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The goal of patents and copyrights is to protect the right of the inventor to maximize the profit from the invention for a finite amount of time. The window of protection from duplication enables businesses to grow by harvesting the profits they make and reinvesting them in new projects. Denied the ability to duplicate a product, competitors cannot enter the market via re-engineering and duplication and so must inefficiently and quickly develop a competing, albeit slightly different solution.

No where is the importance of these temporary inefficiencies clearer than in the pharmaceutical industry, where the 17 year protection of individual drugs enables firms to recoup the development costs of drugs brought to market and others whose development failed. This parallel can be extended to silicon companies, both manufacturing chipsets and photovoltaic cells.

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However, the case is different for software. The development costs of software are much lower thanks to the recent dramatic increases in productivity afforded by new programming languages, improved development environments and inexpensive hosting platforms.

Additionally, open source software has increased efficiency of software development while driving down the development cost. No longer does a programmer have to reinvent the wheel – he can start with someone else’s wheel.

With this benefit however, there’s cost: the GPL licenses require free distribution of open source code, a requirement known as copyleft (a pun on copyright). This has several significant implications. The relevant one for this post is the business forgoes the right to sell the software because it’s a commodity. Anyone can download it for free and it’s hard to start a business selling stuff that’s free and freely distributed.

There have been large businesses built on top of open source software, RedHat and MySQL, among others. These business must compete by offering services instead of selling core technology. Because the company has sacrificed the exclusive right to the software they’ve built, they have guaranteed symmetry in the marketplace.

Without asymmetry, there aren’t product related revenues. So when founding a startup, building a business on open source is both a technological and business model decision – one that shouldn’t be taken lightly.

Thanks to Ben Silbermann for the inspiration behind this post.

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