Commercial software

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Commercial software, or seldom payware, is a computer software that is produced for sale [1] or that serves commercial purposes. Commercial software can be proprietary software or free and open-source software. [2] [3] [4]


Background and challenge

While software creation by programming is a time and labor-intensive process, comparable to the creation of physical goods, the reproduction, duplication and sharing of software as digital goods is in comparison disproportionately easy. No special machines or expensive additional resources are required, unlike almost all physical goods and products. Once a software is created it can be copied in infinite numbers, for almost zero cost, by anyone. This made commercialization of software for the mass market in the beginning of the computing era impossible. Unlike hardware, it was not seen as trade-able and commercialize-able good. Software was plainly shared for free (hacker culture) or distributed bundled with sold hardware, as part of the service to make the hardware usable for the customer.

Due to changes in the computer industry in the 1970s and 1980s, software slowly became a commercial good by itself. In 1969, IBM, under threat of antitrust litigation, led the industry change by starting to charge separately for (mainframe) software [5] [6] and services, and ceasing to supply source code. [7] In 1983 binary software became copyrightable by the Apple vs. Franklin law decision, [8] before only source code was copyrightable. [9] Additionally, the growing availability of millions of computers based on the same microprocessor architecture created for the first time a compatible mass market worth and ready for binary retail software commercialization. [9]

Commercialization models for software

Proprietary software commercialization

Common business wisdom is that software as digital good can be commercialized to the mass-market most successful as proprietary good, meaning when the free sharing and copying of the users ("software piracy") can be prevented. Control over this can be achieved by copyright which, along with contract law, software patents, and trade secrets, provides legal basis for the software's owner, the intellectual property (IP) holder, to establish exclusive rights on distribution and therefore commercialization. [10] Technical mechanisms which try to enforce the exclusive distribution right are copy-protection mechanisms, often bound to the physical media (floppy disc, CD, etc.) of the software, and digital rights management (DRM) mechanisms which try to achieve the same also in physical media-less digital distribution of software.

When software is sold in binary form only ("closed source") on the market, exclusive control over software derivatives and further development is additionally achieved. The reverse engineering reconstruction process of a complex software from its binary form to its source code form, required for unauthorized third-party adaption and development, is a burdensome and often impossible process. This creates another commercialization opportunity of software in source code form for a higher price, e.g. by licensing a game engine's source code to another game developer for flexible use and adaption.

This business model, also called "research and development model", "IP-rent model" or "proprietary software business model", was described by Craig Mundie of Microsoft in 2001 as follows: "[C]ompanies and investors need to focus on business models that can be sustainable over the long term in the real world economy…. We emphatically remain committed to a model that protects the intellectual property rights in software and ensures the continued vitality of an independent software sector that generates revenue and will sustain ongoing research and development. This research and development model … based on the importance of intellectual property rights [was the] foundation in law that made it possible for companies to raise capital, take risks, focus on the long term, and create sustainable business models…. [A]n economic model that protects intellectual property and a business model that recoups research and development costs have shown repeatedly that they can create impressive economic benefits and distribute them very broadly." [11]

Free and open-source software commercialization

While less common than commercial proprietary software, free and open-source software may also be commercial software in the free and open-source software (FOSS) domain. But unlike the proprietary model, commercialization is achieved in the FOSS commercialization model without limiting the users in their capability to share, reuse and duplicate software freely. This is a fact that the Free Software Foundation emphasizes, [12] and is the basis of the Open Source Initiative.[ citation needed ]

Under a FOSS business model, software vendors may charge a fee for distribution [4] and offer pay support and software customization services. Proprietary software uses a different business model, where a customer of the proprietary software pays a fee for a license to use the software. This license may grant the customer the ability to configure some or no parts of the software themselves. Often some level of support is included in the purchase of proprietary software[ citation needed ], but additional support services (especially for enterprise applications) are usually available for an additional fee. Some proprietary software vendors will also customize software for a fee. [13] Free software is often available at no cost and can result in permanently lower costs compared to proprietary software. With free software, businesses can fit software to their specific needs by changing the software themselves or by hiring programmers to modify it for them. Free software often has no warranty, and more importantly, generally does not assign legal liability to anyone. However, warranties are permitted between any two parties upon the condition of the software and its usage. Such an agreement is made separately from the free software license.

Reception and impact

All or parts of software packages and services that support commerce are increasingly made available as FOSS software [ citation needed ]. This includes products from Red Hat, Apple Inc., Sun Microsystems, Google, and Microsoft. Microsoft uses "commercial software", to describe their business model [14] but is also mostly proprietary.

A report by Standish Group says that adoption of open source has caused a drop in revenue to the proprietary software industry by about $60 billion per year. [15]

See also

Related Research Articles

Free software Software licensed to preserve user freedoms

Free software is computer software distributed under terms that allow users to run the software for any purpose as well as to study, change, and distribute it and any adapted versions. Free software is a matter of liberty, not price: all users are legally free to do what they want with their copies of a free software regardless of how much is paid to obtain the program. Computer programs are deemed "free" if they give end-users ultimate control over the software and, subsequently, over their devices.

Viral license is an alternative name for copyleft licenses, especially the GPL, that allows derivative works only when permissions are preserved in modified versions of the work. Copyleft licenses include several common open-source and free content licenses, such as the GNU General Public License (GPL) and the Creative Commons Attribution-Sharealike license (CC-BY-SA).

Open-source software Software licensed to ensure source code usage rights

Open-source software (OSS) is a type of computer software in which source code is released under a license in which the copyright holder grants users the rights to use, study, change, and distribute the software to anyone and for any purpose. Open-source software may be developed in a collaborative public manner. Open-source software is a prominent example of open collaboration.

A software license is a legal instrument governing the use or redistribution of software. Under United States copyright law, all software is copyright protected, in both source code and object code forms, unless that software was developed by the United States Government, in which case it cannot be copyrighted. Authors of copyrighted software can donate their software to the public domain, in which case it is also not covered by copyright and, as a result, cannot be licensed.

Free and open-source software Software whose source code is available and which is permissively licensed.

Free and open-source software (FOSS) is software that can be classified as both free software and open-source software. That is, anyone is freely licensed to use, copy, study, and change the software in any way, and the source code is openly shared so that people are encouraged to voluntarily improve the design of the software. This is in contrast to proprietary software, where the software is under restrictive copyright licensing and the source code is usually hidden from the users.

Free/open-source software – the source availability model used by free and open-source software (FOSS) – and closed source are two approaches to the distribution of software.

Multi-licensing is the practice of distributing software under two or more different sets of terms and conditions. This may mean multiple different software licenses or sets of licenses. Prefixes may be used to indicate the number of licenses used, e.g. dual-licensed for software licensed under two different licenses.

A permissive software license, sometimes also called BSD-like or BSD-style license, is a free-software license with only minimal restrictions on how the software can be used, modified, and redistributed, usually including a warranty disclaimer. Examples include the GNU All-permissive License, MIT License, BSD licenses, Apple Public Source License and Apache license. As of 2016, the most popular free-software license is the permissive MIT license.

A proprietary device driver is a closed-source device driver published only in binary code. In the context of free and open-source software, a closed-source device driver is referred to as a blob or binary blob. The term usually refers to a closed-source kernel module loaded into the kernel of an open-source operating system, and is sometimes also applied to code running outside the kernel, such as system firmware images, microcode updates, or userland programs. The term blob was first used in database management systems to describe a collection of binary data stored as a single entity.

In the 1950s and 1960s, computer operating software and compilers were delivered as a part of hardware purchases without separate fees. At the time, source code, the human-readable form of software, was generally distributed with the software providing the ability to fix bugs or add new functions. Universities were early adopters of computing technology. Many of the modifications developed by universities were openly shared, in keeping with the academic principles of sharing knowledge, and organizations sprung up to facilitate sharing. As large-scale operating systems matured, fewer organizations allowed modifications to the operating software, and eventually such operating systems were closed to modification. However, utilities and other added-function applications are still shared and new organizations have been formed to promote the sharing of software.

License compatibility is a legal framework that allows for pieces of software with different software licenses to be distributed together. The need for such a framework arises because the different licenses can contain contradictory requirements, rendering it impossible to legally combine source code from separately-licensed software in order to create and publish a new program. Proprietary licenses are generally program-specific and incompatible; authors must negotiate to combine code. Copyleft licenses are deliberately incompatible with proprietary licenses, in order to prevent copyleft software from being re-licensed under a proprietary license, turning it into proprietary software. Many copyleft licenses explicitly allow relicensing under some other copyleft licenses. Permissive licenses are compatible with everything, including proprietary licenses; there is thus no guarantee that all derived works will remain under a permissive license.

The Microsoft Open Specification Promise is a promise by Microsoft, published in September 2006, to not assert its patents, in certain conditions, against implementations of a certain list of specifications.

Companies whose business center on the development of open-source software employ a variety of business models to solve the challenge of how to make money providing software that is by definition licensed free of charge. Each of these business strategies rests on the premise that users of open-source technologies are willing to purchase additional software features under proprietary licenses, or purchase other services or elements of value that complement the open-source software that is core to the business. This additional value can be, but not limited to, enterprise-grade features and up-time guarantees to satisfy business or compliance requirements, performance and efficiency gains by features not yet available in the open source version, legal protection, or professional support/training/consulting that are typical of proprietary software applications.

Free-software license license allowing software modification and redistribution

A free-software license is a notice that grants the recipient of a piece of software extensive rights to modify and redistribute that software. These actions are usually prohibited by copyright law, but the rights-holder of a piece of software can remove these restrictions by accompanying the software with a software license which grants the recipient these rights. Software using such a license is free software as conferred by the copyright holder. Free-software licenses are applied to software in source code and also binary object-code form, as the copyright law recognizes both forms.

BSD licenses are a family of permissive free software licenses, imposing minimal restrictions on the use and distribution of covered software. This is in contrast to copyleft licenses, which have share-alike requirements. The original BSD license was used for its namesake, the Berkeley Software Distribution (BSD), a Unix-like operating system. The original version has since been revised, and its descendants are referred to as modified BSD licenses.

Copyleft Practice of mandating free use in all derivatives of a work

Copyleft is the practice of granting the right to freely distribute and modify intellectual property with the requirement that the same rights be preserved in derivative works created from that property. Copyleft in the form of licenses can be used to maintain copyright conditions for works ranging from computer software, to documents, art, scientific discoveries and even certain patents.

Proprietary software, also known as non-free software, is computer software for which the software's publisher or another person reserves some rights from licensees to use, modify, share modifications, or share the software. It sometimes includes patent rights.

GNU General Public License Series of free software licenses

The GNU General Public License is a series of widely-used free software licenses that guarantee end users the freedom to run, study, share, and modify the software. The licenses were originally written by Richard Stallman, founder of the Free Software Foundation (FSF), for the GNU Project, and grant the recipients of a computer program the rights of the Free Software Definition. The GPL series are all copyleft licenses, which means that any derivative work must be distributed under the same or equivalent license terms. This is in distinction to permissive software licenses, of which the BSD licenses and the MIT License are widely used, less restrictive examples. GPL was the first copyleft license for general use.

Software categories are groups of software. They allow software to be understood in terms of those categories, instead of the particularities of each package. Different classification schemes consider different aspects of software.

Software relicensing is applied in open-source software development when software licenses of software modules are incompatible and are required to be compatible for a greater combined work. Licenses applied to software as copyrightable works, in source code as binary form, can contain contradictory clauses. These requirements can make it impossible to combine source code or content of several software works to create a new combined one.


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  7. "Chronological History of IBM - 1960s". IBM . Retrieved 2010-11-12. Rather than offer hardware, services and software exclusively in packages, marketers unbundled the components and offered them for sale individually. Unbundling gave birth to the multibillion-dollar software and services industries, of which IBM is today a world leader
  8. Impact of Apple vs. Franklin Decision
  9. 1 2 Landley, Rob (2009-05-23). "23-05-2009". Retrieved 2015-12-02. So if open source used to be the norm back in the 1960s and 1970s, how did this _change_? Where did proprietary software come from, and when, and how? How did Richard Stallman's little utopia at the MIT AI lab crumble and force him out into the wilderness to try to rebuild it? Two things changed in the early-1980s: the exponentially growing installed base of microcomputer hardware reached critical mass around 1980, and a legal decision altered copyright law to cover binaries in 1983. Increasing volume: The microprocessor creates millions of identical computers
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  11. Business Models on (May 3, 2001)
  12. "Words to Avoid (or Use with Care) Because They Are Loaded or Confusing". GNU Project. 2013-05-26. Retrieved 2017-05-01.
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