Open Source: A capitalistic value engine
Christian Paterson’s book “Open Source: A Capitalistic Value Engine” explores how Open Source practices can strategically benefit businesses. The book argues that Open Source is not merely a philanthropic endeavor but a driver of innovation and wealth creation, intertwined with capitalist principles.
In the book Paterson, an Open Source strategy and governance expert, examines how companies can generate revenue directly or indirectly from Open Source, and the operational and cultural benefits it provides. The work addresses concerns about control and competition, highlighting the importance of community engagement. Ultimately, it posits that Open Source is essential for businesses, collaboration, innovation, and competitiveness.
According to Paterson, patents, standards, and Open Source serve as the three interconnected points of “The Innovation Triangle.” The source explains that pulling on any single point influences the shape of the triangle and the value proposition that can be ascribed to different parts (angles) of the triangle. Since patents and standards are typically viewed as key to research and development innovation, funding and VC exits, the impact and influence of Open Source within a company’s business strategy can extend beyond a surface-level consideration of value.
This book aims to reshape perceptions, positioning Open Source as a strategic asset capable of enhancing competitiveness and fostering a culture of collaboration and shared innovation.
OpenSource.net interviewed Christian Paterson for his insights and experiences about Open Source, capitalism, and value creation. You can pick up a copy here. The interview has been edited for clarity.
OSnet: What led you to see open source as a “Capitalistic Value Engine,” contrasting with its community perception?
Christian Paterson: My principal motivation for writing the book was from discussions I have had over the years with well-educated, but not IT-focused, friends and family at various social gatherings. The overwhelming question/comment from these “lay” people was “How can it make sense for a company to ‘do’ open source?”
About 18 months ago, I was invited to an excellent autumnal evening bonfire BBQ. Between sipping hot soup, enjoying roasted sausages, savouring some rather lovely wine, and trying to succinctly explain the business rationale of open source to my fellow fire-hugging revellers, I realised that these questions displayed (in my mind at least) a certain confusion between the familiar concept of revenue generation (selling products to earn cash) and the seemingly less appreciated notion of business value. Out of this realization came my initial blog post which sparked what was meant to be a “simple” peer-reviewed whitepaper.
As I started to think about how I would approach the whitepaper, it dawned on me that (a) I didn’t want to write just another “here are the benefits of Open Source” document and (b) too many speakers at conferences, especially in France, promoted Open Source with what can probably be best termed as a mindset of revolutionary ethics; that is to say, liberating software for the good of human and societal advancement. And, of course, they are right; open source does help fulfil this need, but the messaging missed the business logic. To put it bluntly, people often espoused the ethical and social benefits whilst seeming to assume that companies would understand the business benefits. It can be argued that the two should be the same (in the sense that combating climate change should have obvious business benefits), but such is not the case in the finance market-driven world in which we currently reside. This desire to approach the question of why open source makes sense for companies differently led to the book’s key messaging around open source and capitalistic endeavour.
OSnet: You emphasize the interconnectedness of “value capture” and “value generation” in open source. How do these two concepts work to create financial benefits for companies, and perhaps provide a concrete example of a company that effectively leverages both?
CP: These two concepts are flip sides of the value coin. When we talk about value capture, we’re talking about getting paid for our products/services. Numerous companies (Red Hat, NextCloud, WordPress, PrestaShop, Xwiki …) sell professional services, cloud hosting, plugins and extensions around their Open Source offerings: they generate cash-in directly from the open source they produce.
The creation of value is somewhat less direct, but it’s frequently the underlying concept when Open Source benefits are discussed. Consider, for an extreme example, Google’s Android Open Source Project (ASOP). They did not sell this project or professional services related to it. Instead, they used AOSP to enter the mobile marketplace with an operating system that they could control and exploit to drive ad revenues through installed services such as Google Search (not to mention skimming a “tax” from the Play Store or disrupting Apple). In this sense, Google exploited Open Source to generate value but not as a direct means to capture value. There are numerous other examples of companies releasing Open Source as part of a considered approach to market access, market positioning, competitor jockeying and entrenched player disruption, all with the ultimate goal of selling more products and increasing revenues, from Apple ResearchKit to Meta’s React Native.
OSnet: Many business leaders express concerns about losing control and giving competitors an advantage by adopting open source. How does your book address these fears? Can you point to examples where companies have navigated these challenges?
CP: These are valid concerns and represent many of the more frequent decision-maker comments I hear. After all, why go through the effort of creating something which intrinsically has value (otherwise, why would you have made it) that other competitors can easily exploit? There are several replies to this, setting aside maybe the most significant point, which is the word “easily”: the operational ability of competitors to understand and use the project within their endeavours.
The book outlines strategies for companies to maintain control and potentially generate revenue from open source through patents, trademarks, licensing, and contribution agreements. Equally, clever engineering that separates commodity – or core – core-functionality with value-added functionality enables companies producing Open Source software to embrace an open and collaborative developer community whilst not providing a completely free lunch for competitors. Of course, if competitors start to feed back into the project because that makes operational sense for them, they effectively become co-investors. That may not stop them from obtaining an advantage, but it helps make the relationship less unidirectional. In this manner, one of the best defence tactics against competitors gaining an unfair advantage is to co-opt them into the project through a genuinely open and meritocratic governance structure.
OSnet: How can companies strategically use open source, patents, and trademarks together – your “Innovation Triangle” – to improve their market position and profitability?
CP: The first thing to remember is that Open Source is an excellent dissemination tool. If a patent is filed or a standard is published, Open Source serves as a highly effective mechanism. This is because it efficiently distributes the underlying ideas to the broader industrial and tech sectors.
In the case of standards, this is often done by issuing open source reference implementations (which may be linked to Standard Essential Patents). From a strategic perspective, Standards are enticing; you can influence the direction of travel for a whole industry, and if you manage to get your patents included, you have something of a gravy-train revenue source. The downside is that Standards take a very long time to get agreed upon and involve multiple parties. They’re not a short- or even medium-term profitability engine, nor are you likely to be the only diner at the table. So, while of interest for those with the stamina, they are not tactically appropriate for delivering profitability.
Regarding patents—note that I’m neither a lawyer nor an IP expert—the Open Source question is more nuanced. Since patents must embody a novel concept or solution, one that has not yet been explored publicly, they must be filed before any associated open source is released. Once granted, the release of associated Open Source can play an interesting strategic role in helping to access or grow markets. Tesla used this approach to help develop the nascent EV market. Indeed, its charger technology has now formed the basis for the North American Charging System standard, SAE J3400. Conversely, patents can be held in reserve to defend against third-party litigation impacting an Open Source project. For example, the Open Invention Network pools patents concerning Linux to help protect the Linux open source project and OIN participants from patent troll attacks. Such defensive patents can also be used to litigate against companies that break related Open Source licence conditions. Thus, license violations can include both copyright and patent infringement, depending on the license’s provisions. It’s a double whammy, thus, a double incentive for companies to respect the Open Source project license.
Finally, there’s the question of trademarks. While a trademark won’t protect an Open Source project from being leveraged, it can be used to restrict the re-use of the project name or assets such as logos and even fonts. Google Android and Red Hat Enterprise Linux (RHEL) are excellent examples of leveraging trademarks about Open Source. This application of trademark serves at least three purposes (there may be more, but I am not a trademark expert): Restricting project exploitation by competitors, reducing revenue loss to forks or piggyback services, and providing the basis for a paid certification/licensing regime. Both of these aspects have pretty obvious capitalist value.
OSnet: Given the increasing focus on digital sovereignty at national and corporate levels, how does open source adoption contribute to this goal in a way that aligns with capitalist principles of value creation and capture?
CP: Fantastic question! Open source is one of the primary keys to unlocking technical sovereignty (not just software but also hardware). In my book, I list this as one of the key strategic benefits from a capitalist and societal perspective: the ability to break free from the chains of our traditional closed-source, proprietary-loving technology “overlords” to both better master consumed IT software, services and infrastructures, as well as better determine where/how investment money is placed. The big technology providers have played the game of positioning technical lock-in as a requirement for functional richness, ease of use, and even security for years. Of course, we all know better…even regulators are starting to get wise to the game. On the flip side, so to speak, it may appear counterintuitive to promote technical sovereignty within your services, platforms, software, or hardware as a publisher or industrialist, but the freedoms provided to end-users (and yes, that also means competitors) have been shown repeatedly to deliver business value, whether that be from market disruption or empowering an engaged community where users become part of the fundamental fabric of the product value chain.
From a national perspective, it is pretty clear that embracing Open Source as a dynamic for technical sovereignty helps to power innovation and new business; from reducing supplier lock-in risks, to producing code that can be used (and contributed to) by others, to new data sources and services for enterprising start-ups or researchers. Lutece from the City of Paris is a great example, but there are so many others that I don’t think there is any question about the value of Open Source at a national level anymore.
OSnet: How do recent licensing changes by Redis/HashiCorp impact open source’s reliability/business-friendliness perception, and your thesis?
CP: There’s rightly a lot of debate about these kinds of attempts to morph or constrain the notion of Open Source, which has, in many cases, resulted in the companies that attempt this to backtrack pretty rapidly. I’ve seen that (a) such attempts generate significant hostile community and client publicity, and (b) despite some temptation, most companies producing Open Source do not go down this route, i.e., they understand that the risk/reward balance isn’t there. The immense polemic around what should be considered Open Source artificial intelligence and the Open Source AI definition (OSAID) is another example of where (often VC-driven) commercial interests rub up against the “spirit” of Open Source freedoms.
Beyond this, your question also highlights the common conflation between production, or delivery, model and business model. Emily Omier discussed this at last year’s Open Source Experience 2024 event. From my perspective, there are enough avenues of revenue generation to explore for Open Source-based products (highlighting the distinction between project and product) that attempting to place constraints a posteriori on any underlying projects should be unnecessary and is, as mentioned, generally ill-advised.
You can pick up the book in digital or paperback formats here.
