Open source: Big value, not big money

(Credit: Amazon.com)

Open-source software may have a lot in common with the global soccer (football) business: while it generates a tremendous amount of value for users, very little of that value can be converted into cash. At least, not directly.

That's the thought that struck me while reading the exceptional "Soccernomics: Why England Loses, Why Germany and Brazil Win, and Why the U.S., Japan, Australia, Turkey--and Even Iraq--Are Destined to Become the Kings of the World's Most Popular Sport." Among other things, the book tackles the economics of soccer, and yields some counterintuitive insights:

...[I]f Deloitte ranked [soccer] clubs by their profits, the results would be embarrassing. Not only do most clubs make losses and fail to pay any dividends to their shareholders, but many of the "bigger" clubs [like Real Madrid and Manchester United] would rank near the bottom of the list....[Note: my Arsenal is one of the few profitable football clubs on the planet.]

Whichever way you measure it, no soccer club is big business....This feels like a contradiction. We all know that soccer is huge. Some of the most famous people on earth are soccer players, and the most watched television program in history is generally the most recent World Cup final.

Nonetheless, soccer clubs are puny businesses. This is partly a problem of what economists call appropriability: soccer clubs can't make money out of (can't appropriate) more than a tiny share of our love of soccer....[T]he world earns more from soccer than the soccer industry itself does.

It's the world's biggest game...with some of the world's worst financial returns. We buy the replica shirts. (Um, I buy many.) We pay to attend games. (Er, I pay to watch many.) We try to give the game our money. But it generates very little top-line revenue, and almost never any bottom-line profits for soccer clubs.

Like football, there's no question that open source is exceedingly popular these days. Virtually every company--indeed, every person--on the planet uses it in some way, whether it's the free Firefox browser with which someone reads this blog post or the Linux operating system serving up a wireless carrier's phone system, open source is everywhere and highly useful.

It's just not big business.

Yes, Red Hat is nearing $1 billion in annual sales, but it's the exception. And that's OK.

Open source, like soccer, doesn't have to directly generate mountains of cash to be immensely valuable to the companies in its ecosystem. For every Real Madrid squeezing annual revenues of $475 million out of soccer there are scores of broadcasters, sports apparel companies, etc. making billions on the back of the sport.

In similar manner, Google, IBM, and others like them make billions with the help of open-source software, but they make very little directly from open-source software.

Like the soccer economy, the open-source software economy is best measured by the total value it creates, which will have very little to do with the direct sales the Red Hats of the world report. Open source saves enterprises billions of dollars in license fees, and arguably has the potential to collectively add trillions of dollars in productivity gains.

That's big value, even if it's not big money. Not in the pockets of software entrepreneurs like myself, anyway.

[Ric00]

Just let me correct you on:

this "Open-source software may have a lot in common with the global soccer (football) "
to
this "Open-source software may have a lot in common with the global football (soccer) "

The true sport name is Football not Soccer.

[doomsdaydave11]

Who the crap cares? This is an American site, therefore we use American terminology. "They're called trousers not pants."

[patrickfinch]

@Ric00 -says who? I say "football", not "soccer", but the games origins are in the English public school system of the 19th Century where it acquired the soubriquet "soccer", short for "association football", to differentiate it from "rugger" (rugby football). "Soccer" is perfectly acceptable, especially give that Matt writes in American :)

Football clubs are not typically profitable - that is true. Those that make money for their owners tend to do so in a highly leveraged manner, but most seem to make rather a lot of money for the employees.

And are Arsenal really profitable now that the bottom has fallen out of the housing market? A lot of empty flats in old Highbury, I believe...

[Ric00]

@patrickfinch, I understand your point of view but it's incorrect cause it's Football not Soccer, now I shall start calling you John, is that correrct if your name is Patrick?

[patrickfinch]

@Ric00 - if that even is your real name

Your argument is circular, on a charitable reading.

You appear to deny the existence of American English. No one uses more s-es and u-s than I do, but where Matt lives, the game is known as soccer, and it is known as soccer for the most English of reasons. Presumably you do not insist on the use of the term "Deutschland" because where you live, it is known as "Germany".

To your question, if enough people understood that you referred to me when you said, "John", then it would be correct, or at least reasonable enough not to be worth commenting upon.

Am I to presume that Ric00 is your "correct" name?

[ucffool]

There is this giant chasm in the middle of the article that leaps across soccer to open source. It just doesn't play. Soccer discussion disrupted by open source, and open source with loose facts and stats. Here I thought there would be an analysis or case study of some open source models toward profits (or lack there of), and now I'm left wondering, "what?"

[DMBoricua]

I've been thinking, what if Ubuntu out of nowhere had like, 50% marketshare. One of the most popular OS'es in the world being used by so many people using open source software. How is Ubuntu getting money? Lol, may sound too literal but how do open source coders get money to even bother coding such complicated stuff?

[surfinmonkey]

There is alot of money to be made if you make your software hard enough to use that you need to hire support from the company that funded the open source programs that were developed.
Ubuntu software is free but tech support for it provided by canonical costs between $473.99 and $1736.87 and that is in euro's or english pounds I think which is even more in dollars.That is a 1 year fee for server support.It sounds like alot but pay someone daily at your place to do that and it would cost you alot more.
You can see those prices on their store at this site --> http://shop.canonical.com and click on support services on your bottom left of page.

[surfinmonkey]

I checked prices again and it was $750 us dollars for support for 1 server for 1 year 9 to 5 support and $2750 us dollars for 1 server for 1 year 24/7 support and that's for Ubuntu server.Cloud support seems to be a bit more than that. If you know how to setup and manage the servers yourself,then you don't really need to pay for support .

[beelinebill]

If users want to utilize open source for their enterprise or as a reseller or integrator, they are making or saving money on other people's work. Open source companies have some ways to build a long term successful company - support subscriptions - one of the biggest issues for enterprises, commercial licensing (using dual licensing models that some of us have), selling turn-key systems/solutions that make it easy for non technical folks to leverage open source - but to continue to build, grow and continue the open source momentum, revenues have to flow inbound. Matt, your article is on point regardless of what you call the sport analogy and thanks for writing it.