Ultimate Price Slashing in the Software Industry : The Potential for the Diffusion of Open-Source Business Software

ABSTRACT

With the diffusion of Linux, interest in open-source software (OSS) is rising. Linux is not the only system that uses OSS, however; OSS is growing to include DBMS and other middleware, desktop software, as well as business-use software. In November of 1999, for example, the company New Tokyo disclosed its ordering system for foodstuffs and other items, called Cerveza, as an OSS, and the number of companies using this software has been gradually increasing.

This report uses the Cerveza example as a case study to analyze the merits and demerits of releasing business-use software as an OSS. It was found that if a company releases its business-use software as an OSS, it stands a strong chance of gaining higher quality and upgraded versions of that software for free, as well as an increase in support vendors and other merits. In the future, if the management and CIOs of companies using such software come to understand the merits of releasing business-use software as an OSS, the potential for a rapid increase in the variety of business-use OSS is high.

If a variety of business-use OSS diffuses throughout the market, the chances of overlapping investment-where various companies each work to develop the same kind of software-will decrease, thus avoiding wasteful investments in IT within the Japanese economy as a whole. At the same time, however, there is a possibility that demand for new software development will decline; in response to this, software vendors will have to shift their business model away from new software development and toward one that focuses on the operational management, support, and customizing of information systems. Further, though price slashing is already progressing in the hardware and network world, the diffusion of OSS implies that the price of software will fall to zero, triggering ultimate price slashing in the software world.