6. 3. 1  The free software model

As is the case with customers, the special features of the free software model influence both the definition of the business and the possibilities of establishing the company on the market and its long-term prospects of business development.

Advantages

We will now deal with the main advantages for the provider or company that exploits free software for profit.

Companies that exploit free software can adopt a good position for positive marketing and market publicity in the sense that the diffusion of free software may promote the aims of consolidation, trust, sustainability and increased popularity of the company.

In the traditional software market, it can be difficult to identify and exploit new business opportunities because of the economic impact of traditional business policies. Therefore, to reiterate what we have explained above, free software encourages the introduction of innovative (disruptive) technologies that allow for a differential bias which can be harnessed for new business opportunities.

Thus, free software favours the penetration of new companies in the traditional market by disrupting the economic effects that immobilise the market players.

The freedom, ease and low cost of the distribution of free software (usually by free and direct download from the Internet), combined with the cooperation, involvement and motivation of the user community in its development, encourage both the spread and adoption of applications. In other words, both the development methodology and the special features of the distribution of solutions promote the efficiency and effectiveness of the project.

The burden and structure of costs and risks of companies based on free software may be more advantageous and competitive than models based on proprietary software because of the distribution and decentralisation of some of its processes among the different players involved.

The commoditisation of software is advantageous for all players because it reduces the barriers to entry for new software producers and increases the competitiveness of the sector, thereby allowing production of the same goods more efficiently. Besides seeking specialisation and differentiation to exploit business opportunities, it is also possible to do business in a completely commoditised market.

Recommended reading

L. Morgan; P. Finnegan(2008). Deciding on open innovation: an exploration of how firms create and capture value with open source software(Vol. 287, pp. 229-246). IFIP 2008.

Open and cooperative development and production methodologies result in greater efficiency and effectiveness, both in the creative process of innovation and in the creation and capture of value by the company. In other words, by opening up its production processes, the company ceases to rely solely on internal staff for innovation (which is limited by time and aims) and begins to benefit from the ideas and insights of volunteers, users and customers (whose flexibility and motivation fosters the emergence of interesting innovations).

This closes the feedback loop between the company and customers or users (treated as co-developers), thus reducing project risk and maximising the guarantees of success.

Disadvantages

We will now discuss some of the problems that can arise in companies based on free software.

Limitations

For example, customer captivity and economy of ideas prevent companies from securing a dominant position on the market, as could occur on certain markets swamped by proprietary solutions.

Some of the economic effects that favour the introduction of a new company on the market could also limit the quality and quantity of its operations.

One consequence of the above is that it can be difficult to make large profits (at least to the degree that proprietary software corporations do today) or profits that can be sustained over a long period of time.

The commoditisation of software can also have a negative effect on companies based on free software if they fail to adequately identify and plan the differentiation of their products, services and even marketing policies. In other words, a situation of interchangeable goods can affect the composition and distribution of the market if the products do not provide substantial differentiation over time.

Moreover, doing business on a commoditised market makes it impossible to obtain large profit margins because it is relatively easy for customers to change technology provider. So, a business must be truly better than or at least as good as its competitors in the industry in order to hold on to its position, for example by focusing on response times and ability to adapt.

Despite the passing of the years, there may still be some myths about free software on certain markets that complicate its implementation and deployment. The difficulty in debunking these myths will depend on market characteristics such as the degree of implementation of proprietary software or failed attempts at migration to free software.