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#12. Open Source
#12. Open Source
Open Source
Salvation or Suicide?
KMS’s electronic music game has become so hot that customers are hacking it and rivals are
pouring into the market. Should the company shore up its defenses or let the games begin?
by Scott Wilson and Ajit Kambil
M
ARTINA DIRWEG SUDDENLY felt almost physically sick.
Her older brother, Evan, whom she loved dearly,
could make her feel that way with a couple of well-
placed words in a phone call. Meaning no harm, he
could destabilize her plans for her company along with her sense
of well-being. It was not fair of him.
He was coming to take her to lunch, as he often did, and then
to the electronic-games trade show. Though he wasn’t part of her
company, he acted as her one-man kitchen cabinet. From her of-
fice on the top floor of KMS Corporation, maker of the astound-
ingly popular Amp Up electronic music game, she watched for
Daniel Vasconcellos
his car. He had called from the freeway, and he’d be at KMS, in
Van Nuys, very soon.
The view from her office was com- marketing in a hurry. There was even young men who seemed awed – that
forting, at least – the familiar bunga- talk of spinning off the music-software was the only word for it – to meet her.
lows on the distant ridge, the spindly, business, its former core, into a separate Some of them were clutching objects
improbable-looking palms. While star- firm. It had been quite a ride. that looked a bit like Amp Up axes. The
ing at that view in 2004, she had made Now Marty’s brother was suggesting young men were the founders of a start-
the gut decision that put the company that the ride get even wilder. up, Open Chord.
on its present path – and in its present “You ruined my day, you know,” she She was annoyed at her brother. She
dilemma. The path was that of mass said as she got into the Mercedes be- knew all about this company. These
marketer; the dilemma was what to do side Evan, still fit and handsome in his guys, who had probably begun as ob-
about the raucous, uncontrollable open- forties. sessed Amp Up players, had copied the
source software movement that was “It was nothing personal,” he said. basic idea behind the game and written
starting to pose a real threat to KMS. At the roadside diner where they their own code – which, unlike KMS’s,
It had been a heady moment four liked to eat, she thanked him for of- was open source. Anyone who wanted
years earlier. A group of programmers fering to take her to the two-day trade to use it to write applications for new
at the company, then known as Kalley show in Pomona, where KMS would games and new sounds was welcome
Music Software, had demonstrated be displaying its wares and offering to do so. She despised such infringers.
some learning tools they’d developed
between other assignments. The de-
vices were made from real electric- These guys had copied the basic idea behind the game
guitar necks and other parts, but in-
stead of strings they had an assortment
and written their own code. She despised such infringers.
of goofy buttons and touch pads and
dials. The superb embedded software
produced great-sounding music out glimpses of the next upgrade. Evan “Aren’t we suing you?” she asked one of
of even the most amateurish flailing, had parlayed a networking start-up them. They all nodded.
and users could jam from separate into a small fortune and now occupied “There’s a similar start-up right over
continents with only a computer and himself by investing in and tending to there,” Evan said, gesturing.
an internet connection. The program- other people’s tech companies. She was “Another one?” she asked.
mers had already sketched out a always grateful and impressed that he “Both companies, as it happens, came
couple of songwriting and karaoke- cared nearly as much about her busi- to me for financing.”
like video games. ness as she did. She gasped. “You didn’t – ”
A long silence had followed the pre- Then she challenged him to come “No,” he said. “I’m your loyal brother.
sentation, while everyone pondered the out with it: What could be wrong with I told them both they’d need to find an-
options that lay before the company. the company’s so-far highly successful other angel – either in my network or,
Spin off the idea? Sell it to some mass- strategy of jealously guarding its intel- preferably, in a different one. I couldn’t
market company? Marty had gazed at lectual property? Why should she open invest in a start-up that was challenging
the distant ridge. Then she said, “Let’s the software in Amp Up, as he had so my baby sister’s company.”
do it. Let’s do it ourselves.” Sometimes casually suggested on the phone? Why “Lucky for you,” she said, making
the applause still rang in her ears. should she invite the open-source com- a fist.
Amp Up was a big hit and then some. munity into the company vault, so to “But if not for the ethical issue,” he
When the band Z3 appeared onstage speak, and allow it to play with the added, “I would have put money into
with an Amp Up ax, as the device was crown jewels? one or both in a heartbeat. They’re
officially called, sales took off. The com- “You sound like a queen now, not good businesses.”
pany changed its name to KMS to avoid a CEO,” he said. “Better if I show you “How are they good businesses?”
being stereotyped as a music-software rather than tell you.” Marty asked, exasperated. “This one’s
company, and learned a lot about mass So it wasn’t until they were under being sued by us for infringement, and
the great ribbed ceiling of the Fairplex the other one is going to be sued as
Scott Wilson (scowilson@deloitte.com), that he began his explanation. Bypass- soon as I get back to the office. Plus
based in Stamford, Connecticut, is a senior ing the extensive KMS display, he led what does it mean to build a busi-
manager at Deloitte Research, a part of her through the crowd to the end of an ness on open source? You can’t make
Deloitte Services LP. Ajit Kambil (akambil@ aisle. “I’d like you to meet a few people,” money on open-source software.”
deloitte.com), based in Boston, is the global he said. She found herself being intro- “Marty, these guys aren’t going away.
director of Deloitte Research. duced to some decidedly geeky-looking The point is, it’s no longer just individu-
als hacking into your hardware and passionate about the idea that the user revealing a banner he had been trying
software or making game controllers and developer communities should be to obscure. Under the Open Chord logo
of their own or writing code for them- based on open source, with develop- it said, “Fight the Power!”
selves and their friends. It’s companies ers being able to freely swap and write “That’s you,” Evan said. “You’re the
now, too. Companies with real money software to fashion applications as they power they’re fighting.”
behind them. These people are passion- see fit.” That was enough. Marty tried but
ate about the user community that you He paused.“See? Look – ” In response failed to manufacture a smile for the
created four years ago by bringing Amp to a gesture from Evan, one of the geeks as she spun away and headed for
Up into the world. And they’re just as geeky guys sheepishly stepped aside, home territory: the KMS display.
Evan was right behind her. “Your “A cheerful thought.” ucts? None of that code is tested, you
product turned millions of nonmusi- “Not to mess with your head too know. Or guaranteed. Or supported.”
cians into musicians,” he said. “It caught much,” he said, “but the irony is we’d “Generally true,” he said.
everyone’s imagination. Now it’s even probably be extending Amp Up’s life by “But the main thing is, I just don’t see
bigger than KMS. Everyone wants to going the open-source route – maybe how we can make money if everything
be part of the concept, and a lot of peo- not with the true mass market but at is free. How do we control the product
ple have the programming skills to do least with the die-hard fanatics. They space around Amp Up – the add-ons
something about it.” wouldn’t turn their backs on a product and extras that we’re planning for next
“I’ll sue them all,” she said. that they’d put their creativity into.” He year and the year after? What about the
“Open source is like a rising tide,” he got to the bottom of his pink drink, and basic idea of controlling resources for
said. “You either float with it or drown.” the straw made that sound she hated. competitive advantage? Isn’t that what
Once again she had the sick feeling “Not that I’m suggesting it,” he added. being in business is all about?”
that only his words could give her. “There are other ways to make money,”
“How Do I Keep From Drowning?” Evan said, “as any entrepreneur can tell
Enemy of the People There were angels everywhere when you. For example, there’s tech support,
Everybody at the trade show, it seemed, Marty got to her brother’s office in which you can charge for.”
was talking about the open-source Brentwood Park the following week: “Oh, our customers would love that,”
start-ups challenging KMS – even Allan angels in the lobby, angels in the el- she said sarcastically.
Schmirer. She trusted and admired her evator, angels in the hallway. This was “You’d be surprised. And you have
chief operating officer, but today, for the headquarters of the angel network valuable resources beyond IP. Allan
some reason, she was irritated that he to which he belonged and for which Schmirer, for example.”
was even thinking about those infring- he served as technical adviser. She “We should compete on the basis of
ers – and that he was sucking on an iced had come here because she couldn’t Allan Schmirer?”
strawberry drink that seemed way too get the open-source idea out of her “Allan is brilliant at dealing with
frivolous for an executive of his status. thoughts. your Chinese manufacturers. He has a
Sensing her mood, Allan offered a “So let’s say I accept that open source way of cutting through the bull – very
reassuring take on the start-ups. “They is a rising tide,” she said as she took tactfully – and getting the managers to
don’t have a viable business,” he said. the upholstered chair beside his desk. agree to his point of view. I’ve talked
“They’ll be squeezed on one side by the
free stuff that’s out there – and on
the other side by us!” “I’m just concerned that our customers are starting
“I wish I could believe you,” she said. to see us as the enemy, as the big corporate power with
He seemed shocked. “I’ve never the proprietary IP.”
heard you talk like that before.”
“I’m just concerned that our custom-
ers are starting to see us as the enemy, She picked up a filigreed handbell and to him about it, trying to learn his se-
as the big corporate power with the tapped it, setting off an ethereal chime. crets. If I could have a few Allan Schmir-
proprietary IP,” she said. “We can’t af- Evan had lots of these things from his ers to insert into my start-ups, I’d be a
ford to alienate potential users.” vagabonding days in Tibet. “How do I very successful investor.
“It doesn’t matter, as long as we also keep from drowning?” “And then there’s you. You’re unbe-
keep dazzling them.” Evan leaned back as the sound slowly lievable at marketing. When you first
“Yeah, but –” They looked at each faded. “KMS has to become the open- started working for Kalley Music Soft-
other, knowing what “Yeah, but –” source company,” he said. “It has to em- ware, you were a piano player who
meant. Inventing and executing daz- body the open-source ethic, at least in could program computers. You were
zling upgrades got harder every year. the perception of customers.” fabulous at marketing music software,
Allan shrugged. “Then again, this She rolled her eyes. “So now there’s but then you entered a completely
could be moot after next Christmas. an open-source ethic? Soon it’s going new field – gaming – and figured it all
For all we know, demand will collapse, to be a religion.” out, on instinct. Your company has a
and we’ll be scratching around for “It practically is already,” he said. lot of strengths other than its propri-
something totally new to offer our fan “And I’m supposed to embrace open- etary code.”
base. That’s life in the mass market. It’s source software, letting people have “But what about my precious pro-
not like when we used to sell to music my IP for nothing and incorporating grammers?” she asked. “I’m supposed
professionals.” random developers’ code into my prod- to open up the code they’ve sweated
blood over? They’ll mutiny. They’ll “How’s the upgrade going?” she asked. probably appreciate being able to
leave.” “It’s going,” he said. use open-source code, even though
“Or they’ll thank you for making She looked again at Dixie, who also it would probably save us time and
their lives a heck of a lot easier,” Evan appeared a bit ragged. Marty wondered money in programming, even though
said. “Because then they can dip into if the programmers’ brains and bodies our hard-core customers would be
open source, too.” were reflecting too many months or thrilled if we tore down the walls, even
years of intense creativity and eye-killing though our lawsuits against the start-
An Unusual Quiet coding. She had always assumed that ups are going to be expensive and prob-
On the way in to work a few days later, the programmers took too much pride ably pointless, I just don’t think I can
Marty stopped to pick up a straw- in their products to incorporate other open up our code and let the infringers
berry concoction like the ones Allan people’s code, even if skimming the inside.
always drank. She asked the counter- cream off open source would make “I think most people don’t care
man to bag it carefully so that it would programming easier. But maybe her whether we use proprietary code or
stay cold.
At the office she went looking for her
COO. It was a fairly small headquar- “But what about my precious programmers?” she asked.
ters, considering the company’s sales “I’m supposed to open up the code they’ve sweated blood
volume. She and Allan believed that over? They’ll mutiny.”
in a mass-market industry like theirs,
which had a lot in common with the
fashion business, the low-fixed-costs ap- assumption was wrong. It was some- not. As long as we have things like
proach would protect the company in thing to think about. Z3 going for us – the best free adver-
case of a downturn. Most operational “I’m sure it’ll be another winner,” tising in the world – we can keep on
aspects of the business were therefore Marty said. doing what we’re doing and main-
outsourced – excluding, of course, the “Yep,” Jason replied. tain our great margins for our fabu-
core programming functions. lous software. On into the foreseeable
Marty wandered through the war- Name That Tune future.”
ren of programmers’ cubicles. She said She finally found Allan as he came out “You’re not going to like this,”
hello to one of her favorite people of a meeting. “Here,” she said. “I don’t Allan said.
there – Dixie, a Sri Lankan who had appreciate you enough.” “What?”
just gotten her PhD at Cal Tech. She “What’s this?” Back inside, he led her to a PC. “Take
also spoke to Saul, a 30-something “I got you your strawberry whatever,” a look,” he said. He brought up a You-
from Spain whose walls were covered she said, handing him a straw. Tube video of Z3. It was one she hadn’t
with his sketches of trees. On another It was beautiful outside, so they went seen. And what were they playing? Cer-
cubicle wall was a huge photo of the to the patio, where Allan sipped his tainly not KMS axes. These were strange-
band Z3 using an Amp Up ax at an out- drink. “I know you appreciate me,” he looking things with double necks. She
door arena. said. “Don’t worry.” realized with a start that they were
But the offices seemed unusually “My brother, who seems to be full of either handmade instruments or prod-
quiet. “Where is everybody?” Marty information like this, once told me that ucts from one of KMS’s open-source
asked. a kind of strawberry was one of the first rivals. There wasn’t an Amp Up ax to
Jason, a programmer with a gray plants to get a U.S. patent,” Marty said. be seen.
ponytail, rolled his chair backward “That’s interesting,” Allan said, teas- “Turn it up,” Marty said. “What’s that
out of his cube, a bass guitar on his ing her. song they’re playing?”
lap. “Some people are out sick,” he said. She sighed. “And where would U.S. “It’s new,” Allan said. “Actually, it’s a
“Three, in fact.” agriculture be without agricultural reworking of that old Public Enemy
That seemed a lot. She noticed patents? Where would any industry be song ‘Fight the Power.’ Remember it?”
Jason’s slumped posture. “Are you OK?” without proprietary IP?” As he finished his drink, the straw made
she asked. He offered her his drink. Reluc- that annoying sound again.
“I’m fine,” he said unconvincingly. tantly she took a sip. It wasn’t bad at
The care and feeding of her program- all, actually. Should Marty’s company embrace
mers had always been a high priority She said, “I don’t think I can do it, open-source software in its hit
for Marty. But there were dark rings un- Allan. I don’t think I can give it away. product? Four commentators offer
der Jason’s eyes. He looked weary. Even though the programmers would expert advice beginning on page 40.
wrong about consumers’ desires, because it perfect product. That would give KMS the
can continually mine a massive ecosystem for potential to go from 1 million toys a year to
innovations. We know that consumer demand 100 million.
it are much more likely than homegrown soft- Apart from the liability issue, Marty must
ware to have been copied from someone’s consider the loss of competitive advantage
proprietary code. Additionally, unlike software that her company would suffer if it opened
that is available for purchase, open-source up its software. KMS would be taking its pro-
code carries no guarantee that it doesn’t prietary asset, in which it has invested a lot
infringe on some third party’s intellectual- of money, and allowing other companies to
property rights. Nor do most open-source make money on the code without having
providers offer the indemnification – that is, to spend anything on development.
legal protection – that vendors of proprietary The people driving certain parts of the
software do. Thus KMS would have to fend for open-source movement are of the mind-set
itself if it were sued for patent, copyright, or that all source code should be available for
trade-secret infringement over code that went everybody to use. That is fine in the academic
into Amp Up. For example, AutoZone wasn’t world, where the money flows from grants
indemnified under a license that allowed it to and you don’t have to turn a profit. Most soft-
use the open-source Linux operating system, ware companies, however, are in business to
so the company faced the possibility of having make money, and it is very difficult to make
to pay damages when it was sued in 2004 by money on open source.
SCO Group for copyright infringement involv-
ing Linux. The suit alleged that the Linux ver- Reprint R0804A
sion in use at the auto-parts retailer contained Reprint Case only R0804X
software copyrighted by SCO. (SCO has since Reprint Commentary only R0804Z
filed for bankruptcy protection.) To order, see page 139.
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