The Flaws in Packaged Software Business Model

The packaged software business is a multi-billion dollar (American) industry that has come a long way within a relatively short period of time. Companies like Microsoft, Oracle and the rest of the players in the software industry are well known amongst common people and perhaps among most enterprises as Information Technology has taken center stage. A debate has always raged through out industry and academia about the advantages of intellectual propriety rights (IPR) in the context of software. Recent trends, perhaps helped along by the increased prominence of open source software, indicate that selling software may not be a viable business model in the long run thus increased interested in offering software as the basis of a service based business model. Well, unless if you are Microsoft with a huge interested in package software then you would dream up something like Software + Services as a business model. The software + services route might just work for Microsoft because they hold some pretty huge influence with regard to install base in both operating systems and productivity software categories.

Piracy has been and will always be fundamentally damaging to a business model based on selling packaged software though that assertion is from an ethical perspective which assumes that the effects of piracy are always negative. Condoning piracy would appear to be a winning strategy as far as gaining market share and achieving a critical mass with regard to install base. However, allowing piracy may not seem that ethical at all because the software producer is clearly entrapping end users by making it easy to pirate the software in the first place. At the moment, with increasingly capable and more user friendly open source software, the possibility of users switching to open source alternatives cannot be ignored anymore. In order to deal with the threat that OSS databases like MySQL represent, most of the major database source vendors offer a free version of their flagship products for free. So aggressive pursuit of anti-piracy policies may possibly result in erosion of market share as time passes though I think Microsoft can afford to shed off some points from its OS and office productivity install base.

The piracy problem perhaps points to a fundamental flaw in the idea of IPR in the context of software. The protection of IPR in software is amazingly weak considering the artifact that is being protected. Making a comparison between physical property (or intangible property that can be locked in a cup) and the so called intellectual property that comprises of bits and bytes, the latter can always be reverse engineered or various work-around devised to allow for unauthorized usage. The effort to ensure that the software is not stolen would probably also enable the software not to gain any meaningful relevance in the market thus losing the original investments made to produce the software the first place.

The story of the Internet and perhaps that of the computer industry has been that of sharing and in the latter case down right circumvention of copyright. Anyone interested in the history of Silicon Valley should have a look at how the companies (Compaq, HP etc) that produced clone machines got started. These people successfully reverse engineered the IBM PC without violating Big Blue’s copyrights at the time and this effort went along way, arguably, to make the PC the success that it is today. The Internet started as a medium for collaboration between researchers in academia and it grew from there; that succinctly explains its openness and how much of the security that it has seem to be more of an after though than an original design of the platform itself. If security had been designed as part of the Internet from the outset perhaps it may have been possible to enforce IPR on digital content and material but as it is too many components of the Internet architecture have security features that seem to have been grafted on.

In conclusion, it is hard to protect IPR within the context of software because of the artifact itself. The IPR laws that exists can be applied in the software realm but they can never work as well as they have worked in IPR in the context of tangible property or intangible properties whereby the originator has true control over the intangible property in question. The OSS movement seem to have a fundamental understanding of the flaws inherent in selling packaged software: software should be the basis of a service based business model.

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