Open source companies create shared value

Open source companies create shared value
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The free-market capitalistic definition of companies' goals was, for a long time, very simple: to make as much profit as possible. With that in mind, the only difference between a success and a failure was the investor's return on investment. Short-term profit became priority number one. However, this classic definition of capitalism hastransformed the way companies are perceived in the population over time.

Businesses are now considered to be prospering at the expense of the communities. Although people buy from companies, they are not entities people want to trust. Firms are perceived as being obsessed with financial results and having a detrimental effect on their surrounding environment.

TV series, which are an expression of popular culture, are an interesting example of this change. As a child, I used to watch TVseries, such as Knight Rider or Airwolf, where private companies or foundations helped fight organized crime and bring justice. Looking at TV series of today, the contrast is striking. Prison Break and Heroes both staged corporations as their villains. Funnily, all these firms are called "The Company,” making them even more impersonal. In their respective shows, these companies are instigators of conspiracies and use treason, murder, and crime to reach their objectives. The criminals are just executing the master plans of the board of directors while the heroes fight them for justice.

This expression of the popular culture demonstrates the current perception of companies in communities: ruthless managers will do whatever it takes to optimize short-term financial results at the expense of the rest of the world.

Companies, under customer or regulatory pressure, try to correct this image through periodic social actions. However, creating shared value (for both society and corporations) should not be put at the margin of the business model, but at the core. The business model should be to do good, and make money out of it, rather than make money...and do good if time and resources permit.

An interesting example to me was the quarterly earnings calls of a tech company I have invested in. The top managers spoke for an hour and a half about financial results, goals and business initiatives, until the VP of corporate responsibility had a meager fifteen-minute time slot to present all charitable actions undertaken by the company. These actions are laudable. Nonetheless, it really gave me the feeling that making profit while doing something good for communities was an indirect result through the product and services sold, but was not at the core of this company's business.

This vision of doing good first and making money out of it may seem like a post-capitalist utopia, driven by top managers lacking social recognition. However, this model already exists and already generates billions of dollars. Some companies' business units already work according to these principles, but more importantly, many firms are completely focused on creating shared value.

Free software businesses are a great example of creating this shared value. Companies like Red Hat, Talend, or Pentaho embody the principles of shared value by making billions of US dollars of revenue and supporting communities worldwide. Distributing software under, for instance, the General Public License, these businesses charge neither companies nor consumers for the use of their products, but rather for support, consulting, and services. Moreover, they provide the source code (the instructions that make the programs work) for study or modification. The comparison to a proprietary approach is fascinating: instead of selling a license, free software providers sell a solution.

They don't sell a product; they sell value.

Beyond the sole scope of corporations, free software creates shared value by directly serving disadvantaged communities, providing incredibly advanced technology to lower-income homes. The beauty of free and open source software (FOSS) is that it can be distributed at no charge. Anyone can install and use a zero-cost operating system and applications, provided by company-sponsored initiatives, such as Fedora or Ubuntu. The open source licenses make it very easy to adapt the products to the needs of users, reusing components already developed by other projects. The GPL, for instance, allows the use of GPL-licensed software for any purpose. Unlike proprietary software, which is bound to countless usage limitations, free and open source software fosters the usage of technology by giving the freedom of use to the end users. Of course, hardware is still needed at some point in time, but open source software can be equally used by people in developed as well as in developing countries, thus providing cutting-edge technology (such as virtualization) at virtually no cost.

Free software companies support the development of free and open source software projects. Their creation, such as the way the Linux kernel is written, is a collaborative approach. Anyone can participate and send patches to correct bugs in the program or launch the development of a brand-new module. Companies relying on such community projects and benefiting from the huge manpower provided by these communities cannot take total control of them. Though they can influence them by offering technological support in the form of contributions, they have to take into account the will and motivation of the community to make sure they still benefit from it. They have to balance between their agenda and the desires of the community. Companies will eventually take benefit from the project, but they have to do so by playing fair and accepting that their views are not shared by all project members. They have to support initiatives which are good for the project, but do not directly serve their interests. Why would they do so? Because they need to partner with the community to be considered a nice player to stay relevant and influential. This attitude, to me, creates shared value, both for the community and for the company.

For an employee of a free software company, this combination of working for a company and for the greater good is a compelling vision: by working for a company that shares a lot, they have a sense of working on something greater than just their own business. By helping produce software that can be used to the benefit of anyone around the world, they have a feeling of fulfillment, contributing to the global enhancement of societies.

The advantage of the open source development model is that anyone who has access to a decent Internet connection can get access to all the FOSS knowledge (by downloading the source code of the programs) and participate in the process of improving the products by sending improvement suggestions. Obviously, this can be done worldwide--the only prerequisite being sufficient Internet infrastructure and working computer hardware. The work of NGOs, such as Linux4Afrika, help accelerate the penetration of the market in developing countries by providing support, and by teaching classes at very low costs.

I believe companies working in the FOSS ecosystem definitely create shared value. By giving away their software for free, these companies make it accessible to all. By using processes based on the Internet, they make it possible for virtually anyone connected to the Internet to participate in their development and support communities. And finally, by publishing the source code, they allow anyone to take a look at how cutting-edge software is written and learn from it.

The current financial success of free software companies shows that it is possible to combine the ideal of doing something good and make money out of it, measuring their performance on a multi-dimensional scale and not only in financial terms. This success is proof that the open source business model is fast-growing, robust, and sustainable.

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2 Comments

fontana's picture
Open Source Evangelist

Talend's and Pentaho's enterprise editions are not provided under the GPL, but under proprietary commercial licenses. Thus it is rather inaccurate to suggest that they are "free software companies". See:
http://www.talend.com/products-data-integration/matrix.php
http://community.pentaho.com/faq/general.php
Red Hat has a very different business/software licensing model.

Paola Olmos Vente's picture

Hi,
I am a great fan of opensource.com and particularly I find this post extremely stimulating.
It is a reality the fact that some business are beginning to recognize that creating shared value not only contributes to a greater, common good, but it also increases the resilience of the business itself, many times displacing traditional, established players (linux vs. microsoft in some markets, wikipedia vs. britannica...etc.)
I invite you to visit the following reflections posted in our web, all concerning the "open phenomenon":

www.ideasforchange.com/en

Best regards,
Paola