Paying at the Point of Value
By webmink on Feb 26, 2006
I've been thinking about that word "free" again - as in money, this time. Probably the number one question I get about Sun's open source strategy is "how can you make money if you give the software away free". The thing is, I don't believe that's what we are doing. Instead, we're working on the development side of the glass to create flexible value on the customer side of the glass.
What's really happening is that the point of payment has shifted again, like it did in the late 1970s. "Software Market 1.0" involved selling a mainframe-ish computer and shipping it with all the software included (usually with full source code). When I got my first properly paid job in the computer industry back in 1982 (I'd already been programming for a while by then), there was already a shift in progress, from shipping the software with the computer to selling the software separately from the computer, creating "Software Market 2.0" - the Great Unbundling as my colleagues at the time called it.
Now I think we're seeing the emergence of "Software Market 3.0", where the payment for software is made not at the time of acquisition but at the time the deployer starts to see value. That's typically at the point where the software goes into production, and what people do at that point is pay for the essential services - bug fixing, patching, telephone support, on-site support - that either can't be home-grown or are cheaper bought from a supplier. In Sun's case this isn't really a "service" model by the way - you're paying the actual software developers, not an after-market service organisation.
In Software Market 3.0, it's not so much that the Freedom of the software leads to the freeness of the software - although, if you have the resources in-house, you never need pay anyone outside (that's a big "if" by the way). In Software Market 3.0, everything is available at no charge to somebody because of the need for developer freedom, so it's tempting to think it's all available to everyone at no charge - but it's not.
The real point is that the deployer is liberated to pay just for the things that result in value. It also opens up new ways of delivering the value - online, as a utility, by subscription and more. Open source on the deployer side of the glass is the shift to payment at the point of value instead of at the point of acquisition of the bits. Sun's new software business models are about being the perfect supplier at that point of value. That's how it is with Solaris 10, for example.
As Stephen O'Grady points out, there are some customers who know value and will pay however you structure the offering, there are some customers who might pay if they discover value and there are some customers who won't pay whatever you do. In the world of Software Market 3.0, those who will pay will still pay because the value is still there - they just pay later.
But more to the point, some of those who might pay get to discover the value because now they can see the software in action and find the value rather than have to pay to find it. Once the software is in use in both categories, it can spread easily because there's no licensing barrier to try innovating across the business.
And the others? Well, they still won't pay so we've lost nothing if they use the software we're promoting, but in deploying they will have to get that value somehow so will probably engage with and enrich the community on the developer side of the glass somehow. Net gain? More customers and a richer product, by apparently giving away the software. A paradox until you dig deeper.