"The 'we win by killing' days are passing"

In today’s article about new open source releases from Sun, Microsoft, and Adobe, Wired News quoted our very own Nat Torkington:

“Microsoft is in a new era. The Bill Gates cutthroat ‘we win by
killing’ days are passing,” says Nat Torkington, co-chair of the
O’Reilly Open Source Convention. “Microsoft exists by making users
happy. And sometimes — just sometimes — you make Microsoft users
happy by giving them a technology that wasn’t invented at Microsoft.”

Nat sure is quotable (and you should definitely read the full text of his comments), but I’m not sure that he’s entirely right, at least not about the industry as a whole. Yes, in an era of open standards and open source software, it’s easier for users to switch, and this openness transfers power from the vendor to the customer. We are indeed seeing signs of this sea-change from the big software vendors.

But just because we’re seeing a kinder, gentler Microsoft, just as we saw a kinder-gentler IBM in the 90s after a long cut-throat history, it’s important not to generalize too far. Don’t under-estimate two factors:

1. Pure open source software businesses are orders of magnitude less profitable than their closed source brethren even as they close in on them in terms of the number of customers. (Compare Red Hat and Microsoft, MySQL and Oracle.) Meanwhile, companies built on top of open source but with new layers of closed source (iconically, Google) are building the kinds of outsized profits that once were the sole province of old style software companies. As growth slows, as it inevitably will (even if it takes another decade), these companies too will seek to maintain their outsized profits.

2. Outsized profits come from lock-in of one kind or another. Yes, there are companies that have no lock-in that gain outsized profits merely by means of scale, but they are few and far between. So the question I’ve been asking from the beginning of my thinking and advocacy about open source is this one: Where are the new sources of lock-in, once we’ve taken away the old ones based on proprietary APIs, binary software, and control over distribution channels? As those who’ve read my What is Web 2.0? piece or have heard my talks on the subject know, I believe that one of the new sources of lock-in is through large databases created via network effects, such that it’s hard for a new entrant to match the services of the incumbent, since the value of those services is proportional to the size of the existing network. This is not an unbreakable source of lock-in, but it is not the second coming of the Summer of Love either.

Still, for the moment, we’re in a lucky period where competition with new business models fueled by open source is creating pressure on existing software vendors to play nice with their customers, just as Nat said. Just don’t expect that period to last forever.