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Larry Ellison and the business of social production

October 26, 2006

As open-source software programs mature and become commercial products, the work of developing them naturally shifts, to one degree or another, from the original community of unpaid volunteers to professional programmers who are employed and paid by companies, in particular the companies that profit from selling services related to the installation and upkeep of the software. What Yochai Benkler calls "social production," the system of creating goods through freely donated labor rather than through labor that's purchased and controlled by corporations, begins, inevitably, to break down. You get, instead, a system in which paid workers and volunteers labor together, though not necessarily toward the same goal, in an uneasy alliance. Some may call this a hybrid system. Others may call it a corrupted one.

It's always been clear that the system, however you view it, imposes an economic vulnerability on the profit-making companies that engage in it. Those companies have to pay labor costs for developing a free good, a public good that that they have no proprietary control over. Their rivals can reap the fruits of that labor without having to pay for it. That creates, in theory, a dangerous asymmetry in competition. But what hasn't been clear is whether that vulnerability actually matters, whether the danger that exists in theory also exists in reality. Are there economic or other barriers that prevent competitors from capitalizing on the investments of the open-source companies?

We're about to get a lot closer to an answer to that question, thanks to that great clarifying force in the technology business, Larry Ellison. Yesterday, Ellison announced that his company, Oracle, fully intends to eat the fruits of the labor of Red Hat, the leading for-profit supplier of the open-source Linux operating system. Oracle is taking the version of Linux developed by Red Hat and distributing it under its own brand, as "Unbreakable Linux." And, in a stab at Red Hat's very heart, Ellison claims that Oracle will substantially undercut the open-source firm's prices for supporting the software. It seems like a claim that shouldn't be hard to fulfill. After all, Oracle doesn't have to pay those labor costs.

Once open source became a business, rather than a movement, the rules changed. Larry Ellison, whos's nothing if not a non-sentimentalist, understands that, and he doesn't particularly care what "the community" thinks. His attack on Red Hat would never be called neighborly, but it is, as Business Week's Steve Hamm puts it, "a ruthless and brilliant act of capitalism."

It's also something more. It illuminates a much broader and deeper tension in the digital world, a fault line that runs not only through the software industry but through every industry whose products or services exist, or can exist, as software. The tension is between social production and the profit motive. Volunteer labor means something very different in the context of a community than it does in the context of a business. In the context of a community, it's an expression of fellowship, of the communal value of sharing. But in the context of a business, as Ellison's move illustrates, it's nothing more than a cheap input. Many of the most eloquent advocates of social production would prefer it if this tension didn't exist. But it does, and it's important.

Comments

Spot on. This is just the beginning of the commodization of software, which is almost inevitable at this point. Fantastic post; you sir, are on a roll.

Posted by: Jason Kolb [TypeKey Profile Page] at October 26, 2006 11:22 AM

Isn't this exactly what RMS wants? Those who try to commercialize free software will be eaten alive by the competition. Isn't the "economic vunerability" you describe a feature of the GPL, not a bug?

Posted by: Hazel Motes [TypeKey Profile Page] at October 26, 2006 12:39 PM

I think it's good for linux even if it is bad for Red Hat. Linux's free software DNA makes it greater than Red Hat, Oracle, IBM, Apple and FSF.

To help illustrate I'll share my theory that free software outlives proprietary software. A proprietary program is owned, and that owner will someday expire — its programs will die. A free software program, OTOH, will live as long as it is useful to somebody.

Posted by: Sid Steward [TypeKey Profile Page] at October 26, 2006 12:40 PM

Isn't the "economic vunerability" you describe a feature of the GPL, not a bug?

I didn't call it a bug.

Those who try to commercialize free software will be eaten alive by the competition.

Yes, this is the (theoretical) vulnerability that I'm talking about. But even if free software were to cease being a commercial product (which I'm certainly not predicting), it would continue to be a commercial input.

Posted by: Nick Carr [TypeKey Profile Page] at October 26, 2006 01:00 PM

Isn't this less about either social or commerical, and at this point in the game about which actual products or components are brought into the OSS model? Larry has reached sufficient leverage with business apps that he feels is unassailable from OSS (for now) so he can undercut his competitors. What may be a dark horse in this is SOA, the components of which are being supported and incubated as OSS early in the maturation process. How does this play out when there's no commerical business (yet) to undercut?

Posted by: Dana Gardner [TypeKey Profile Page] at October 26, 2006 02:59 PM

Call me daft, I certainly don't agree that the pinnacle of OS product cycle is to become an Oracle or MS product?!

Seems to me the "new" product cycle is often the reverse, e.g. Google and Yahoo put out software for free and tell the community to hack them up.

Also, since the OS community is sincerely dedicated to the products *most* of the players will be pleased to see more people and more innovation in the mix, paid or not.

So, why worry?

Posted by: JoeDuck [TypeKey Profile Page] at October 26, 2006 06:58 PM

Why not think of open source in the same way one thinks of IETF standards? Something a committed group of commercial and non-commercial actors form communities of interest around to assure openness (there's that word again) and interoperability. Except that IETF standards stop at descriptions of how software conforming to the standard is supposed to work. With open source it's simply a matter of taking the standard the rest of the way, to executable code. Software is moving in that direction anyway (increasing levels of abstraction in the "coding").

So it doesn't matter if the community contributing to open source (or IETF standards) is hetergeneous in terms of motivations, profit motives, or whatever. It sets a standard on top of which more functionality (add-on software for open source, management and performance differentation for IETF boxes -- err, routers) or services (Red Hat, now Oracle, for open source, ISPs for IETF standard-boxes) build business models.

So perhaps the sky isn't falling for open source?

Posted by: Bo [TypeKey Profile Page] at October 26, 2006 08:48 PM

The problem with Red Hat is that it is not a low cost supplier anymore. It was a low cost supplier in their youth, but in the last 3-4 years, they have gone all enterprise-y, with fancy fast talking salesmen and the like. To put it bluntly, they embraced the "Oracle sales model", but didn't understand that the Oracle sales model left them vulnerable to being undercut by a strong player. Ironically, who else but Larry to expose this vulnerability.

Red Hat was perhaps fantasizing that only piddly little players would engage in the undercutting game, and "respectable" big ones won't. Well, Larry Ellison, being God, is above all such considerations.

This is the kind of unexpected chess move that defines grand masters. Larry is a genius chess player.

Posted by: SidneyV [TypeKey Profile Page] at October 26, 2006 10:27 PM

Hubris.

Oracle has tried to move into the e-mail market, and failed. It is now moving into the OS market. What's next? Hardware?
Oracle must first amend it position, goals and vision. It's core business is Databases.
Will oracle be able to provide OS support for it's clients? Will it dump client who are running Oracle on non OracleOS system? I don't think so. Oracle is now adding a cost center to itself. Given that Oracle applications and Databases run on N OSs, it will now run on N+1 OSs, with Oracle carrying the burden of support.
IBM and HP were smart enough to avoid this. Google might make it's own OS for internal usage, but they are smart enough not to venture into end-user support.

Oracle has entered a client lock-in, with the worst provider there is, itself.

Posted by: Gil Freund [TypeKey Profile Page] at October 27, 2006 02:33 AM

Perhaps now the great unwashed of the OSS world, the developers who spend their *free* time designing, writing, and testing products like Linux will finally understand what's happening to the fruits of their labor.

Perhaps they'll realize that by giving their services away they're diminishing the worth of their efforts and enriching the Larry Ellison's of the world.

But probably not. True believers have a hard time accomodating reality.

Posted by: marc moore [TypeKey Profile Page] at October 27, 2006 09:22 AM

Oracle has entered a client lock-in, with the worst provider there is, itself.

That's a good line.

True believers have a hard time accomodating reality.

Yeah, and reality has a hard time accommodating true believers.

Posted by: Nick Carr [TypeKey Profile Page] at October 27, 2006 10:36 AM

I fail to see how this is problematic for either open source software or the concept of social production. It's not like Oracle can take this code and close it off to the market... they can't even improve it without having to give their own work back to the community for someone else to capitalize on. That HELPS the community rather than hurts it, no? That improves the quality of the social interaction rather than hinders it, right?

Sure this is bad for Red Hat, but they had major problems with their model before Larry Ellison chop blocked them. Ubuntu or any one of a dozen other distros that were both free and better spelled big problems for RH for quite a while now. That's what happens when you try to sell something that anybody can get for free.

The only way to capitalize free and open source software is through support, service and customization. Development in the foss arena will always be an add on... never the money-maker.

Posted by: mturro [TypeKey Profile Page] at October 27, 2006 12:05 PM

There really isn't anything new in this situation. Before Linux, there was the gcc toolkit. Whatever its goals, gcc allowed commercial software vendors to save a ton of money on license and support costs for their most basic tools. It seemed out of whack at the time that the GNU project's flagship seemed to primarily benefit commercial software vendors, but none of us complained. Looking back though, it seems like that benefit was nothing more than an unavoidable consequence of the need to make those tools available to everyone.

Posted by: Gilbert Pilz [TypeKey Profile Page] at October 27, 2006 05:48 PM

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