Open source as a strategic competitive weapon

I had an interesting conversation yesterday with Juanjo Hierro from the Morfeo Project, a Spanish community of open source communities set up to speed up the development of Service Oriented Architectures-related software standards and create business opportunities for local suppliers.

Hierro explained that the Morfeo Project is based on “The Law of Conservation of Attractive Profits”, articulated by Clayton Christensen in his book The Innovator’s Solution:

    “When attractive profits disappear at one stage in the value chain because a product becomes modular and commoditized, the opportunity to earn attractive profits with proprietary products will usually emerge at an adjacent stage.”

Christensen’s law has also been used by Tim O’Reilly to describe the Open Source Paradigm Shift and more recently network effects in cloud computing, while Stephen Walli also used it to argue in favour of thinking about software networks, rather than stacks.

It is a very simple way of describing the impact open source has in commoditizing one element in the network while enabling greater profit generation opportunities at other elements*. For example, as Linux commoditized the server operating system, so the opportunity for profit generation transfered to the server itself, as well as the database, middleware and application layers, and opportunities for service providers/system integrators.

Little wonder then that the likes of IBM, HP and Oracle are such big fans of Linux.

Hierro added that Morfeo members believe that Christensen’s law is just the start and that the potential for attractive profits in adjacent areas stimulates innovation, which may actually lead to an increase in demand and profitability for the network as a whole.

So far, so good. But what marks Morfeo out as different from other open source community development efforts is that it was created with the express purpose of using open source to artificially commoditize an element in the network.

Instead of waiting for open source to commoditize an element, participants in Morfeo have decided to play an active role in bringing about the commoditization of a network element through accelerating the delivery of an open source reference implementation, with the hope of encouraging profit opportunities to adjacent elements.

In this regard the motivation behind the Morfeo project is not that different from the motivations that led IBM to create the Eclipse project and Nokia/Symbian to create the Symbian Foundation. The difference is that Morfeo is a lot more up-front about it.

“We are not doing this for the benefit of humanity but because open source is a strategic weapon for innovation,” commented Hierro.

The Morfeo project was initially funded by Telefonica I+D with Universidad Politécnica de Madrid and Universidad Rey Juan Carlos but is open to anyone and includes a number of small-to-medium enterprises as well as regional research projects.

The theory is that interested parties can come together to identify opportunities for commoditizing an element so that they all benefit from the transfered profit opportunities. Example projects include MyMobileWeb, which is designed to create a single software platform for the development of .mobi applications that can be accessed from any phone, and the EzWeb open source mash-up platform.

While the Morfeo project may not be about “the benefit of humanity” there are clearly opportunities for societal gain, and the Government of the Principality of Asturias recently decided to liberate all its software platforms through Morfeo, creating the eAdmin chapter and the OpenFWPA project, a development framework for electronic administration and e-government systems.

Clearly there is now an opportunity for other regional governments to save money by building on top of OpenFWPA, as well as an opportunity for the creation of profit-generating products and services from vendors large and small.

Incidentally while Morfeo is to date mainly a Spanish phenomenon, Hierro indicated that it is already seeing interest in MyMobileWeb from developers in Asia and has always had global ambitions. The initial target for expansion is, naturally enough, Latin America.

*I would assert that it is also a way of explaining why open source vendors are increasingly turning to hybrid development and licensing strategies to generate revenue from open source. More on that another day.

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8 comments ↓

#1 Arjen Lentz on 11.05.08 at 7:30 am

OSS vendors turn to hybrid development and licensing strategies (or in some cases, not turn to but cling to even though other newer revenue streams have emerged successfully) because their sales organisations a) don’t always understand how the OSS market place works – they should indeed read a good dose of Clayton Christensen’s works! and b) it is a known path for revenue, and since sales people’s income and job is directly related to this month’s performance, they won’t naturally experiment with that. Sales people will do what’s been successful in the past, for a long as it remains succesful.
The fact that other avenues *might* be more successful (or nicer to the clients and the ecosystem) is in this context, irrelevant. They won’t go for it. Can’t. It’s one of the basic innovator’s dilemma factors.

The point is that being a vendor that publishes OSS, does not make it a non-traditional company. The vast majority are really very traditional in the way they do business. Which is quite understandable, given the above aspects.
In the long run, of course, these vendors will find their “safe” and known market disrupted, even if they once considered themselves a disruptor. Yes, the disruptor can and will be disrupted. It’s happening all-over the place in our business.

#2 Matthew Aslett on 11.05.08 at 7:45 am

Thanks Arjen, you’ve saved me the trouble of articulating that myself. Another factor I would point to is that they see hybrid licensing as delivering higher profit opportunities than service/support – although again that is because they are thinking along traditional lines.

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