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August 10, 2003

Time for an Open-Source Strategy

Whether you make commercial software or use it, open-source may radically affect your business

by Michael J. Hudson

Microsoft hasn't explicitly admitted that the open-source movement is taking a large toll on its business, but the subtext of its actions couldn't be any clearer. The company has now begun a new security initiative to open some of its source code to international governments. Microsoft claims that this decision is nothing more than a unique solution to a unique problem — rather than a direct response to an increasing standardization among a number of nations on the Linux OS. However, many IT pundits agree that the open-source movement, particularly Linux, is finally hurting Microsoft where it counts: its profits.

Several countries, from Germany to China to Australia, are realizing a direct return on investment by using Linux rather than Windows. In addition, using mostly open-source tools allows government IT organizations to more readily customize their networks and applications. These tools are not only making their systems more secure with less effort but also greatly reducing the overhead of licensing. And open source is popular not just with foreign governments; a number of U.S. agencies, including the Department of Agriculture and the Department of Energy, have also jumped on this bandwagon.

In general, the lack of restrictions on open-source software is allowing an enormous amount of innovation. Because most popular open-source tools are examined by a multitude of developers, the quality of code increases dramatically. In addition, when problems crop up with open-source software, you don't face the black-box syndrome that proprietary software poses: The open-source code is always freely visible and free to change. While the cost of a developer's time to fix the code isn't free, it can be a lot cheaper than service agreements and the time spent calling customer support ... after which you're still not guaranteed the problem will be fixed.

The way open-source software affects the software industry shares some characteristics with how file trading has affected media companies. Despite Napster's demise, the amount of music trading on the Internet has increased by leaps and bounds. Newer peer-to-peer programs, such as Kazaa and Gnutella, not only increase the copyright-insensitive trading of music online, but they've also greatly reduced the chances that any one organization or government can stop the practice. While the Recording Industry Association of America (RIAA) continues to fight these new technologies, the war may already be over. The RIAA's actions to date seem to have alienated many consumers, which may be why the head of the RIAA, Hilary Rosen, is stepping down by the end of the year. Although she claims that she's leaving because of personal obligations, many music industry pundits seem to think it's because the majority of RIAA members would like to change their entire approach to the music file-trading phenomenon.

Movies are also being distributed in violation of copyright. In fact, consumer devices like Tivo allow people to easily record any TV broadcast and skip the commercials. In other words, our society increasingly expects to be able to get content without paying for it directly, through their wallets, or indirectly, through exposure to ads. Businesses, for their part, are finding it harder and harder to regulate how content is being used or distributed. So the question becomes, how do you make money if you can't get people to pay for your content?