INDUSTRY ANALYSIS

Understanding the Marketplace of Licenses

When J.S.G. Boggs needs money, he draws it. He draws one side of a banknote on high-quality paper, actual size, and presents it to the merchant.

The merchant, knowing that the banknote is not official, can accept it or ask for real cash. If the merchant accepts it, Boggs writes the details of the transaction on the back, asks for proper change, and gets a receipt.

He frames the change and receipt, and sells it to an art dealer. The dealer buys the drawn banknote from the merchant, packages all of the incidents — drawn banknote, change and receipt — of the “transaction” together, and resells the package in the art marketplace to a collector or museum.

In one case, the collected incidents from a single Boggs transaction sold for US$420,000. Talk about easy money.

Parallel Marketplaces

There are two parallel marketplaces at work here. In one, Boggs buys a product or service and the merchant sells the product or service.

In the other — arguably the more interesting and important one — the incidences of the transaction are bought and sold. While others could compete in Boggs’ marketplace by drawing their own banknotes and selling the incidents, Boggs appears to have the market cornered.

What does this have to do with open-source software? Software also trades in a marketplace and has incidents — such as the license and method of sales — that “trade” in a parallel marketplace. Software is created, distributed and used, but the incidents of the transaction can have a life of their own.

Real products are bought and sold in their marketplace with licenses attached, but the licenses themselves are created, improved, bought and possibly sold in their own marketplace.

Any time there is an unmet need in a market, someone creates a new product to meet that need. If it is not well received, it goes back to the drawing board for revisions. Although the initial copy of the product is expensive to produce, the price goes down as volume goes up.

A word-processing program might cost millions to create, but the cost can be distributed over many copies. Likewise, the first copy of a license is expensive because business people and attorneys need to be involved to ensure that the license meets business objectives and is legally effective. Subsequent copies are almost free.

When Apple decided to base its Mac OS X operating system on a BSD variant, it found no existing license to meet its needs, so it had one custom-created. When some reviewers objected to certain features of the license, Apple modified it to assuage the critics who had considerable standing in the open-source community that forms part of that marketplace.

License Creators

Another parallel is that licenses are created for the marketplace by license “creators” and consumed by license “consumers,” who take those licenses and use them with their products in the software marketplace.

If a license has features that everyone wants, it gains market share. The GPL is a good example. Developers do not want to bother with setting up an infrastructure and controls to extract per-copy revenues from their software.

They want to benefit from the improvements others make to their software but do not want anyone else to be able to make their code proprietary. The GPL has exactly the features they need.

Curiously, in the license marketplace, the GPL is not free in the sense that GPL programs are free in the software marketplace. Developers can take GPLed code, modify it and release it into the software marketplace without requiring permission of the original author.

However, they cannot take the GPL and modify it to create a new license without permission from the author — the Free Software Foundation — because the FSF holds the copyright to the GPL and does not freely license it to other license creators.

License Consumers

License consumers shop around for the right license. Some licenses are used only for one product. Other licenses are mass-produced. If the purchased license doesn’t work, it gets customized in the aftermarket. Affero and Apple are good examples of license consumers.

The cost of license creation has some interesting parallels to software creation, as well as some divergence. To my knowledge, nobody provides licenses on a per-copy basis, but you can expect to see lawyers shrink-wrapping licenses as soon as a business model exists for this idea.

Patent attorneys have already latched on to this parallel marketplace by filing patents not on actual inventive apparatus or methods but on novel ways to buy and sell products and services.

Yet another parallel between the marketplaces is that some markets might have a dominant player. Dominant player status creates network effects that maintain dominance and cause consumers to gravitate to the dominant player’s offerings — think VHS format, Boggs banknotes and Microsoft operating systems.

In the open-source license market, the dominant player is the GPL.

Because the GPL is so prevalent, license consumers are familiar with it. The network effect promotes dominance because everyone is using it. Also, because of the way the GPL is written, it locks in consumers.

Derivative works of GPLed software must be licensed under the GPL, absent another license patch, so the GPL is often the only compatible product for license consumers.

Creating Custom Features

Other types of licenses include proprietary software licenses, shareware licenses, the BSD open-source license and other open-source licenses.

While some consumers want a copyleft feature in their license to ensure that the software and its derivatives will be open and remain open, others might need a license feature that provides their software more access to tentative or proprietary organizations that shun copyleft provisions.

Thus, license consumers weigh the choice of which license to use according to their needs. License producers consider the license marketplace and then create license language that provides the most benefit. Just as car models are standardized but sell with custom features and options, some licenses are like that too.

The GPL is fairly standard, but has a few clauses that can be modified by the license consumer, such as clauses concerning geographical limitations, warranty provisions and choice of version.

Certification and Reinvention

The license market even has parallels to product certification. In some marketplaces, certification is essential. If a table lamp is not certified by Underwriter’s Laboratories as safe, it will not sell well at all.

The Open Source Initiative (OSI) certifies open-source licenses under the OSI Certified Open Source Software certification mark and program. If a license fails OSI certification, its promoter might decide to modify the license to get certification.

If an off-the-shelf license will do, often the best thing to do is to use it. Netscape custom-made a license for its open-source browser, Navigator, but it didn’t spur the growth of a developer community that Netscape had hoped for.

In the next round, Netscape used a different license, the Mozilla Public License, for a browser variant and now there is a thriving community of interested Mozilla developers.

Pick the right license and the community takes off. Pick the wrong license and there is no interest. If anyone tries to buy something from you with a Boggs banknote, take it. Compared to going back to the drawing board, it’s easy money.


Phil Albert, a LinuxInsider columnist, is a patent attorney and partner with the San Francisco office of the intellectual property law firm Townsend and Townsend and Crew LLP.


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