Fri, 11 Nov 2005

Licensing as value subtraction

Businessmen like to talk about their products' value-adds. After all, customers buy the products because of the value that the business adds to the raw materials. The business converts paper into documentation, and media into a copy of the software. Nobody says much about value-subtracts. For example, if you purchase gasoline, you take the risk that the gasoline will spill into the ground and contaminate it. That's the value-subtract for gasoline. You can't possess gasoline without taking the risk of it spilling. The use of it (the value-add) is inseparable from the risk of the possession of it (the value-subtract). The first exceeds the second, which is why people buy gasoline.

A software business may think of itself as selling software, but it actually sells a bundle of goods. They sell media containing the software, service, support, training, documentation and/or handholding. Those are all value-adds. Those are the things that customers desire and will pay for if offered separately from a license for the software. The company also requires that the user license the software. No customer would separately pay for a license that restricts their rights. That would be a subtraction in value. People buy the software because the combined value of the value-subtracting license and the value-add goods exceed the price.

Bare copyright law prevents a user from redistributing the software without a license. An open source license allows recipients of the software to redistribute it, thus an open source license is a value-add. An open source license may impose some requirements on the recipient, but those requirements are usually less onerous.

A business may want to transition from a proprietary business model to an open source business model. They may, upon introspection, notice that the income they receive from the value-subtract of licensing may be much less the income they receive from their value-adds. Licensing may only be serving to reduce the income from the value-add. In that case, the company would not need to change their business model. They would need only change the license.

An additional way to bring in income is to license the software under a license with lots of requirements, such as a reciprocal license, or a grant-back license. At the same time, the company would sell the software under a standard proprietary license with no reciprocal or grant-back clause. If a customer has an active interest in not copying the software, they may perceive a proprietary license as a value-add. This provides an means for a company to have the same product be both open source and proprietary. It can be tricky, since you need to have a contributor agreement for open source contributors, but that's reasonably well understood and not terribly controversial.

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