The recent post on Google’s “Android” mobile phone project shows that open-source software, and by extension characteristics of the new Web 2.0 economy (harnessing collective intelligence, end of the software release cycle) are becoming the norm. What does this development mean for the economics of mobile phone companies? Which is better for consumers – open or closed-source?
A couple of articles I found comparing closed- and open-source environments reveal that there are advantages and disadvantages to both:
Proprietary Technology:
Revenue model: built on artificial scarcity – companies release upgrades and people buy them
Competitive Advantage: based on barriers to entry: the market leader attempts to keep its products at least one step ahead of the competition by adding new versions and features. Results in a less flexible product which can be bloated with too many features. Is this advantage sustainable?
Pluses:
+ clean product releases (driven by deadlines/market expectations)
+ good product documentation (for an example, see Apple’s IPod troubleshooting site)
Minuses:
- company reliance on future sales means that the corporation is always focused on the upgrades, older products may become neglected
- incompatibility
Open-source Technology:
Revenue model: based on what customers can be persuaded to pay. Open-source vendors can also charge for installation and support, or sell complements to the open-source software (i.e. mobile handsets). Open-source vendors also enjoy greatly-reduced development costs by spreading these costs among all who are contributing to the product.
Competitive Advantage: low barriers to entry, but arguably able to reach a bigger market due to greater compatibility. Is this advantage sustainable?
Pluses:
+ an open-source vendor is liberated from the requirement to re-invent product in the name of product differentiation. Development is more organic and consumer needs-driven
+ releasing source code spreads development costs
+ better compatibility
- lack of centralized support/documentation/assistance
- lack of innovation incentives
In my opinion, as long as the particular market (software, mobile technology, etc. is growing), there’s space in the markets for both variations. If we look at computer software vendors, we have Microsoft as the market leader for proprietary software and Linux as the leader for open-source SW. With web browsers, we have Microsoft IE as the proprietary leader and Mozilla Firefox as the open-source leader. Apple’s IPod and ITunes leads the proprietary market for mp3 devices.
Will Google’s new venture and the Web 2.0 phenomenon turn consumer preferences towards all open-source products? I’m curious to hear your thoughts!
References to the articles:
1. http://www.zdnet.com.au/news/software/soa/Open-source-vs-proprietary-Both-have-advantages/0,130061733,139148762,00.htm
2. http://en.wikipedia.org/wiki/Comparison_of_open_source_and_closed_source
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