Proprietary versus Open Source

Jun 20 2012

A couple of times I've been on a panel with executives from proprietary software companies, and interestingly I found their speech very defensive when it comes to Open Source companies. Usually they downplay the advantages of Open Source and question the ability of Open Source to create quality and supported software, because of the lack of financing through the sales of the licenses. Most of the time it is due to very little knowledge of the ways that allow Open Source companies to operate.

I personally don't have a problem that companies don't choose to have an Open Source business model. I believe everybody is free to choose the business model they are comfortable with, and I don't believe that Open Source is the right solution for ALL software.

I believe that users mostly choose based on the ability of the software to respond to the needs of the company and not on whether it's open source or not. Now I believe that for equal product quality and equal quality of the provided services, customers ought to choose Open Source software, which gives them more rights. Proprietary software makers can downplay the advantages of the Open Source software themselves, but not say that the advantages specific to the Open Source nature don't exist.

Let's review the advantages of Open Source Business Models that we have learned with XWiki:

Reduced R&D Costs

Contributors participate to the development of the software, providing bug reports, patches, modules, documentation about the software. Also the community is a "school" for the engineers that improve their knowledge of the software platform and can later become full-time engineers payed to work on the software.

Highly financed proprietary software companies can outnumber open source company, but they out-motivate them very rarely. Open Source software developers are highly committed to the software they are building.

In the initial stages of XWiki, R&D was at least doubled. The amount is less today, but many of the XWiki SAS employees were contributors before joining the company.

Also the value of the contributions is much higher than the actual time these took to build, because often contributors bring enhancements on areas they know very well.

Reduced Marketing and Sales Costs

Open Source software is marketed by the community, which participates to making it known. More users are willing to talk about Open Source software than about proprietary software. Sales costs are reduced because most of the pre-sales process is done by the clients on their own. They test the software and validate that this software can work for them. This is doable whatever the time it takes without any cost to the Open Source software company. When the client is ready to pay for services he will contact the companies providing services and the sale will be easy.

In the history of XWiki, except in the very initial stages, we have not made any outgoing calls to pitch XWiki SAS. We have only worked with users who contacted us or gave us their contact information when downloading XWiki (and we started this very recently).

Our sales and marketing team has always been a very little part of the global XWiki team although XWiki SAS is already paying more than 30 employees, mostly for our support and development services as well as the development of the XWiki software.

Increasingly suited to Market Needs

Open Source software is developed in the Open. Contributors can submit ideas, bug reports, patches or new features. The Open Source community is helping the developers to better respond to market needs, even when they don't think about these needs themselves. If the developing company does not want to develop something the community can do it. Also open source software is often more open (in terms of APIs and Standards) and usually more downward and upward compatible. Releases are made often and the software will improve progressively.

Highly financed companies can outnumber open source software companies, however nothing replaces responsive users.

Full Customization Capabilities

Since the software is open source, beyond the basic extension capabilities of the software (adding plugins, creating a skin), there is no limit to the customization capabilities of open source software. In the worst case you can access the source and make a different version.

While proprietary software can be well architectured towards customization, there will always be some cases where customization won't work without the source code. Open Source software will never have this limitation.

Reduced Lock-in and full Cloud reversibility

This is an important point for users. While proprietary software companies can propose reversibility services for their cloud offering, these are often never actually verified. With Open Source software you can verify the reversibility. 

Also there is no vendor lock-in, meaning that you can also move your hosting or your support to another provider, if your relationship with the initial provider is a failure. You'll still be able to upgrade as open source will give you this right. With proprietary software you'll have to give up the software.

Controlled Upgrade path

As the software is Open Source, and is released often (instead of the usual 3 year cycles in proprietary software), improvements are added progressively and often (at least this is the case of XWiki) with maximum backward compatibility. Users will be able to control their upgrade path. Even if the vendor decides for less backward compatibility, users have the choice to follow this path or not, as they can stay on the older version. Other developers can also decide to.

Upgrade capability is very key in enterprise software, especially when you are adding customization on top of the version you have installed. Often in proprietary software, the upgrade path is complicated as the software gets major changes so that the "acquisition" of the new version can be made "valuable" for customers. But in reality the real value is to get regular improvements with controlled costs.

At XWiki we release a new XWiki version every 3 months. Of course we don't upgrade every client installation with each new version, but we often upgrade an install after around one year and bring regular improvements to the client's installation, which helps the adoption of the collaborative software. 

Lower Capital Intensity of the Business

This item is important for small businesses. One of the characteristics of the open source software business is the low capital intensity, due to the reduced sales and marketing costs. An open source software company can much more easily grow without the need for high capital investment. This allows the company to stay independent, which makes the company much more sustainable.

Lower costs for clients

Many of the benefits listed before allow to reduce the costs of building Open Source software versus Proprietary software, which in turn leads to much lower costs for clients. This is why small Open Source companies can compete with large software companies spending large piles of money in marketing and sales. When the Open Source software gets more mainstream, the benefits in terms of costs grow even more as the R&D needs are spread over more clients.

Usually, when this happens in proprietary software, costs are not lower as the sales and marketing costs are not reduced and only (rare) competition can constrain the proprietary vendor to bring down the price. With Open Source, vendors will have to offer reductions to clients, as most costs are development costs and competition can very easily propose services on top of the Open Source software. Clients will be able to benefit from the scale effect.

It's important to remember that in Open Source: "software is free once somebody has paid for it". The means the more time flows and more software is paid for by Open Source customers, the more is shared with the community and the more value is available at a low cost. This is also why it's important to work as much as possible with companies that have "Committers" to the Open Source software who can bring the improvements made as part of custom projects into the core software.

Ludovic DUBOST
XWiki Founder and XWiki SAS CEO