Category Archives: Open Source Business

A great combination: Open Source and business

Thoughts on Open Source Software

Open KeyBusinesses can learn much from Open Source thinking, both when it comes to increasing corporate efficiency and to making people happy at work. A while back I even wrote about an Open Source project that was optimized for fun (-O fun).

So if you want to learn a little about the principles behind Open Source Software, here are three good places to look:

Why Software Should Be Free by Richard Stallman
Those who benefit from the current system where programs are property offer two arguments in support of their claims to own programs: the emotional argument and the economic argument.

The emotional argument goes like this: “I put my sweat, my heart, my soul into this program. It comes from me, it’s mine!”

The economic argument goes like this: “I want to get rich (usually described inaccurately as `making a living’), and if you don’t allow me to get rich by programming, then I won’t program. Everyone else is like me, so nobody will ever program. And then you’ll be stuck with no programs at all!” This threat is usually veiled as friendly advice from the wise.

This is the standard text behind free software and Stallman is the original guru. Also remember to read up on the difference between free beer and free speech.

Early Perspectives On Open Source by Dennis Forbes
At the time, I was a fervent admirer of Microsoft and their Ways — a position that lead to endless accusations that I was a paid astroturfer for the so-called Evil Empire — not to mention that I was, and remain, a true believer in the capacity for financial incentive to encourage innovation and product excellence.

My opponent, in contrast, was a GPL-embracing, Linux-advocating, Microsoft-hating, Stallmanesque sort. He’d finger through his unkempt beard (where one would expect to find stray noodles from a prior meal), and after trying to convince anyone listening that recompiling one’s kernel with drivers specific for the target environment was an ideal arrangement, he’d tear into the evils of closed source commercial software, passionately arguing that closed source, along with intellectual property hoarding, was a moral sin.

A very nuanced look from a developer who came from the closed side and moved towards the open source approach.

Open Source As Much About The People As The Code
“The code without the people is worth nothing,” according to Phillipe Cases, partner at VC firm Partech International. “A million lines of code is like a million problems that you have to solve. So the risk on any open source investment project is that the 2-3 guys that created it and maintain it could leave. The commitment of the developers is often the IP — not the code itself.”

Isn’t it always about the people?

Links

I wouldn’t mind seeing my colleagues row past my desk some day.

Nonzero, one of my top 10 books, has a great website with lots of excerpts from the book.

In this great interview, Ward Cunningham, creator of the wiki, says that the power of collaborative development has only just begun to be realized, and open-source software will continue to spur more collaboration and more innovation. I will probably surprise absolutely no one by saying I agree :o)

Share the gold mine

X-ray

A Fast Company article from 2002 tells the story of a Canadian gold mine threatened by bankruptcy:

McEwen [the owner] believed that the high-grade ore … was present in parts of the 55,000-acre Red Lake stake — if only he could find it…

Eventually, the group’s attention turned to the Linux operating system and the open-source revolution. “I said, ‘Open-source code! That’s what I want!’ ” McEwen recalls…

Gold nuggetHis reasoning: If he could attract the attention of world-class talent to the problem of finding more gold in Red Lake, just as Linux managed to attract world-class programmers to the cause of better software, he could tap into thousands of minds that he wouldn’t normally have access to. He could also speed up exploration and improve his odds of discovery.

He released all his corporate survey data from the company’s land, information that is:

  • The heart of any mining operation
  • Very expensive to come by
  • Normally an extremely well-kept secret

He organized a contest – on the internet – to point out the best sites to dig. Anyone could access the survey data and participate. The first prize was $105.000.

The result? The company has drilled four of the top 5 winners’ sites, and have found gold in all four. Which proves that you can get very valid and valuable results from this approach.

The first prize winners? An australian geoscience outfit who’d never been to the mine – or even to Canada. Which proves that this approach can open new sources of information that you’d not have access to otherwise.

Corporate information is worth little when it’s locked up. Don’t keep all data in your business a deep, dark secret. Insteat, open your company’s inner workings to the world. The good and the bad!

The perils of secrecy

In the information age, many businesses have fallen into a trap: They have correctly identified information as the key to success or failure, but they have incorrectly concluded that the best way to profit from the information is to lock it away from the world. They make corporate information secret by default.

This goes for financial information, project development, new partnerships, strategies and plans and virtually every other aspect of the business. “Knowledge is our corporate, intellectual capital and we must protect it or it will be stolen from us.” seems to be the thinking.

But this approach comes at a cost:

  • It reduces the efficiency of employees who don’t know what’s going on
  • It makes the company look untrustworthy to the public
  • It limits the potential for generating new ideas and partnership

The opposite approach, to make all information public by default and only keep a few select areas secret, makes much more sense. This is especially true in an information-dense environment which carries a high probability that a company’s dirty secrets will be revealed sooner or later.

In fact, as we saw, releasing top-secret corporate data can be a gold mine. Literally. Here’s another example.

Be open with customers

Another great example of the open approach is Semco. Yes I know I write about them all the time, but they get it, dammit. They get it and they do it. In his excellent book The Seven-Day Weekend, Ricardo Semler tells the story of a negotiation with a potential customer for a huge contract.

Of course Semco had done their homework and made calculations showing what their profits would be depending on what price they could negotiate. At the meeting, Semler showed the customer these calculations, letting them know exactly how much Semco stood to make from the deal. This honest, open approach impressed the customer and Semco got the contract.

Businesses should ask themselves these questions:

  1. What are we keeping secret and why?
  2. What information could we share, that would bring us new ideas, new partners and increased profits?
  3. What risks are involved in sharing this information? Are they offset by the benefits?
  4. What risks are involved in not sharing it?

That last question is often left out, as businesses list the dangers of openness and ignore the dangers of secrecy.

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High CEO pay – low performance

To get results you must get a really good CEO. To get a really good CEO, you must pay a very high salary. That’s established wisdom. And it’s wrong!

James Surowiecki wrote the excellent book The Wisdom of Crowds that showed how heterogeneous groups of people can be better at making decisions than individuals or groups of experts, and now he’s taken a critical look at exhorbitant CEO salaries in this excellent article in the New Yorker. A quote:

it’s becoming increasingly clear that, from a shareholder’s perspective, overpaid C.E.O.s aren’t just expensive; they’re downright destructive. One recent study of the market between 1992 and 2001 by economists at Rutgers and Penn State found that the more a C.E.O. was paid, relative to his peers, the more likely his company was to underperform in the stock market. The economist David Yermack, of N.Y.U., has found that companies that allow their C.E.O.s to use corporate jets for personal reasons fall short of market benchmarks by four per cent annually.

There are myriad ways in which excessive or poorly designed pay packages can do damage. “Golden parachutes,??? which guarantee executives huge payoffs if their companies are acquired, may encourage them to sell out even when the company would be better off remaining independent. Conversely, according to a study by the finance professors Jarrad Harford and Kai Li, very highly paid executives are more likely than their peers to make acquisitions, and to receive major financial rewards for doing so, even when the acquisition ends up destroying corporate value. And there is evidence that overpaid C.E.O.s are more likely to commit fraud that props up stock prices—perhaps because the more you have to gain from criminal activity, the more likely you are to engage in it.

We need to stop following the maxim that “A highly paid CEO is highly motivated to create results.” It may be true, but the question is: Results for who – the CEO or the company. Surowiecki clearly shows that high CEO compensations may be driving the wrong behavior.

I have two more reasons why high CEO salaries are bad for a company:
1: Company employees can hardly avoid comparing their salary to the CEO’s and ask “Is he really worth that much more?” It can lead to resentment towards top management.

2: It may make the salary the main reason the CEO works there. I believe companies get better results from a CEO who feels a true commitment to the company instead of one who’s just there for the company jet and the stock options.

Also, take a look at Alfie Kohn’s excellent book Punished by Rewards which shows that rewards (monetary or otherwise) don’t generate long-term, beneficial behavior.

At the very least companies should publish top management salaries and explain to shareholders why that money was well spent.

Making the switch

I’m writing this blogpost on my laptop in the Firefox browser as usual, but this time… IT’S RUNNING ON LINUX. Penguins rejoice!

I’ve been wanting to install linux on my laptop for a while because lately it’s been running slower and slower – a typical syndrome for PC’s running Windows. All the usual windows remedies gave only short term improvements.

So friday I installed Ubuntu Linux (probably the most user friendly and easily installed flavour of Linux), and I’ve spent the weekend trying it out and getting stuff to work. The installation was really easy once I figured out how to install it on my laptop which doesn’t have a CD-rom drive. Importantly, all the major stuff worked right after installation and the Ubuntu installer correctly recognized and configured my hard disk, keyboard, trackpad, wifi, etc… A few things didn’t work or weren’t installed by default, and in each of those cases, I’ve been able to find excellent online resources giving step-by-step instructions.

Some major victories:
* Getting my online bank to work
* Getting my Palm Treo to sync with the Evolution calendar application included
* Migrating all my mails and bookmarks from Windows

Woo-hoo :o)

My overall impression is paradoxical:
Windows XP Professional Edition which I’ve been running so far is made by a huge, succesful corporation and sells for a lot of money. Linux is made by passionate amateurs and professionals around the world, loosely organized in an open source Community. The version I’m using is not only free, they actually go to considerable lengths to give it away, eg. by mailing people free install CD’s.

And yet Ubuntu Linux feels like a more professional, finished and complete product than Windows XP, which has always struck me as half-baked. There are solid practical reasons why I think Linux is preferable to Windows:
* Price/value – Hey, it’s free and just as good (at least)
* Free appplications – Ubuntu comes with the Openoffice.org office suite and many other great applications.
* Speed/performance – Applications run faster than on Windows
* Security – Linux is less vulnerable to viruses, adware and other attacks than Windows
* Stability – Windows is famous for crashing or needing rebooting often. Linux is famous for being stable.

Also, there are two “fluffier” reasons for me to choose Linux:
* Ideology
Ubuntu Linux is committed to an ideology which is Free Software. This is free as in freedom not free as in gratis, meaning:

* The freedom to run the program, for any purpose.
* The freedom to study how the program works, and adapt it to your needs.
* The freedom to redistribute copies so you can help others.
* The freedom to improve the program, and release your improvements to the public, so that everyone benefits.

Microsoft on the other hand is comitted to … Microsoft. Time and again they make business and technology decisions that clearly favour their bottom line rather than their customers. I don’t blaiming them, most businesses (but not all) choose this approach. It’s just not a philosophy I favour or want to support more than I absolutely have to.

Does values and philosophy matter when choosing products? It does to me, and while the Free Software philosophy doesn’t make the product any more useful to me, I believe that these principles will create better IT solutions for all of us.

* Technology base
Linux has a better technological base than Windows – quite simply, it’s built on a better foundation. Again, this may not make much of a difference for me here and now, but in the long run it definitely pays to build on solid ground.

PS.
Mygdal suggested I should switch to Apple, but while the Apple OS is certainly a better product than Windows, Apple falls short on values. Apple is Microsoft with better design.

“Us” vs. “them”

Nature had researchers blind-test articles in Wikipedia and Encyclopedia Britannica looking for errors. The result:

The exercise revealed numerous errors in both encyclopaedias, but among 42 entries tested, the difference in accuracy was not particularly great: the average science entry in Wikipedia contained around four inaccuracies; Britannica, about three.

Only eight serious errors, such as misinterpretations of important concepts, were detected in the pairs of articles reviewed, four from each encyclopaedia. But reviewers also found many factual errors, omissions or misleading statements: 162 and 123 in Wikipedia and Britannica, respectively.

This might seem surprising, knowing that the brit is written and edited by experts while Wikipedia is written by, well, us.

There’s been a lot of Wikipedia-related FUD in the media lately, especially over the Seigenthaler hoax. Here’s my point of view: Hoaxes like that are going to happen. Changing Wikipedia to make this impossible would kill it. It’s a trade-off: On the one hand Wikipedia adds new complexity at a fantastic rate precisely BECAUSE everyone can contribute. On the other hand this will lead to inacuracies, pranks, hoaxes and vandalism. However: Wikipedia has shown itself capable of dealing with most of this – it has in effect developed a highly capable immune system.