Open Source: Salvation
or Suicide?
Open Source
The purpose
The purpose is to present the dilemma of a fictional CEO of a
company making an electronic music game whose hot
software is being hacked by competitors: the question is
whether the company should let users play with the source
code.
The case provides readers with a few points to ponder when
it comes to making open source decisions in business. Insight
into how companies can make money by giving away their
intellectual property, the advantages of open source, and ways
in which a company can build a community around a product
without resorting to OS.
KMSs electronic music game has become so hot that
customers are hacking it and rivals are pouring into the
market. Should the company shore up its defenses or let the
games begin?
Approach
Outlines the problem of Marty Dirweg's KMS
Corporation and its Amp Up software product.
Wilson and Kambil describe the story, and Schwartz,
Levin, Pisano and Bevilacqua suggest solutions.
The case study is of a company called KMS that makes a closed-source
music device called Amp Up. Amp Up is a zany, button-filled modified
guitar neck that connects to your computer and lets anyone make
interesting music and sound. Interestingly the article tells the story through
the eyes of a CEO who, at the time of writing, had never heard of open
source. Her pro-open-source brother helps her explore the pros and cons
of opening up her product to an open-source development model.
In the case study, we tag along with Evan and Martina Dirweg as Evan
tries to persuade Marty that her successful business will become even more
so with open source, rather than as a proprietary software/ hardware
vendor.
she had made the gut decision that put the company on its present path
and in its present dilemma. The path was that of mass marketer; the
dilemma was what to do about the raucous, uncontrollable open-source
software movement that was starting to pose a real threat to KMS.
Marty's dilemma is palpable, as open-source competitors (who grew up on her
company's technology but have now opened it up to the world) start to eat her
lunch:
What could be wrong with the company's so-far highly successful strategy of
jealously guarding its intellectual property? Why should she open the software in
Amp Up, as he had so casually suggested on the phone? Why should she invite the
open-source community into the company vault, so to speak, and allow it to play
with the crown jewels? on open-source software....
"Marty, these guys aren't going away. The point is, it's no longer just individuals
hacking into your hardware and software or making game controllers of their
own or writing code for themselves and their friends. It's companies now, too.
Companies with real money behind them. These people are passionate about the
user community that you created four years ago by bringing Amp Up into the
world. And they're just as passionate about the idea that the user and developer
communities should be based on open source, with developers being able to freely
swap and write software to fashion applications as they see fit."
the CEO goes to a trade show and finds an open-source start-
up called Open Chord, which copied the basic idea of Amp Up
but wrote its own open-source code for it. Plus their tag line is
"Fight the Power!" (Can't you see this happening at the Dot
Org pavilion at LinuxWorld!) "Aren't we suing you?" were the
first words out of her mouth to the open-source guys.
she begins to worry that in many people's eyes her company
is seen as the overly powerful corporate enemy with an iron
grip on its IP. Then she worries about how her developers will
react. She fears that they desert her if she opens up all of their
code to the community. At the same time, these same
developers are ragged from trying to get out the next release.
But then again, she wonders if perhaps the open-source model
would make their lives easier?
She is deeply worried about her programmers Im
supposed to open up the code theyve sweated blood
over? Theyll mutiny.
The story closes with KMS' executives finding a
YouTube video of a bunch of people playing a tune
on competing devices much more sophisticated and
cooler than those from KMS. The article suggests
that they are open-source competitors that have not
only copied the idea of the original KMS devices but
have improved them in ways the firm never even
contemplated, leaving the executives a bit stunned.
Amp Up, a wildly popular electronic-music game, is
the brainchild of KMS's cherished programmers,
who now spend their time trying to keep customers
dazzled with upgrades. But a couple of start-ups have
ripped off the idea using their own code - which is
open source. Now they're demanding that KMS float
with the rising tide and join the open-source
community. How could the company make money
without its IP? And why should it try?
Not open sourcing, as the case study implies, is a losing
game. There is simply too much interest in open
communities created to develop software in the image of
those communities, and not in any single vendor's image.
But the case study also implies that how to make a
business in open source is not necessarily easy. The case
study suggests support as a winning strategy,
This is only a part of an overall open-source revenue
story.
One can feel that she should have conversation with her
developers to ask their opinion.
Case Commentary
Jonathan Schwartz, the CEO of Sun Microsystems
If KMS is confident it knows what its customers will want next - and
if it's content with a small corner of the market - it should stay
proprietary. But it will pay a reputational price.
The real question is for the firm to decide what for it constitutes
success; there is a high price for staying closed, and opening up the
software will preclude a war with competitors
He basically asks, do you want to be like Apple with its closed iPhone or like
Nokia with its open platforms? To Schwartz, Apple defines success with the
iPhone by "defin[ing] what a great phone is." Thus it makes sense for Apple to
keep the technology proprietary, but the company knows that the overall market
opportunity is smaller but also defined by higher margins. Nokia, on the other
hand, wishes to be "the biggest phone company in the world", and in order to
reach this market, being open source gives the firm the tools to reach that goal.
Based on this thinking, Schwarz says that KMS must decide what
kind of company it wants to be.
Case Commentary
Eric Levin of Techno Source, a toy and game company
Suggests that KMS take a middle path: license its
software to third-party companies and add features to
promote community building. This approach could fund
itself through royalties or fees and would allow KMS to
approve or veto third-party products.
A middle way is to open the platform to third-party
companies and add features that promote community
building .
This way, Amp Up could keep a great deal of control of its
product while increasing the features that customers can
enjoy. This would allow the firm to continue to do two
important things, i.e. control its brand and the product
life cycle.
Case Commentary
Gary Pisano, a professor at Harvard Business School
An open-source strategy could increase Amp Up's rate of improvement,
enhance users' satisfaction with the game, and reduce KMS's development
costs. But if the company stops competing on the basis of its code, it had
better be sure of the strength of its downstream capabilities
The KMS software must be modular to facilitate easy adoption of external innovations.
Second,
b.
Amp Up should investigate if developers and third-party companies will actually get on
board and do make useful advancements to the software. Pisano adds that
c.
Amp Up could first adopt a hybrid model - keep the core software proprietary but
create add-on modules that are open source.
If Amp Up can satisfy these criteria, it should be able to leverage its expertise in marketing,
manufacturing and distribution to keep a competitive advantage over its other open-source
competitors.
a.
An open-source strategy would have several advantages for KMS (it could
improve the product and user satisfaction and cut company development
costs), but this depends on whether Amp Up is really likely to developed for
the open-source community
Case Commentary
Michael J. Bevilacqua, of the law firm WilmerHale
He warns that KMS risks greater liability for intellectual-
property infringement if it joins the open-source community,
where code carries no guarantee that it doesn't infringe on
someone's IP rights and providers offer no indemnification.
He brings up issues such as SCO's now-defunct lawsuit
against Novell and IBM, as well as patent trolls.
Embracing open-source software would help KMS's software
development but leave it more open to risk of liability for
intellectual property infringement: there are litigation-based
companies called patent trolls that Marty is probably unaware
of
He also states that "most software companies, however, are in
business to make money, and it is very difficult to make
money on open source."
Conclusion
The open source route presents opportunities for a
proprietary company like KMS, but there are
dangers, legal as well as commercial.
References
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