salvation or Suicide

Harvard Business School recently published a case on whether a software game company, KMS, which makes a device which permits amateurs to sound like professional musicians should adopt an open source business model. http://harvardbusinessonline.hbsp.harvard.edu/b02/en/common/item_detail.jhtml?id=R0804XThe case demonstrates the increased recognition of the strategic importance of decisions about the adoption of the open source software business model. Unfortunately, the case does not reflect the developments in business models for commercial open source software. The case focuses on an open source business model based primarily on providing technical services. Yet most commercial open source companies have adopted a dual distribution model. Moreover, as Marten Mickos noted in his 2007 keynote at OSBC, commercial open source companies have thirteen ways to make money, with four of them which he identifies as “scalable”. In addition, the analysis in the case if confused because KMS’ product includes hardware as well as software. Such hardware could give KMS a substantial advantage against competitors trying to provide an open source version of the product. In my experience, virtually all decisions about the adoption of open source business model deal solely with software products. Consequently, I think that the case would have been more powerful (and more realistic) to focus on case in which the product was solely software.

The Case Commentaries are very interesting. Jonathan Schwartz of Sun Microsystems, Inc. makes the critical point that KMS needs to determine its business goals before the company can make a meaningful decision about adopting an open source business model. He draws a contrast between Apple and Nokia in the handset market: Apple is trying to define what a handset should be and they sold 4 million iPhone handsets last year. On the other hand, Nokia is trying to be the largest handset maker in the world, has adopted an open platform and sold 400 million handsets last year.

Gary Pisano of Harvard Business School was also very insightful about the necessary elements for success in converting to an open source business model: ensuring that your software architecture is “modular” and creating a developer community. The creation of a developer community is a significant challenge for a new product and quite different from the skills required for developing and distributing proprietary software. He also notes that natural advantages conferred on KMS by its role as the creator of the “platform”. Finally, he focuses on the new reality for all “proprietary” software vendors: they need to be prepared for competitors who adopt an open source model.

Eric Levin makes good points about the importance of being able to control the brand and the strategic life cycle, but concludes that KMS has alternatives to adopting an open source business model such as adding personalization. However, I think that this alternative is an illusion and it seems to contradict his prior points.

The final Case Commentary by Michael Bevilacqua focuses on legal issues and, from his view, the significant additional risk of intellectual property infringement in an open source business model. I don’t agree with his conclusions. First, most “proprietary software” includes significant amounts of open source code which would carry risks similar to a pure open source business model. Second, he notes the increased risk of patent infringement in open source software. I disagree that the risk of patent infringement is greater in open source companies than in proprietary software companies. Most proprietary software companies do not undertake patent searches prior to writing software, so both types of companies are equally at risk of infringing a third party’s patents. However, the open source business model does entail legal risks: the scope of many important open source licenses (such as the GPL) are unclear because they use terms, such as derivative works, which are poorly defined in copyright law when applied to software and the licenses have never been interpreted by courts. In addition, the remedies available under open source licenses, whether injunctive relief or only monetary damages, are not clear. Consequently, many companies limit the use of open source software based on the open source license under which it is provided.

It is great that Harvard Business School has acknowledged the strategic importance of decisions about the open source business model, but we hope that their next case is more focused.

Open Source Think Tank: Legal Issues

This morning we are discussing legal issues at the Open Source Think Tank (for more information, please see http://thinktank.olliancegroup.com/). I started by providing an overview of legal developments from 2007 based on my earlier post. http://lawandlifesiliconvalley.blogspot.com/2007/12/2007-top-ten-free-and-open-source-legal.html. I will summarize my predictions for 2008 in posting later this weekend.

We also had a "Brain Storming" session on the topic of "What are the three major licenses for commercial adoption?" The discussion groups noted that the use of licenses depends on the community, the business strategy and status of the project. For projects that are just launching and want to ensure that all of the developments are contributed back to the community, the GPLv2 is frequently the best choice since many projects use it and it is a clear signal that you intend to be live by the rules of the open source community. However, a project that is more mature could choose GPLv3 which resolves many of the ambiguities of GPLv2, but it is new and not completely understood. A company that is interested in widespread adoption and is not concerned about ensuring that contributions are returned to the community would choose either BSD or Apache. One group noted that Apache License is particularly attractive because of Apache's strong reputation for excellent code. One surprising statement was that the GPLv2 continues to be a problem for some companies: the representative of a major company recently released a project under a dual distribution model, the company was told by their "commercial" licensees that they would drop the software if the GPLv2 was chosen as the "open source" license in the dual distribution. This statement was particularly surprising since these licensees would receive the software under the commercial license.

We all agreed that legal issues will continue to be important for the industry and we are likely to continue see important legal developments this year.

Sun Microsystems Buys MySQL for $1 Billion

Sun announced today that they are purchasing the open source database vendor, MySQL AB, in a deal valued at around $1 billion. The transaction is scheduled to close late in the third quarter or early in the fourth quarter of Sun's fiscal 2008. According to The Street: "Sun will pay approximately $800 million in cash for all of MySQL's stock and assume about $200 million in options." http://www.thestreet.com/s/sun-to-buy-mysql/newsanalysis/techsoftware/10398964.html?puc=_googlen?cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA



Sun's CEO, Jonathan Schwartz, described the acquisition as based on MySQL's unique position: MySQL's database is the "M" in the LAMP stack which is favored by web companies, yet MySQL is having difficulties selling to more traditional companies, because CIOs want traditional "big company" commercial support. MySQL has stated that "more than 100 million copies of MySQL's open source database software have been downloaded and distributed and an additional 50,000 copies are downloaded daily." Sun gains the advantage of MySQL's customer base while supplying the commercial support that MySQL needs to sell into more traditional enterprises. http://blogs.sun.com/jonathan/ Jonathan's post is particularly interesting for the vision behind the acquistion:

So why is this important for the internet? Until now, no platform vendor has assembled all the core elements of a completely open source operating system for the internet. No company has been able to deliver a comprehensive alternative to the leading proprietary OS. With this acquisition, we will have done just that - positioned Sun at the center of the web, as the definitive provider of high performance platforms for the web economy.


Jonathan's post also provides details about how Sun will integrate MySQL into its offerings.


And he announced that Sun will be funding additional developments at universities through global research fellowships designed to advance the state of engineering on the internet. The announcement of this academic initiative follows Sun's announcement in December that Sun will be establishing an "award program" to support innnovation and advance open source development relating to its products. http://lawandlifesiliconvalley.blogspot.com/2007/12/paying-developers-new-way-to-develop.html



2008 is starting with a bang for open source.

Thinking Forward on Commercial Open Source: Third Annual Open Source Think Tank

Commercial open source software is at an exciting cross roads. In the last year, its importance has been acknowledged by Gartner which declared open-source software "the biggest disruptor the software industry [Gartner] has ever seen and [Gartner] postulated it will eventually result in cheaper software and new business models." http://lawandlifesiliconvalley.blogspot.com/2007/09/open-source-paradigm-shift.html. The first revision of the General Public License in 15 years was completed. http://lawandlifesiliconvalley.blogspot.com/2007/07/general-public-license-version-3-legal.html. The cloud over Linux created by SCO's litigation, almost forgotten, came to a dramatic end in one of the most spectacular melt downs in the history of intellectual property litigation. And many traditional software companies, such as Adobe and Yahoo, have become involved in open source software. http://netscape.com.com/Year-in-review-New-players-enliven-open-source/2009-7344_3-6223153.html

However, success brings new challenges. We will be discussing those challenges again at the Third Annual Open Source Think Tank on February 7 to 9 at the Silverado resort in Napa Valley which is an invitation only gathering for leading global experts to get together and work collaboratively on the issues facing commercial open source. The Think Tank will focus on the continuing evolution of commercial open source companies, customer adoption trends, impact of software-as-a-service, implications of industry consolidation, and legal developments. The keynote speaker will be Chris Anderson of author of the Long Tail and editor in chief of Wired. For a preview of his thoughts, you can read his interview on Matt Asay's blog: http://blogs.cnet.com/8301-13505_1-9845106-16.html?part=rss&subj=news&tag=2547-1040_3-0-5.

The Open Source Think Tank is unlike a traditional conference; all the attendees who participate are expected to contribute in the brainstorming and workshop format and to take advantage of the CIO panels. If you are interested, you can apply to participate at https://thinktank.olliancegroup.com/

Like last year, we will publish a report of the results of the http://thinktank.olliancegroup.com/