Strategic Economic use of Free Software

Well today I will write about some interesting talk Juan José Hierro gave long time ago, in which he explained very clearly and in non-techie terms (actually it will feel more into economic terms) how exactly is that now a days companies take advantage of the free software faculties and turn them into profit for theirselves.

According to what Juan José said the free software can become an strategic tool for the company, and this is not necessarily for when your core business is software commercialization but also even if your core business is a very different thing. So what he explains is that basically there exist something called the Law of Conservation of Attractive Profits which applies perfectly to describe the phenomenon that occur when something like free software is used in our businesses.

Usually in any market there exists elements that are connected one right next to each other, since the one that is next to me takes my product and adds it more services and this new product is taken by another one that adds more functionality and this is how the value network is formed. Well what the Conservation of attractive profits law says is that if I get to convert one of the elements of the network into a module or a commodity, then the money perceived by that actor now can get to be obtained by the network elements that are surround it.

Its very simple to see how this work with an example for instance with what google clearly did with android. Back then in the ecosystem we had google as service provider, then there were nokia as a dominant cellphone provider with their own operative system, and finally there were the telecoms. So google thought “hey now Nokia is taking a lot of money here when we can do something about it”, so this is when they decided to create the android OS, turning mobile systems into a commodity so any hardware provider now could make business which would finally end up in a new redistribution of the money taken from nokia earnings now into google, the new hardware providers, and the telecoms. This is so much powerful method that even gives entry to the market to new agents or partners thanks to the commoditization you just have done.

This is the main strategy on how to use free software in business and make some revenues from it, and google has saw it so clear that they were willing to pay whatever they had in order to make the android project become true. And this is how it should be use in any kind of value network whenever the opportunity comes to you or your company.

Finally as a side effect the free software can be used to promote innovation since that the moment I create the commodity and get to move revenues to the surrounding nodes of the value network, this will call people’s attention since there is money in this surrounding activities, so now the people involved in this surrounding activities will try to differentiate themselves from each other and this will end up in continuous innovation. A clear example of this is what is happening right now with the smartphone hardware providers trying to make a difference even thought they all use the same OS as base.