May 11

Tim O'Reilly

Tim O'Reilly

"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.

tags: web 2.0  | comments: 10   | Sphere It

Previous  |  Next

0 TrackBacks

TrackBack URL for this entry:

Comments: 10

  Don Marti [05.11.07 05:54 PM]

Scale effects without lock-in: eBay vs. Yahoo Auctions. The same item sells for more in an auction with more bidders, even though it's very easy for buyers and sellers to move from site to site.

"How much is a dollar worth" (PDF)

This experiment looks relevant to the AdWords market.

  Mike Kruger [05.11.07 06:33 PM]

Wow - when I read the title I thought this article was going to be about the US's attitude towards Iraq.

Comparing to US companies is a completely unexpected parallel, but it's not only Microsoft waking up to this notion.

Hrm - perhaps the simile could be drawn to other subjects; would recalling humanity's attitude towards global warming be too long a bow to draw?

  Roy Schestowitz [05.12.07 05:58 AM]

It is curious that you suggest open source leads to lockins, yet it seems like a reasonable argument which stresses the importance of Free and industry standards-compliant software. It is different from an endlessly-abused term 'open source'.

More food for thought...

  Michal Migurski [05.12.07 08:49 AM]

@Roy -
I didn't interpret this to mean that open source leads to lock-in. Rather, lock-in is an implicit goal of businesses wanting to make outsize profits. They used to do this with close source software products. Now they're looking to do it by hoarding data. Companies don't seem to be hell-bent on fighting each other anymore, but they're still trying to cut off each other's air supply by collecting as much personal data as possible.

  Roy Schestowitz [05.12.07 05:42 PM]

Indeed, Michal, and portability of one's data gives the ability to keep the customer hostage. I am not thinking about personal data that brings benefit to the vendor, but data which serves the customer as well.

  Mike [05.12.07 11:49 PM]

Microsoft, happiness, and open source businesses

"And sometimes -- just sometimes -- you make Microsoft users happy by giving them a technology that wasn't invented at Microsoft."

Not to sound snide, but it seems to me that most technologies that Microsoft has been giving their users weren't invented at Microsoft.

"Pure open source software businesses are orders of magnitude less profitable than their closed source brethren"

That's because pure open source software businesses don't sell the software, they sell an add-on service. Open source is primarily a way by which end users get together and create solutions for their problems collaboratively, or pay someone to contribute on their behalf. To see what a premium an open source software company is paid, you need to compute dollars per line of code contributed, and that's probably still pretty good compared to the cost (proprietary software companies are, of course, outrageous).

  Simon Phipps [05.13.07 11:46 PM]

"Win By Killing" is still alive and well at Microsoft I'm afraid.

  Tim O'Reilly [05.17.07 09:17 PM]

What Michal said is exactly my point.

  Rick Jelliffe [05.22.07 02:59 PM]

Perhaps one way for "lock in" is to adopt a new user interface so that other applications, which use the previous "standard" interface, look clunky and difficult. Think iTunes and Office 2007; for small applications it is not difficult for competitors to catch up, but other large applications may find it difficult or may resist dancing to the leader's tune.

  Tim O'Reilly [05.23.07 08:59 AM]

Clever idea, Rick. Good insight.

Post A Comment:

 (please be patient, comments may take awhile to post)

Type the characters you see in the picture above.