Section 5.2. Open Source: Distribution Versus Development

5.2. Open Source: Distribution Versus Development

Open source can include a distribution strategy or a development strategy. While people often think of the development strategy (many programmers working on a common project) when they think of high-profile projects like Linux, we are instead going to focus on the distribution strategy.

Open source is just a way to put product in many users' hands inexpensively. Dual- licensing businesses do not use collaborative development to build their products. In fact, as we will see, that production strategy is poisonous to dual-licensing businesses.

A dual-licensing business can take advantage of the cheap and ubiquitous Internet to distribute its products at low costs. Open source licensing promotes use at much lower cost, with much less friction, than an expensive marketing campaign could do. Dual-licensing businesses can distribute software to more people, more cheaply, than their proprietary competitors.

At the same time, dual licensing permits these businesses to generate revenue by licensing the software to certain users for a fee. Software licensing revenue is good revenuebecause you can make and license a second copy of a piece of software for essentially no additional cost, businesses and the financial markets like licensing revenue. Selling support or services, by contrast, imposes new costs with every deal, because a business must have the capacity to answer the telephone for every new customer it captures. As a result, licensing-based businesses, including dual-licensing businesses, generally get higher valuations and can raise capital more cheaply than businesses based exclusively on services.