The Economics of Openess

"Open" is not a new concept, especially in computer software. Most known institutions rooted in this philosophy are actually central to today's web ecosystem: Linux, Mozilla (parent of Firefox), and less popular for non-techies, Apache, which powers a vast number of web servers in the world. By stretching a bit towards "Collaboration", I would include Wikipedia in the list as well.

Why talking about those? Because all those institutions are non profit, and follow non-commercial purposes. What's new is that more traditional, i.e. business organizations, are now embracing this model, because they see material advantages to it, though very different from one company to another.

Facebook, a massive consumer of storage, processing power, and network elements, started custom designing and building software, servers and data centers from the ground up to save energy and maintenance costs. Then they open sourced the whole thing, down to the CAD models of racks chassis and motherboards. Netflix, the video streaming company, invested millions to industrialize their software foundations on top of cloud providers infrastructure. Then they open sourced it. Tesla brought a revolution in the electric car space, made a leap forward in electric battery power and charger performance ... and guess what they did? Well, though they did not technically open source it (yet!), they opened the Supercharger to other competitors.

Are we witnessing a tidal wave of altruism?

Not so much.

Of course they could have kept their innovations for themselves. It would have given them material competitive advantage on their operating costs, infrastructure performance or power grid - but on their own dime, and only until competitors cope up. That is what a lot of companies would have done, and still do. Patents are a defensive wall against concurrence.

But the companies mentioned above are not defending themselves. They're on offensive mode: they are the challengers! Facebook competes with the massive and omnipotent Google for digital advertising budgets; Netflix is fighting the established networks, who generally also own the very pipes Netflix needs to survive. And Tesla ... they are simply up against one of the most powerful and oldest industry on earth.

They have a need for speed! "The goal is to become HBO faster than HBO can become us" famously said Ted Sarandos, Netflix Chief Content Officer. Patents are of no help in this race. These companies do not see their differentiating value in the commodities they managed to develop and improve - they want others to join in, bring their strenghts and wealth, make these open projects de facto standards. This way, they can enjoy a levelled playing field and concentrate their focus and resources on what they consider their respective core (advertising, recommendation, production, cars design).

Openess is not about being good, or nice, or even cool - it is about being pragmatic.

Are you open?


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