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• Impacts of Product Liability

  I got an interesting comment from Mike Pellatt regarding my thoughts on why business models matter. Mike asked what the extension of product liability legislation to software would mean for the industry. This is an interesting question and a nice bit for future speculation so I thought I’d post my response. Mike, Thanks for taking the time to comment. It will be for legislatures and courts to decide on how the domains of product liability should be extended. If I were a betting man I would think that the inevitable trend towards ever greater expansion of product liability legislation might at some point bring the software industry into scope. The interesting question you raise is what impact such an expansion might have on the industry. Obviously depending on the scope of the legislation and the associated penalties it could have a tremendous impact. However, I believe this would be entirely detrimental to the open source movement for the following reasons. The concept of product liability requires that some entity can be held legally liable and responsible for paying restitution if found in breach. Now obviously a company such as Microsoft would have much to be concerned about given the scope and range of the products it sells. However, at the end of the day Microsoft can afford to implement engineering and governance processes which would reduce it risk exposure and of course it could afford to defend itself in court should that situation arise. The advantage Microsoft has is the fact that is singularly responsible for the products it ships. This is of course why Microsoft is able to offer its customers the industry's most comprehensive indemnity coverage against IP violations. In today's litigious world that is a significant differentiator for customers. Now assume that we extend product liability regimes to the software industry do you think customers will feel more comfortable buying software from a company they can hold accountable or from a Linux distributor who does not have full control of the software they ship? If you put yourself in the shoes of RedHat or Suse then what do you think and extension of product liability would do to their business models? They have a hard enough time delaing with the inherent IP infringement issues today If they were now to be held liable for anything they ship in their distro would that expand or contract the market opportunity for open source software? How would they be able to ensure that all the various components of their distro did not create some product liability issue? The answer of course is that they could and would not be able to. They would have few choices but to create a closed very tightly controlled distro with only components which they can personally stand behind. Given that liability would also fall on the customers who use software in their businesses you would see a very sharp move away from community developed software towards integrated packaged software of verifiable quality which has a well funded responsible company standing behind it. The other impact I believe and extension of product liability would have is to completely shut down the debate about component replace-ability in systems. Almost every consumer product which ships today has a little label on it somewhere which states that if you modify the product, open it up and tweak with it, then you void the warranty. If you change <anything> from the configuration that was sold then the manufacturer is no longer liable. An extension of product liability to the software domain would have exactly the same effect. It would result in the hardening of definitions of what constitutes an integrated "System" or product. Your rights to modify that "System" would be severely restricted. Customers like having someone to hold responsible so the net result would be IT policies in organizations which severely restrict the introduction of 3rd party components so that original manufacturer's warranties are not voided. What impact do you think that would have on the open source community? At the end of the day an extension of product liability rights into the software world would have significant impact but, as with most things, big companies would find a way to manage and even profit from these changes while the smaller companies would collapse under the regulatory and financial burden that these extensions would create. This would inevitably lead to a further consolidation of the software industry as companies attempt to reach the critical size and financial muscle to mitigate these new risks. Thanks again for the though provoking question Posted Tuesday, October 25, 2005 10:35 AM from Technology Policy Blog | 0 Comments Filed under: Business Models;Commercial Software;FOSS

• The Commercialization of Open Source

  My previous post on open source and open standards was originally a much longer piece which delved into some of the business model issues surrounding this debate. One of the bits I edited out, compared the commercial business model of Opera Software and Asa Dotzler's employer the Mozilla Foundation. Here's what I wrote: "The Mozilla Foundation employs several people how coordinate the development and distribution of Firefox and the foundation’s other products. In addition the foundation runs the substantial infrastructure required to coordinate any project of this scale.  For an organization that gives it’s products away for free where does the money come from to support all these resources and activities? Who pays Asa’s salary? It turns out that the answer to this question was rather nicely dodged in an interview between Roblimo and Mozilla’s President, Mitchell Baker on /. back in March. I do find the uneasiness with which Mitchell handled the issue of funding to be a little amusing. There is nothing wrong or immoral about making money. The economic development of the planet including the poorest members of society depends on everyone being able to generate an income. This is nicely articulated by Jeffrey Sachs in his book “The End of Poverty”.  If there’s nothing inherently wrong with making money and we all, even the staff of the Mozilla Foundation, need to do it in order to put food on the table then why is Mitchell so coy about where the money comes from? Maybe the problem is that once you start digging beneath the surface a little bit it turns out that the free software movement is just as dependant on “filthy lucre” as the rest of us. It may in fact be more dependant than commercial software companies because it has not other source of income. The reality is that the Mozilla Foundation is nicely capitalized and funded in various ways by some very large, very profitable commercial companies. I could not find a list of these benefactors on the Mozilla Foundation site; why not? Why does the core principle of openness appear not to extend to how the Foundation is financed?" Imagine my surprise when I looked at my feed from News Forge this morning to see that Mozila have created a wholy owned subsidiary to be called the Mozilla Corporation. Asa commented on it in his blog last night. Dan Glazman has also commented along with some speculations as to the reasons why and implications of the move. Updated: I see that Mitchell Baker has laid out the reaons in his blog. I agree with Dan that a lot of scrutiny was probably being applied to the charitable status of the Mozilla Foundation. While the overall goals and aims of the foundation can be couched in philanthropic terms it is difficult to look at thier core activity, producing a software product, as anything other than a commericial activity. This is paticularly the case given the success they have had. I believe there may be an additional reason for this move: If you are going to compete for the hearts and minds of customers against commercial software companies you can not build a long term sustainable business based on charity. Success is also a powerful motivator. I would not be surprised to learn that the commericial companies that have been the primary backers of Mozilla since it's inception are now looking to generate some return from these investments. The Q&A's posted on the Mozilla site indicate that nearly all the employees of the foundation will transfer to the Mozilla Corporation. In my view that means that the Foundation really does beomce little more than a shell which retains the core philanthropic aims of the Mozilla project; but not a lot else. You can not escape the conclusion that Mozilla has just become a commercial software company! Albeit one based on an open source foundation. The Q&A is pretty comprehensive and covers most of the questions folks are going to have about this move. Unfortunately, in my view,  the one question that needed to be answered in order to understand the full strategic implications of what has been annouced, is not even addressed: What will be the business model for Mozilla Corporation? As I pointed on in "Why business models matter", you have to be able to answer this question and there are a limited ways in what the question can be answered.   I agree with the comments I've seen which praise this move. I agree that having another sustainable commercial software company competing for the hearts and minds of customers is good for all of us. However, it will be very interesting to see how Mozilla are able to maintain thier core principles, free pricing and the relationship with all of thier volunteer developers, while building a sustainable revenue generating business. I also hope that the move to commericial status will be backed by a hihger degree of transparency for thier financials so that everyone can understand what the business model is and where the revenues to fund it are coming from. Posted Wednesday, August 03, 2005 1:22 PM from Technology Policy Blog | 0 Comments Filed under: Business Models;Commercial Software;FOSS