Open Source Race to Zero May Destroy Software Industry
|Written by Gene Quinn
Patent Attorney & Founder of IPWatchdog
Zies, Widerman & Malek
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Posted: Apr 2, 2009 @ 8:30 am
Just the other day Arstechnica.com ran an article discussing the fact that Red Hat is succeeding despite the recession. It seems that the global economic chaos is forcing an increasing number of companies to search for ways to reduce IT costs, which means that more and more companies are turning to open source solutions in order to get away from having to pay for proprietary software solutions. It is difficult, if not completely impossible, to argue the fact that open source software solutions can reduce costs when compared with proprietary software solutions, so I can completely understand why companies and governments who are cash starved would at least consider making a switch, and who can fault them for actually making the switch. The question I have is whether this is in the long term best interest of the computing/software industry. What is happening is that open source solutions are forcing down pricing and the race to zero is on. As zero is approached, however, less and less money will be available to be made, proprietary software giants will long since gone belly-up and leading open source companies, such as Red Hat, will not be able to compete. It is quite possible that the open source movement will ultimately result in a collapse of the industry, and that would not be a good thing.
I am sure that many open source advocates who are reading this are already irate, and perhaps even yelling that this Quinn guy doesn’t know what he is talking about. I am used to it by now; I get it all the time. It is, after all, much easier to simply believe that someone you disagree with is clueless rather than question your own beliefs. It is a mistake though to dismiss what I am saying here, or any of my other writings on computer software and open source. The fact that I am a patent attorney undoubtedly makes many in the open source movement immediately think I simply don’t understand technology, and my writings that state computer software is not math have only caused mathematicians and computer scientists to believe I am a quack. Unlike most patent attorneys, I do get it and that is probably why my writings can be so offensive to the true believers. I am not only a patent attorney, but I am an electrical engineer who specializes in computer technologies, including software and business method technologies. I write software code and whether you agree with me or not, telling me I simply don’t understand is not intellectually compelling. I do get it, and the reality is that open source software is taking us in a direction that should scare everyone.
Sun Microsystems is struggling, to say the least, and the reality is that they are always going to struggle because they are an open source company, which means that the only thing they can sell is service. Whenever you sell time, earning potential is limited. There are only so many hours in the day, and only so much you can charge by the hour. When you have a product that can be replicated, whether it be a device, a piece of proprietary software or whatever, you have the ability to leverage, which simply doesn’t exist when you are selling yourself by the hour. So there is a realistic ceiling on the revenue that can be earned by any open source company, and that ceiling is much lower than any proprietary software company.
It is also an undeniable truth that the way many, if not most, service companies compete is by price. When service companies try and get you to switch over they will promise to provide the same or better service for a lower price. This point was driven home by a recent TechTarget.com article discussing a realization reached by Sun guru Scott McNealy, the man President Obama has charged with investigating the US government transition to open source. McNealy explained: “The problem with Sun is that we don’t have any switching costs.” As a result, Sun has very different margins than does IBM and Oracle, for example. McNealy went on to describe a conversation he had with a Chief Information Officer of a former, unnamed Wall Street Bank who was skeptical regarding the “no-switching cost” claims put forth by Sun. McNealy explained: “I asked him, ‘How much did you used to spend with us?’ And he said, ‘$150 million.’ Then I asked him how much he spent last year, and he said — all proud — ‘Nothing.’ So I went to the corner and threw up and came back and said, ‘See, no switching costs.’”
The trouble with freeware is that there is no margin on free, and while open source solutions are not free, the race to asymptotically approach free is on, hence why I say the race to zero is in full swing. This phenomenon is particularly pervasive with respect to cell phone service, where minutes keep going up, cost keeps going down and free calls to people within your network or group are commonplace. There are now extremely cheap Internet phone services, and Skype is free. Telecommunications is not the only industry engaged in the race to zero. Unfortunately, many in the patent legal community are engaging in the race to zero as well. For example, there are patent attorneys and patent agents who advertise online claiming to be able to draft and file a complete patent application for under $3,000. One of the most common ads running provides patent applications for $2,800, and I have seen some agents advertise prices as low as $1,400 for a relatively simple mechanical invention. The race to zero is in full swing with respect to patent services aimed at independent inventors and start-up companies. It is also being pushed by major companies who want large law firms to provide patent services for fees ranging from $3,500 to $7,000 per application. This is forcing many large patent law firms to simply not offer patent drafting and prosecution services any longer. There are major law firms that are seeking to outsource such work, hoping to still keep the client for litigation purposes and to negotiate business deals.
Does anyone really think that paying $1,400 for an allegedly complete patent application is a wise business decision? I can’t imagine that if you say that to yourself out loud it would sound like such a good idea. Likewise, Fortune 500 companies that are pushing prices down and wanting to pay only $3,500 for a patent application can’t really expect to get much, if any, worthwhile protection. Do they? I suppose they do, but the reality is that they don’t. The reality is that when you are drafting a patent application you can ALWAYS make it better by spending more time. I frequently tell clients who want everything possible to be put into a patent application that they will run out of money well before that ever happens. The way to proceed is to work within a reasonable budget to get the greatest protection possible. There is no need to waste money on Project A and have no funds left to commercialize, or to invest in Project B. Inventors are creative people and they rarely, if ever, invent only once, so you proceed in an appropriate business manner. But to think that you can force a patent attorney or agent to spend the same length of time working on a project whether you pay under $3,500, $7,000 or $10,000 is naïve. Everyone inherently knows this to be true, but somehow convinces themselves otherwise.
As companies continue to look for the low cost solution, quality is sacrificed. Now I full well realize that much of the open source software is better than proprietary software, and I know that it can be much cheaper to rely on open source solutions than to enter into a license agreement for proprietary software. But where is that going to lead us? Once mighty Sun Microsystems is hanging on for dear life, and is that who you want to be relying on to provide service for your customized open source solutions? What if Sun simply disappears? I remember years ago I joined a gym and purchased a yearly membership only to have the gym close less than 2 months later. A similar thing happened to my wife several years ago when she bought a membership to a fitness and well-being company who shall remain nameless. Eat better and get exercise counseling and support, what a deal! Of course, it was a deal only until the company filed for bankruptcy and left all its members high and dry. Luckily I put off joining myself otherwise we would have been out two memberships after less than 30 days. With once mighty companies falling left and right do you really want to bet the IT future of your company or organization on an industry whose business model is the race to zero?
About the Author
Gene Quinn is a US Patent Attorney, law professor and the founder of IPWatchdog.com. He is also a principal lecturer in the top patent bar review course in the nation, which helps aspiring patent attorneys and patent agents prepare themselves to pass the patent bar exam. Gene started the widely popular intellectual property website IPWatchdog.com in 1999, and since that time the site has had many millions of unique visitors. Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, USA Today, CNN Money, NPR and various other newspapers and magazines worldwide. He represents individuals, small businesses and start-up corporations. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.