Krzysztof "Chris" Bosak made some important and interesting points regarding the effect of open source on the overall health of the industry in a comment on another thread yesterday, and I thought they deserved to be discussed more fully (although there are many good comments in that thread, and I'd encourage you to check out that, too). So I'll give them their own thread, starting with my own thoughts.

First, here are some key points from Krzysztof's post:

"Marketing that you can make Ardupilot for $25, $50, $100 is like making the others look like the monsters of greed, while declaring the work of software developer is worth NULL, while not necessarily leading to the creation of competitive product in the long term."

All this has one effect: creates artificially crafted virtual reference point for price,that is used to dramatically weaken the public perception or the makers of complex electronics, without even making the makers of cheap solutions incredibly rich. At the end there is no progress, as the advance of open source is usually quickly swamped by absence of professional regression testing and all the things nobody would do for free."

At the same time, I noticed a New York Times article today that suggest that almost nobody has found a successful business model for open source. Together, these raise the question of whether open source does more harm than good to innovation, and whether it will ultimately lead to a sustainable industrial model for consumers and developers alike.

Needless to say, I believe that the open source development model, while not perfect, is the best one for overall innovation. But Krzysztof raises some valid concerns, which I'll tackle one by one:

1) Claims by open source developers about features and pricing tend to be unrealistic and serve to kill demand for higher-priced commercial products. I think there's some truth to this. Because open source development is done, by definition, in public, there is a lot of discussion about the broad ambitions of the project in the early stages, both to attract participation and to define the broad scope of the project. Not everything an open source project sets out to do is ultimately achieved, as the developers get into the hard work of executing. In contrast, commercial projects are usually developed in private and only revealed when the feature set is pretty much confirmed. The consequence of this is that the entry of an ambitious open source project can "freeze the market" while people wait to see if they can deliver. This is not good for the more cautious commercial players in that space.

As for pricing, open source hardware projects tend to be on the far low end, due to a general philosophy (which I share) not to charge for intellectual property. Our own policy is to charge 2.6 times the cost of the hardware (this allows one 40% margin for us and another 40% margin for our retail partners), but some other open source hardware companies charge just 1.5x cost. It's very hard for those who charge for intellectual property to compete with these prices.

2) Open source tends to "de-monitize" a market, eliminating the potential for anyone to make money. In the short term, this can certainly seem to be the case. But if you believe in demand elasticity, as I do, you would expect the lower price to vastly increase demand, growing the market for all. So it's a tradeoff between high margins and high volume.

In the case of ArduPilot, where the core board costs just $25 (something Krzysztof objects to, because it sets a consumer expectation that autopilots should be very cheap), we have sold about 2,000 boards this year, which makes it the best-selling amateur-level autopilot in the world by a wide margin. Although nobody make much money from those boards, the economic value around all the other parts you need to create an functioning autopilot is significant. Say there are now 500 complete ArduPilot systems out there now. That's about $800,000 in total spending (between us and our partners). Assume total margins (between wholesale and retail) are around 50%, that means $400,000 of profit in the first year. I suspect that's more than any of the commercial autopilot companies in this space can claim. Because you're charging for "atoms", not bits, open source hardware can be profitable in the way that open source software cannot, because the customer relationship starts with the assumption of paying for something.

3) Open source can't create products of equal quality to closed source, because nobody's getting rich. I think that Firefox, Linux and MySQL users would disagree with this, as would I. It's true that many open source project never achieve professional-quality polish, but that's mostly an issue of poor project management and leadership. I think you only have to look at the work HappyKillmore did on the ArduPilot configuration utility, or how Mike Black improved our GCS to see this: I'd argue that both are better than any of the ground station and configuration utilities from the commercial players in our space (and some, including Flexipilot, don't have groundstations at all). Note that these contributions were made not because someone was getting paid, but because the contributors had their own reasons to want better software. And because we set an open source standard, they chose to share their work so that others could build on it.

So, to sum up: I understand why commercial developers dislike the entry of an open source project into their market and hope it will fail. But the trend lines are clear on this one: open source is here to stay and is spreading, mostly because it leads to more, cheaper products faster. ArduPilot, for example. went from concept to maturity (with the 2.5 code, now in the hands of beta testers) in a year, including a full suite of supporting tools. There is no commercial autopilot that has come close to that speed of development. And as the DIY Drones community grows and our tools of group development improve, we are extending that to a host of new products created by the members here. To hire this many engineers would be ruinous, but by creating a community of shared interest and a culture of collaboration, we can do so at almost no cost at all. It's really quite magical.

Can commercial companies compete with this? I think they can, by offering more "plug and play" solutions, as Krzysztof has done with EasyUAV. Don't try to sell expensive apples to compete with our cheap apples; instead, sell oranges, with shiny bows on top. There's a market for both, and I think commercial developers would do well to find ways to do things that open source can't or don't do well, rather than just wishing that we'd go away.

Views: 548

Comment by Paul Mather on December 1, 2009 at 1:28pm
Yikes! I'm out of here if working on Open Source makes me a Marxist.
Comment by Curt Olson on December 1, 2009 at 2:21pm
If there is only one kind of tree in the forest and a blight comes through, we might lose all the trees in the world. It's good to have some variety and redundancy.

I see open-source like a club ... everyone pitches in to make the club a better organization. I'm a member of an RC club and we pitch in for field maintenance, club dues, newsletter, web site, events, etc. Your work makes the club a better club, and it's usually the folks that are the doers in the club that take leadership roles and make key decisions. If a person has a problem with the color of the shingles on the shelter, why weren't they out helping to nail them on? Better yet, they could have been the one to buy them and they could have picked any color they liked.

The reason open-source software works so well is that there is a nearly zero cost to distribute and copy it, and you or someone is already paying the costs of servers and internet anyway, so distribution and replication is practically free. That's not the case with widgets. So if you are expecting someone to send you a free ardupilot, then you are a Marxist or a Socialist or I don't know ... I get confused with the nuances of all the political buzzwords. :-) What's the political label for someone who borrows and begs in massive quantities until their entire house built of glass cards, ignites, and collapses into it's sandy foundation?
Comment by Paul Mather on December 1, 2009 at 2:28pm
That's called a Democrat.... or perhaps the "Omaba Doctrine"
Comment by Curt Olson on December 1, 2009 at 3:04pm
Here's a little analogy. My wife likes to spend more than I do. That annoys the heck out of me on some days ... like when my coffee costs me $35 + $2.01 because she's spent the checking account down below zero. Once in a while the thought occurs to me that it would make me feel really good for about 30 seconds to just spend all the money before she can get it. But obviously starting a spending war with my wife is going to lead both of us to complete and utter financial ruin neither of us will have anything to show for it when the dust settles. I think that the two main political parties here in the USA are having a spending war.

The big difference between the republicans and democrats is what they want to spend the money on. Republicans often talk about fiscal responsibility, but hah ... that's a joke. Unfortunately for all of us, the current crop of democrats in power have shown us that the republicans were mere amateurs at spending. The professionals have now taken over and have moved decisively to settle the spending war of who can borrow the most and spend the most the fastest. That's a political opinion I know!

The other thing my wife and I discuss is the merits of what we spend money on. I might say, "hey, our checking account is below zero again." And she might reply, "but I had to get groceries, and I had to get the tire fixed, and I had to pay the baby sitter" and on and on listing 40 very worthy reasons to spend money. So it may be that all the things we are spending money on as a country are worthy and deserving and necessary, but at the end of the day we are still massively in the hole and that's an even bigger problem.

So what are you going to do ... the republicans are married to the democrats and the democrats are married to the republicans ... someone should start a reality TV show about it ... probably would be really interesting!
Comment by bGatti on December 1, 2009 at 3:13pm
Uhm, I know it's tough to discuss business models without making reference to the history of economics, but Chris will shut down threads which start throwing modern labels around in a derogatory manner. Just saying.

3D Robotics
Comment by Chris Anderson on December 1, 2009 at 4:12pm
bGatti's right. Please let's not bring politics into this. No republican, democrat, marxist, socialist, etc. There are other places for that, and invoking these words and all their baggage just risks muddying the waters.

Comment by crystal garris on December 1, 2009 at 4:14pm
"That's called a Democrat.... or perhaps the "Omaba Doctrine""
wow didn't know Obama was in office when the s$%t hit the fan last year or maybe you just have a really short memory.
Comment by bGatti on December 1, 2009 at 4:15pm
The Title question may better be asked: Does Open Source stifle innovation more than Capitalism, Patents, Communism, Fear Mongering of the sort which makes everything illegal etc... In other words, can Open Source be analyzed in the alternative, or is it part of a plurality of possible economic models?

If the goal of Open Source is to avoid regulation and taxes, then it would explain why no one has ever "made money" - quite possible Open Source succeeds precisely because it isn't a dollar denominated currency.
Comment by bGatti on December 1, 2009 at 4:18pm
Chris didn't say I couldn't LOL.

Comment by Pete Hollands on December 1, 2009 at 4:50pm
Intellectual Property in Software is valuable. Open Source gives it away - to society - for evermore. The NY Times article was correct when it said "The fight illuminates a larger truth about open-source companies: their societal and strategic importance far exceeds their financial value as operating businesses.".

With a historical perspective in mind, those that have championed Open Source, and Creative Commons Licenced knowledge [and here I mean the attribution, non-commercial, share alike license] (for example MIT Open Courseware), will be celebrated for their gifts to society for decades to come.

Google, Facebook, Second Life, Linksys, D-link - could not have their business models without being built on a foundation of cheap open source software. These organisations use open source for "me too applications", and keep the "added value apps or hardware" completely private and locked away from the public.

In many ways, Society is struggling to find the right balance. To reward innovation - while encouraging the sharing of knowledge. That was the original purpose behind patents - which in the case of software patents has gone badly wrong.

I declare myself, my family and friends as all benefiting greatly from Ubuntu, Firefox and Open Office. I am an
ex product manager of Solaris at Sun, and a previously active member of the Plone Open Source Community.

I would say that Open Source clearly reduces the monetary reward for software development, is possibly neutral with regard to benefiting innovation, and is of enormous value to our information society.


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