Re: The Unsung Herpes Of The Windows World

On Thursday, February 3, 2011 4:17:37 PM UTC-5, DFS wrote:

On 2/3/2011 4:01 PM, Lawrence D'Oliveiro wrote:

huh? As far as I know, there is no "Free software" model that charges
money.

You might want to read the GNU Manifesto, Stallman himself suggests that there is nothing wrong with providing SERVICES for free software. OSS just prevents one person from purloining another person's or company's software, making proprietary enhancements, and then holding corporations hostage for $billions annually.

The "publish once then sit back and collect $millions in royalties" has never really worked out that will. It's like the new Amway dealer who thinks he is going to get filthy rich by getting a bunch of other people to do all the work and the selling, while he just sits back and rakes in the money.

Software is a VERY service oriented business. Customers demand frequent upgrades, timely bug fixes, hand holding, training, support, and they are usually NOT buying "software", they are buying "services".

The ONE exception to this is Microsoft, and even here there is often a distorted view of their business model. Microsoft doesn't spend that much on tech support, but they spend a LOT of money on marketers and lawyers. And many of their marketers also function as consultants.

Many years ago, IBM used to sell you a mainframe for $millions of dollars and you expected them to fix it if ANYTHING went wrong. Part of the cost included having someone in an office near the computer to answer questions and fix problems. That person knew who to call if extra help was needed, and if necessary, the company would charter a jet to fly someone to a customer's site in the wee hours of the morning, to get them back on-line.

Microsoft's model was to avoid the high cost of producing and supporting hardware, with the fans that would fill with dust (causing CPUs to overheat) and the hard drives that would eventually overheat and fail. By farming the high cost to other companies, they were able to charge $1000 per user per year, adding up to about $60 billion a year (probably more now) in royalties, with very little cost in actual production and distribution of the software media. In fact, by marketing through OEMs, and large corporations, Microsoft was even able to eliminate most of those production costs. These days, the actual cost of production and distribution of Windows, Office, and Project - even together, is probably less than a quarter.

This leaves Microsoft with about $10 billion to spend on lawyers. They keep the lawyers busy enforcing all of Microsoft's intellectual property rights and defending Microsoft against attempts to break up the monopoly or stop the bundling. In fact, one of the best things about having a legal budget of $10 billion is that you can break the law, and have your lawyers craft a settlement that makes what you did legal, and even gives you permission to do it some more.

Of course, Microsoft has also paid $billions in settlements. Roughly 5% of their total revenue goes to paying settlements.

And even though you really have no choice about whether or not to use Windows, or Office for that matter, because of Microsoft's exclusive contracts with the OEMS (lawyers hard at work), Microsoft buys $billions for advertising. Not because they want you to buy something you wouldn't already buy, but because they don't want the press covering competitors in a favorable way. $5-10 billion in advertising, plus placement control over $40 billion, can get you a lot of favorable press.

Much of Microsoft is just maintaining a "perception" of "perceived value". Lotus coined the term "perceived value pricing" - saying pretty much - if you can make people THINK your product is worth $300 instead of the $30 your competitor is charging, they might actually pay it.

Windows is a very good example. Microsoft puts an MSRP on Windows of nearly $300 per machine, and even puts copies on retailer shelves at that price, however, less than 1% of all PC users get Windows that way. And most of those who DO pay the premium price are doing so because they are in a crisis situation, such as a failed laptop and a presentation to be given the next day.

Most people get Windows with the PC, because the manufacturer put it there. about 95% of Microsoft's Windows and Office revenue involves persuading fewer than 1,000 people. Microsoft has to convince the CEOs of the 10 largest software companies that they should stick with whatever version of Windows Microsoft is touting that week. They also want to convince the CIOs of the 500 largest corporations to stay with Windows and to take the upgrades when they finally arrive. And there are CIOs for the 50 largest countries in terms of GDP.

If Microsoft wanted to "cash out" - they could probably coast for about 2 years without doing much of any legal or marketing, and still rake in $billions in cash.

In fact, in the medium- and long-term, ALL Linux/OSS efforts are funded
by the sale of proprietary goods and services.

As suggested in the GNU manifesto. A common "success formula" is to create some useful software, then write a book on how to use it. The software is free, but the book is $35-$50 per copy. The book might even have the OSS software, including versions for Windows and Linux, as well as Linux itself, attached as a DVD.

An even more lucrative business model is to use the free software to perform a service. LinkSys, NetGear, D-Link, Belkin, and Cisco have created a whole industry around "Linux Appliances", little Linux boxes that function as firewalls, routers, WiFi hubs, SAN storage controllers, or even the interface between USB and SATA drives. In some cases, the only way you know it's running Linux is when you go to the support site and you find the link pointing you to the Linux source code.

The "FOSS" model is a charity joke.

A "joke" that has generated nearly $60 billion in revenue annually, and that's just for the "big stuff". The total Linux market might be over $100 billion.

That may not seem like much, but when you figure that the average Linux appliance sells for less than $100 and at an 80% profit, it's significant. When you figure that the average cost of a Linux server is about $500 per year, including support, that's also significant. ISPs have made a huge industry of offering Linux servers for web sites and SaaS services.

Then there are the market models where Linux is the "access" to a service such as pay-per-view, or cable service, or even vending machines. In these cases, the Linux devices are very cheap - relative to the huge amount of annual revenue generated by those who use the Linux devices to access the services. Google is an excellent example of a company that generates huge revenues using relatively inexpensive Linux hardware.

When it comes to mass marketing, Linux is the ideal channel. It's easily replicated, can be centrally managed, widely distributed, and when performance gets slow, it can be scaled from a fraction of an ARM chip to clusters of mainframes.

But don't worry DFS, there are still lots of people who will pay $100 per hour to have someone create asp web pages for ISS that are used to populate SQL Server databases - as long as it doesn't take too long. Primarily because there just isn't that much money in a solution with limited scalability and a costly support model.

This is why the really big projects - usually end up going with UNIX and LInux, with Windows being used more like a "modem" or "gateway" device for .NET customers. Most Vendors are being told NOT to use .NET. They are expected to follow standards that are supported by Linux and Unix.

Rex Ballard
http://www.open4success.org