Companies that organise their activities in such a way that part of their product development can be influenced by people not working for the company itself are said to follow open business models. The explanation works best with an example.
Let’s take the case of software. How can companies make money by releasing their software for free? This can be puzzling at first but there is a relatively simple explanation. For instance, Ubuntu, which is an operating system, is an example of open source software.
Ubuntu is an open source operating system sponsored by Canonical Ltd and based around the Linux kernel and Debian. As a consumer-oriented version of Linux, it provides an alternative to Windows and is the most popular open source operating system in the world.
Ubuntu can be easily installed as a dual-boot in most PCs and sites such as WUBI are a great way to install Ubuntu.
Ubuntu is free of charge and comes with the equivalent of Microsoft’s Office suite in the form of OpenOffice, which includes a spreadsheet editor like Excel, a word processor and so forth.
While companies usually keep the results of their R&D programmes protected by patents or copyrights, companies following the open business models chose to let anyone change their software.
In the case of Ubuntu, Canonical lets anyone contribute to the Operating System.What Canonical does is to pick the best of the open software and create a consistent and user-friendly assembly which gets shipped as a fully functional operating system. Note that Canonical only writes a small part of the operating systems itself. Most of Canonical’s work consists in ensuring that different pieces of the system work well with each other.
In fact, what is given for free is only a small part of the product. Software requires installation, maintenance and upgrade. Furthermore, the operating system is free however, other software will run on the operating system and not all that software is free of charge. So if you look at the bigger picture, things start to make sense.
Why is this important?
Open business models are becoming increasingly important as they provide affordable innovation. Companies that follow open business models do not need to have huge R&D teams. These companies just use their client base and a network of experts, most of which are unpaid, to develop their products. This means that product development and innovation becomes cheaper for some companies than for others, a relatively new trend which is taking R&D and marketing executives in more traditional companies out of their comfort zone.
Innovation and open business models
A related question would be: why is it preferable to develop operating systems according to an open business model and not using the normal setup? This question is related to innovation.
There is a common myth about innovation, which starts with a lone genius sitting in an office in Silicon Valley and coming up with a bright idea that will change the world. The reality is somewhat different and it would seem that innovation is a team sport and not a lone genius’ effort.
Innovation is about experts working together – much like science, in fact. Open Source business models start from this premise: experts work better together. An operating system is a difficult bit of software and involves a number of specialized skills. From this perspective, it makes sense to have teams of experts working on it together than just to handle it to a company – i.e. Microsoft.
Open business models and licensing
Open business models can be defined as business models where companies managed the results of their R&D programmes according to permissive guidelines. Rather than keeping the results of their R&D programmes inside the organisation, companies following open source business models chose to licence part of the results of their R&D.
Licensing is a form of regulating the collaboration between experts. Let’s take software again as an example. There are various forms of software licenses some of which are:
- GPL: allows the software developer to use, use and change the source code. However, should the programmer produce extensions to the source code, he or she must contribute back the extensions to the original developers;
- BSD: allows unlimited redistribution for any purpose as long as its copyright notices and the license’s disclaimers of warranty are maintained;
- Apache: requires preservation of the copyright notice and disclaimer, but it is not a copyleft license — it allows use of the source code for the development of proprietary software as well as free and open source software.
In summary, the differences between the more permissive and the more restrictive licenses relate to the extensions of the code. In the stricter license, which is GPL, you have to contribute back your extensions as well. So you can use your improvement based on the free code, you can sell it but then you have to contribute your own code to the source.
GPL is really a fair arrangement, which is why it’s so popular. BSD and Apache licenses offer even fewer restrictions.
Open Source business models allow both companies and research institutions to combine the skills of experts to produce a product. It responds to a common difficulty in innovation: organisations or companies that work in silos tend to limit the interaction that is a critical part of the innovation process. Innovation happens in organisations where ideas can collide with each other, often from different disciplines.
Why is Ubuntu so successful?
Ubuntu’s success can be explained by a number of factors. The fact that it is a free OS which works really well and comes at no charge, is a major advantage – the product sells itself. But it is fair to say that Ubuntu does not beat Windows in all of its features.
I believe that Ubuntu’s success will grow once it allows a number of software providers to advertise or sell their products based on an alternative OS to Windows. Some companies already see Ubuntu as a complement to their own software. By bundling their own software with Ubuntu, they drive out the value from the OS layer – at the expense of Microsoft.
Innovation Models 