Free money model

Free money model

It's not an intuitive concept, but free software is becoming a hot new realm for making money.

Now dubbed open source software (OSS) by the community that knows it best, free software - also called freeware - means a program is available in an uncompiled form so anyone can tinker with the code, adapt it to their own needs, and offer their enhancements to the keeper of the code for incorporation into the next release.

Some proponents believe the budding development and business model for free software signals the beginning of a new trend in how corporations and Internet service providers will purchase software licences and services.

"In the medium-to-long run, unless commercial developers can adapt their business model to incorporate open-source development, they're doomed. They'll be outcompeted on reliability and features, plain and simple," said Eric Raymond, author of The Cathedral and the Bazaar, a popular essay that influenced Netscape's decision to open its browser source code.

Raymond, who will present his theories at the Usenix Annual Technical Conference in the US from June 15 to June 19, says commercial software companies practice a cathedral style of development in which centrally-planned groups quietly work in isolation until they've completed a product. Open source developers, particularly in the Linux community, use a bazaar method in which a worldwide corps of developers contribute via the Internet to develop software that gets released early, and often. Oddly, the free-wheeling bazaar style can result in more robust software, Raymond said.

"Traditional software quality assurance is notoriously bad at squeezing out bugs. The bazaar mode isn't perfect at this, but it is clearly and dramatically better," Raymond said.

Money comes into play when commercial companies add value to open source software by enhancing, testing, distributing and supporting it. The vendors provide accountability, so customers have someone to call when things go wrong.

Red Hat Software, for instance, distributes shrink-wrapped versions of Linux (see related story on page 64 of this week's issue), publishes books, develops open source tools, and offers technical support. The model appears to be working. Bob Young, president of Red Hat, expects the three-year-old company to earn revenues of $US10 million this year and to ship about 400,000 copies of Linux, ranging from $US50 to near $US1000 for a supported version.

Customers can also get copies of Red Hat Linux free from Web sites or freeware CDs, but "when it comes to software, customers want the official version for mission-critical applications instead of the free one, even if they're the same version", Young said.

Sendmail is taking a more hybrid approach. Sendmail is an open source mail-routing program that transports roughly 80 per cent of the Internet's traffic. In November 1997, lead Sendmail developer Eric Allman and partner Greg Olson formed Sendmail to deliver a commercial version of the open program. They raised $US1 million in the first round of financing and expect to easily raise more than $US6 million in a second round over the next few months.

Allman and Olson realised that as the bulk of Internet usage switched from academic to commercial, the needs of systems administrators were changing. If someone didn't provide commercial users with such features as easy systems administration tools, Sendmail could be eclipsed by proprietary software from Microsoft and Lotus already in use in companies' internal networks.

At the same time, Sendmail will continue to develop a free, open source version of Sendmail, minus the ease-of-use tools that the academic community would scoff at anyway.

Corel is taking an even more commercial approach to OSS. The company plans to release WordPerfect 8 for Linux soon, and it will develop a full suite of business applications for Linux. Corel will charge for its proprietary business applications - the Linux version of WordPerfect 8 is expected to sell for $US99.

But its Corel Computer subsidiary offers a Linux version of its NetWinder workstations, and Corel is returning to the Linux development community source code that was developed for the NetWinder, such as a Java port and a port to the StrongArm chip, says Michael Cowpland, president and CEO of Corel in Canada.

"We really encourage the idea of the free and open operating system, but we also encourage the idea of Linux being a very good commercial platform for software developers," Cowpland said. "Also, there are an estimated 7 million Linux users already growing at an estimated 100 per cent per year. So this is, in fact, the fastest growing operating system out there."

Even with such support, the open source business model faces several challenges. Convincing corporate executives of the viability of open source remains an obstacle for many IT managers.

Larry Augustin, president of VA Research, a US-based seller of Linux workstations, says that some customers requesting his company omit the word "Linux" from invoices to avoid attracting unwanted attention from management.

"We see that it's still not acceptable at the upper levels of MIS to use something like Linux, but the engineers who need to get work done use it anyway," Augustin said.

However, resistance is melting.

"While we didn't trust Linux initially for our main systems, we found that it was so good at doing so many things that it made no sense not to use it," says James Delahanty, senior systems analyst at Gulf Interstate Engineering.

A senior manager at The Boeing Company says that Boeing, like many other companies, is waiting to see if major vendors begin porting to open source platforms.

"We would use Linux if we could get versions of Oracle that run on it," the manager says. Boeing has a small Linux installation, while Apache and Netscape are used widely.

Jim Allchin, senior vice president of Microsoft's personal business and systems group, says the open source development model is missing a vital marketing component.

"What marketing is supposed to do is take customer input and drive it into products. If you just build what engineering says, you may not get the right product," Allchin said.

But proponents say the success of Linux, Apache, Perl and other open source software defies such sceptics.

"On the whole, we've found that not having a phalanx of idiots in expensive suits between us and our customers helps us stay closer to their real needs. Instead, we get our customer input via the Internet and direct peer-to-peer communication of day-to-day bugs, problems and opportunities," Raymond said.

Controversies aside, some analysts say they expect the open source business model to take off soon.

"The key to it is that the code is out there, it's free, and companies can add value and charge for it with the benefits of ongoing development and without incurring the development costs, says David Vellante, an analyst at International Data Corp.

"These guys are going to come out of the woodwork over the next nine to 18 months."

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