Open Source 1a39

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 s 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. • KMS’s 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.

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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 ionate about the community that you created four years ago by bringing Amp Up into the world. And they're just as ionate about the idea that the 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 “I’m

supposed to open up the code they’ve sweated blood over? They’ll 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 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 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 –

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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 s' 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 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 s 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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http://news.cnet.com/ http://www.emeraldinsight.com/ www.directhit.com http://hbr.org/product/open-source-salvation-or-suicide-harvardbusiness http://www.linuxjournal.com/ http://dupress.com/articles/platforms-and-the-open-door-inwireless-and-beyond/