The idea has been around ever since people noticed the constantly dropping price of megabytes. Free is the business plan of the internet age – the challenge is to figure out how to make money from not charging any money.
This is the problem that always faced open-source developers, having someone pay them for the hard work they put in at the computer, developing applications which usually only have a niche market in the US, and are by definition free. But in China, a combination of government support, creative use of technology and sheer economics of scale may finally have unlocked the puzzle.
THE OLD DAYS
The basic idea behind open-source software goes back to the early history of computers. Computers needed systems on which to run their software, and originally these were free… and all but indecipherable to anyone without a degree in computer engineering. Because the nascent computer industry was based on collaboration between universities and corporations, the world of software was treated much the way scientific research is still treated; open and subject to peer review. But this was in the age before home computing turned everyone on the block into a computer user.
Bill Gates realized that the average PC user would accept paying for what could otherwise be gotten for free if it meant that they did not have to deal with the technical complexities of making the software work on their own. Thus Microsoft was born. The trade-off for the consumer is that Microsoft code is proprietary; therefore the consumer cannot make changes to the software themselves. It is the equivalent of a car with the hood sealed shut.
OF NATIONAL IMPORTANCE
In 1999, the Chinese Academy of Sciences developed Red Flag Linux, an operating system based on open-source Linux technology, for the Chinese market. The decidedly patriotic tinge of the name, as well as the decision two years later by China Center for Information Industry Development’s venture capital subsidiary CCIDNET Investment to become Red Flag’s second largest shareholder, confirmed the Chinese government’s interest in developing a domestic operating system.
Having a domestic operating system can save money. For example, in 2005 the Brazilian government decided to migrate government offices to open source software, saving it USD 10 million in licensing fees in the first year alone.
Talks were also held in 2003 between representatives of China, Japan, and Korea to discuss the joint development of an Asian operating system, which led to the development of a pan-Asian Linux distribution, Asianux, through joint co-operation between Red Flag Software of China, Miracle Linux of Japan, Haansoft of Korea and, more recently, VietSoftware of Vietnam.
OPENING I.T. UP
The Chinese government’s eleventh five-year plan (2006-2010) calls for the service industry’s share of the GDP to grow to 43.3% by 2010. A large percentage of this growth is expected to come from IT, as evidenced by the increase in IT R&D spending from 1.3% to 2% of GDP. The government has supported open source technology as a means of cutting costs and giving Chinese software developers a head start in competing with their foreign counterparts.
One immediate problem China faced was the lack of programmers trained in Linux. The government responded by establishing National Linux Technology Training and Promotion Centers in 40 universities and colleges across the country. These centers are part of a larger effort to improve the ability of the country to create its own domestic Linux platform. To further this goal, the Ministry of Education has also enlisted the support of numerous open source-oriented Western technology firms — including Oracle, SUN Microsystems and IBM — in training and supplying, and even in establishing joint research centers on Chinese university campuses.
While the Linux desktop is used by only 1.5% of the PC market, versus 90% for Microsoft’s Windows system, in the server market a conservative estimate is that 11% of servers in China alone are run using Linux software. Open-source software can be legally modified and renamed, so it is difficult to know exact numbers, some analysts estimate as high as 40%.
According to Kevin Song of the China OSS Promotion Union, an NGO established in 2004 to promote the adoption of open source technologies in China, “the most popular open source software programs in China are Linux, Apache, MySQL, and of course Java.”
This indicates a preference among Chinese businesses for the LAMP — Linux (the operating system), Apache (the web server), MySQL (the database manager), and Python (the scripting language) — service bundle, the underlying infrastructure behind most e-commerce websites. According to Netcraft.com, the Apache HTTP Server served 46% of websites worldwide and over two-thirds of the million busiest. MySQL’s database software is used by over 11 million clients around the world, including Facebook and Google, and boasts more downloads from China than any other country.
Considering the importance of B2B websites and online databases to China’s massive manufacturing sector these numbers highlight the critical footholds open source technologies have already established around the world, and their growing importance in the Chinese market.
DESKTOP DRIVE
The real game-changer, and the key to making open source software truly viable, especially in the work environment, is an office suite. Becoming the go-to software for people at work creates an incentive for them to use the same systems at home. Therefore open source must be able to provide competitive and user-friendly office applications.
The leading contender is Open Office, an office suite that is compatible with many Microsoft Office formats and can be used on computers running a number of different operating systems. A Chinese version named Red Office was developed by the Chinese Academy of Sciences shortly after Red Flag Linux, and, after going private under the name Redflag Chinese 2000 Software Company, was acquired by Sino-I Technology Limited of Hong Kong.
Red Office’s Peter Junge explains how they added value to the original source code by attaching proprietary libraries and taking “a very different approach from most user interfaces.” Because of China’s character-based language, Red Office’s user interface is icon-based, which makes it easy to use even if you cannot read Chinese. The largest customers of Red Office’s products are government departments.
WHERE’S THE MONEY
Open source software is not without its problems though. “No one has figured out an efficient business model for open source software other than IT support,” says Frederic Mueller, an organizer for the Beijing Linux User’s Group.
SUN Microsystems, a producer of both open source software and hardware, has had mixed success convincing web companies whose growth is facilitated by free SUN software to purchase SUN hardware or premium versions of free software as they expand.
At the moment, most business models revolve around charging customers for the added value of modifications made to the original code, as well as IT support for those programs and systems. Kevin Song adds, “if [entrepreneurs] cannot make money from open source, they should make money from other places, such as advertisements, and they can save money with open source.” Companies with significant internal IT resources can develop and maintain open source software themselves, saving on both the initial investment and annual licensing fees for years to come.
One good example of this phenomenon is Chinese social networking giant Tencent (腾讯). Tencent owns China’s most popular internet messaging service, QQ, which serves as the foundation for the country’s largest social networking site — all QQ users immediately have a Facebook-like profile connected to their messaging account — which boasts almost 900 million user accounts. Netcraft.com, a site set up to monitor the different software used on internet servers worldwide, reported that sites under the qzone.qq.com domain, owned by TencentQQ, added 8.9 million new pages in March 2009 alone, giving them a grand total of 29 million sites, all handled by a “new” software called the QZHTTP server.
The QZHTTP server, which has become the third most used server software on the internet in a matter of months, is most likely a modified and renamed version of existing open source software, such as the Apache server, which, because of open source licensing agreements, can be legally customized and renamed as long as the technology is not then distributed. This has made software like the QZHTTP server a cheap method for companies like Tencent to grow exponentially.
As for most consumers, in an era of shrinking budgets only those open source software vendors who can make their additional, paid-for products cheaper than traditional licensing fees will have obvious appeal to customers. The recent Oracle offer of USD 7.4 billion to acquire SUN Microsystems follows the general consensus that the struggling technology company’s portfolio of open source software technologies holds promise, even if no one has yet elaborated a plan on how to deliver on that promise. According to Li Keyan, Director of Platform Strategy at Microsoft China, “Microsoft’s focus continues to be on helping customers and partners be successful in a heterogeneous technology world, thoughtfully combining open source, hybrid, and traditional approaches . . . Today, more than 80,000 open source applications run on Windows.”
THE CHINA PROMISE
The abundance of computer programmers in developing countries like China make the use of open source technologies even more affordable than in developed markets, where high salaries for IT experts drive up the costs of “free” software.
The expansion of markets in the developing world also means that even if open source technologies and products never increase their market share beyond what has been achieved in developed markets, the sheer size of the computing world being created in China guarantees large markets for open source for the foreseeable future, or as SUN Microsystems likes to point out, "volume will drive value".
But while the future of open source technologies seems assured in China, until developers can think of a business plan most people will still be driving around in a car with the hood sealed shut.
[Published on hina International Business Magazine]