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BUSINESS | Noah Brier

Life Lessons of Open Source

What happens when open source goes mainstream and consumers begin to understand the real relationship between cost and value?

June 20, 2005 | RSS | EMAIL | PRINT | 3 COMMENTS

As I was reading this article about open source companies slashing prices to compete with each other, I made a quick note.

Product = Free, Support = $$$

While I've certainly thought about open source before, for some reason this simple equation popped into my head as revolutionary. This is a huge shift in the way we understand business, specifically in the software industry. It's basically the opposite of what we're used to. However, I really wrote it back because I wondered what could this mean outside just software? What lessons do we learn from open source? What products might we see free in the near future as a result of those lessons?

First off, it's important to note that this is a kind of subscription model (to put it in terms we already understand). You are paying for an ongoing service, just in the same way you would pay for your phone service, cable, etc. Only difference is, that in those examples, and most subscription examples, the product is what you're paying for, not the support. A notable exception to this is extended support plans. Like when you buy a new computer and you decide to pay an extra few hundred dollars for it to be under warranty for three years instead of one. In that case, we are paying for support, however, that support is going along with a product we paid for, and has a concrete cost, so the purchase is easier to justify.

Open source support on the other hand, is paying to keep something running that costs nothing. Using our current understanding as a consumer, it's hard to justify. Why pay for support on something that's free to begin with? How is it worth it?

What's interesting here, is that if there were some cost attached to the software, it would probably be easier to justify the support expense. In other words, the reason open source companies who exist on paid support will struggle is exactly the same reason they will succeed. We have trouble seeing value in something that costs nothing, despite the fact that it's obviously worth more than that. We as humans are not very good at separating cost and worth, at least not at the moment.

That's where things get exciting. Imagine if open source really takes off and people start to take the lessons they're learning offline. All of a sudden we have a real understanding of value regardless of cost. This makes us much more powerful consumers because we will be better at seeing the real value in products despite what price points companies have set for them. It's no secret that companies price certain products at premium levels just to make them seem more valuable than competitors, despite little to no difference in the products themselves.

For the first time, consumers will have a real opportunity to fight back. To understand the real value of things.

And that's good for all of us.

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COMMENTS

1barbara

Can you take it a step further and bring branding into the equation? Right now, the extrinsic value of a brand name can raise the price of a product out of all relation to its cost. (I'm not well enough educated to come up with a software, or even a technology example, but anything with a Burberry label is a good illustration of paying for brand cachet.) Back-in-the-day, we called that extrinsic value. Is support an extrinsic or intrinsic value? Does it matter?

June 20, 2005

2Noah Brier

That's an interesting question. If I understand correctly, I would put support as we know it somewhere in-between. Clearly the support you're paying for is based on the name you know, for example, in the Linux world, Red Hat is a fairly well-known brand name. However, the whole idea of open source software is that you're giving it away, thus (I would assume) diluting the cachet of the brand.

Not sure that answer's the question, but it's definitely an interesting one. Brand names are getting more and less valuable at the same time. Luxury brands are doing better than ever and super-budget brands are as well, it's the middle that's getting squeezed to hell. It's those brands who have neither the extrinsic value of a high-profile name/image, nor the intrinsic value of high quality for a low cost, that are getting hurt the worst.

I'm not quite sure where this falls, though.

June 20, 2005

3barbara

It's interesting to think about this in the context of Howard Shultz's piece on Starbucks and service. Service is a lot like support, and again, in my day, customer service is what gave a store its cachet -- Best & Company, Saks, Bergdorf's -- known for white glove service. I think it's interesting that a lot of these retailers -- even Abercrombie, which seemed to have made awful service and crappy products its mission -- are looking at service differently now. (The NYTimes said Abercrombie was trying to be "nice". I, personally, hope it's a dismal failure and they get the comeuppance they deserve for destroying the Abercrombie name! :-)

I'm not sure why, but I think this is relevant to the extrinsic/intrinsic question. I think support, provided promptly and thoughtfully is both an intrinsic and extrinsic value; I'd equate it with Neiman's minimal charge for hemming your $200 jeans. In other words, it's good business, gives your store its brand cachet, and as long as you don't charge too exhorbitantly for it, the customer will ante up ... I think. There's value in the service, and that's somehow separate from the product; the credit goes to the seller, not the jeans manufacturer. Does that make sense and/or advance the discussion?

June 20, 2005