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Open for Business: Leadership Lessons from the Open Source Movement

Open Source is more than a software movement, three new books argue. It's a crucial business tool.

(originally published by Booz & Company)

The global rise of the Open Source movement is less a tale of software innovation than a story about how new markets for collaboration can create new value in the marketplace.

When people hear the term open source these days, they usually think of Linux, the upstart operating system competing against Windows, or more precisely against Windows NT. Linux fits the definition well: Its source code is shared freely, letting developers design new programs and applications on its platform without restrictions. But to argue that Linux and other open source initiatives illustrate advances in software is akin to saying that publishing is printing words on paper — it's technically accurate while completely missing the point.

Look at it from the perspective of a childhood fable, the one about the mice who are tired of being chased and gobbled up by the mean old cat. One particularly bright mouse suggests that if a bell were attached to the cat, they'd hear it coming. Good idea. But how do you bell the cat? By collaborating, of course.

In the software industry, that cat is Microsoft — hungry, proprietary, and relentlessly stalking to the death its business prey. In the process, some would say, this cat chokes innovation. Open source software — and the increasingly global community that supports it — represents one way to place the bell on Microsoft and other dominant companies like it, because it does not require one vulnerable mouse to take the risk alone. Whatever market direction a Microsoft goes in, the Open Source movement can respond, because it's made up of many ideas from many people. Indeed, as open source programs like Linux and the Web server Apache achieve critical mass, Microsoft, and other proprietary software vendors, must respond to them. In other words, Open Source can even make the resistant more creative.

There's a strong sense of mission in the Open Source movement to take on the established powers — those enterprises, Open Sourcers would say, that have stifled inventiveness. That mission inspires extremely bright, extremely talented people to invest their time and ingenuity in designing, developing, and testing software for virtually nothing. When you read a book like Free for All or The Cathedral & the Bazaar — or even The Cluetrain Manifesto — it's impossible not to be struck by the realization that not-for-profit motivations can yield software insights and innovations every bit as compelling as their for-profit when-the-heck's-the-IPO!? counterparts.

Free for All: How Linux and the Free Software Movement Undercut the High-Tech Titans is a surprisingly accessible history and survey of open source, freeware, and shareware software development from their earliest days. Computer scientist Peter Wayner, who has published books on cryptography and written for The New York Times and the Web magazine Salon on Open Source issues, provides a first-rate exegesis on the clever legal and licensing maneuvers that Open Sourcers use to disseminate their innovations.

Eric Raymond's The Cathedral & the Bazaar: Musings on Linux and Open Source by an Accidental Revolutionary is a well-crafted screed celebrating the Adam Smithian notion that thousands of reasonably sharp innovators can create a more robust and durable software marketplace than a digital Christopher Wren. In fairness, Mr. Raymond, who has been an Open Source propagator and propagandist for years, keenly weighs the pros and cons of both development ideologies. Not surprisingly, these ideologies comfortably extend from software innovation to innovation in other disciplines.

The Cluetrain Manifesto: The End of Business as Usual fits into this list more by its contrast with than its similarity to the other books. Written by four veterans of such disparate organizations as IBM, Sun Microsystems, the Linux Journal, and National Public Radio, it has little to do with software development but everything to do with the notion that "markets are conversations." How you elicit feedback from your customer and community, its authors contend, has everything to do with how well your culture is prepared to innovate. That said, these books all agree it takes leadership to turn compelling ideas into a smart people's movement.

The ability of Linus Torvalds (the Finnish leader of the quasi-eponymous Linux Open Source operating systems movement) and Richard Stallman (MIT's feisty founder of the Free Software movement) to motivate armies of unpaid hackers to craft software that rivals the best of what IBM, Microsoft, and Sun have to offer is nothing less than stunning. The lesson is unmistakably clear: Appeals to craft and community can be as persuasive as appeals to financial riches.

Still, there's nothing intrinsically new about open source or shareware software. You find software exchanges going on between universities — and even industries — as far back as the 1950s. The early days of "homebrew" computing in the 1970s with magazines like Creative Computing and BYTE encouraged sharing and freeware. Then again, that was before an independent software company — let alone an individual software entrepreneur — commanded a market cap north of $1 billion. Money changes everything. Lots of money changes everything a lot.

But the money issue prompts a series of questions. Is Open Source more software culture or software cult? Are Open Source and similar movements merely aberrations, the antimatter to the high-tech financial frenzies of the moment? Do they succeed more because they stand for something — or because they ardently stand against software's status quo?

While many techno-pundits, such as Ethernet inventor Bob Metcalfe, dismiss Open Source as "open sores," they're missing the significant impact it's already having, especially in the way it's transforming how organizations of all kinds seek to create and manage value. Much as Napster's impact on the music industry offers a nibble of the network future for digital intellectual property, Open Source will prove to be an intrinsic part of how all successful companies manage their relationships with customers and suppliers, and it will be central to capturing more profits from innovation.

In the same way that businesses have reengineered themselves around such core strategic questions as "make versus buy," "standardized versus customized," and "expense versus investment," they will now have to examine "proprietary versus open sourced." The mission-critical question: Do we build a better business model by investing more in our proprietary innovation or by investing in Open Source? Which gives us greater return for the marginal dollar invested? Look at our portfolio of product and service offerings: Which should we charge for? Which should we give away? Why? Those choices will increasingly be at the core of every business model.

In Free for All, Mr. Wayner makes a clever analogy that illustrates this well. Consider a recipe; an excellent recipe. What is the best way to build a lucrative business around it? Sell the recipe to Martha Stewart outright? Publish it in a best-selling book? Sell it as a trade secret to chefs? Train the chefs? Use the recipe as a launching pad to become a celebrity chef? Mass-produce the dish itself? Build an exclusive restaurant around the recipe? Give away the recipe while holding an exclusive distribution agreement on two of the key ingredients? Use the recipe as a lure to gain access to complementary recipes to write a best-selling cookbook or to use as content for a Web site? License the recipe to qualified chefs in exchange for 10 percent of whatever they charge their customers for the dish? Give the recipe away as proof of your culinary expertise so that you can charge a hefty day rate as a consultant? Give the recipe away to your 10 favorite chefs in exchange for their sharing any improvements and en-hancements they make, which you, in turn, can resell?

As whimsical as some of these choices might sound, they represent precisely the sort of business model issues that all organizations confront when examining how best to create and capture value from innovation. The essential question is whether you can build a better business for investors by making the recipe more proprietary or less so. What's the best mix? Does it make more sense — and more money — to treat the intellectual property as personal property or as an innovation platform for the cooking community?

Clearly, if you're in the business of selling cooking equipment or ingredients, your decision to make the recipe open source is the optimal one. The simple economic fact is that digital technologies annihilate the distinctions between content and transaction, product and service, brand and direct, network and marketplace in ways that force businesses to choose where they want to redraw the distinctions that used to matter.

That same business logic easily extends to Boeing, Ford, Pfizer, and much of the rest of corporate America. Boeing builds planes. Why not share the information gleaned from wind tunnel experiments and computational fluid dynamics simulations with the companies that are making the jet engines for these planes? Sure, the technology is "proprietary," but why not make as much of the testing infrastructure as open source as possible to let key suppliers discover what the design priorities need to be? In other words, instead of making suppliers conform to your "specs," give them the open source tools and media that enable them to come up with even better ideas. Let your intellectual property become your business partners' innovation platform.

Of course, Boeing's concern would be that by letting General Electric and Pratt & Whitney use its infrastructure to build better engines, its rival Airbus would reap some of the benefits. That's possibly true. But that's why the Open Source issue is becoming an essential business decision. The fact remains that for Boeing, there may be an extraordinary amount of intellectual property that could be safely marketed as open source that would improve the quality of planes, supplier relationships, and profits.

Similarly, even in a traditionally guarded industry such as pharmaceuticals, a company like Pfizer might find a coherent financial rationale to make many of its testing and analytical protocols open source. Clinical medicine is nothing if not an ongoing process of rigorous peer review. Why not make the software, the analytical techniques, the biostatistical protocols, and the training procedures as open source as possible to build a better community of peer review? Or consider a new delivery system for a proprietary pharmaceutical. Keep the drug proprietary but make the delivery system methodology and technology open source, so that others can create new standards for how the drug is administered to people. As these are developed, the proprietary drug becomes more widely used and, thus, more valuable.

Does this sound suspiciously reminiscent of the generation-ago admonitions of Peter Drucker and Ted Levitt, gurus of management and marketing, respectively, when they said that CEOs need to know what business they're really in? Perhaps. But what's different today is that the intensiveness of innovation is so much greater. By default as much as design, any organization that differentiates by innovation also differentiates by its management — or mismanagement — of intellectual property. Sometimes, being proprietary is precisely the wrong choice. Sometimes, being open source leads to innovation promiscuity that annihilates any chance for an enterprise to capture value.

But there's another difference that's just as profound. This is the theme explored in The Cluetrain Manifesto, an awkwardly written but ultimately helpful guide to this new Open Source sensibility. By claiming that markets are conversations, Cluetrain argues that they're not soliloquies, diatribes, or 30-second spots. They're conversations among people, products, and services. Markets are feedback in all its forms. Corporate strategies that ignore the economics of interaction are doomed to underperform, if not fail outright.

Treating customers and clients as entities that can add value — as potential partners in innovation — does not fit into most microeconomic models of enterprise management. Yet this is precisely the great opportunity the current iteration of technological innovation encourages. Moreover, it is completely compatible with a culture that craves the stimulation of interaction — of belonging, of creating meaning while creating value.

In fact, Open Source is both literally and figuratively the notion of markets as conversation. The e-mails that swirl around proposed enhancements of a Linux OS or an Apache server are at least as informative as the documentation that comes with a Windows NT or IBM Domino server. Why should that be surprising? Indeed, why does anyone think it odd that there are innovative individuals and innovative organizations that want their innovative markets to be more like communities and their innovative communities to be more like markets?

A marketplace of ideas is not inherently in conflict with a community of ideas. Then again, those tensions and conflicts that do exist can and will lead to further innovations.

What all of these books do well is capture the grand themes and the subtle nuances that explain why it makes more sense to have an untraditional community drive innovation than to have a traditional marketplace do so. The point of these books is that communities of people can come up with codes of conduct — rules of engagement — about how ideas can and should be shared.

The software that really matters is not what is programmed in computer code but rather the shared assumptions and ideals that let people exchange ideas. That ultimately is what will shape the global ecology of innovation.

Reprint No. 00410

Michael Schrage,
Michael Schrage is codirector of the MIT Media Lab’s e-Markets Initiative and a senior adviser to the MIT Security Studies program. Mr Schrage is the author of Serious Play: How the World’s Best Companies Simulate to Innovate (Harvard Business School Press, 1999).
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