How Free and open-source software companies create shared value

In its January-February edition, the Harvard Business Review suggests new ideas on “How to fix capitalism”. Of particular interest to me was the article “Creating shared value“, written by Michael Porter, professor at Harvard Business School, and Mark Kramer.

In a long article, Kramer and Porter assert that companies are perceived to be prospering at the expense of the communities. I came to the same conclusion when thinking about an expression of popular culture: TV series. As a child, I used to watch TV series, such as Knight Rider or Airwolf, where private companies or foundations helped fight organized crime and bring justice.
Looking at TV series of today, the contrast is striking. Prison Break or Heroes both stage corporations, which are called “The Company”, probably in order to make them even more impersonal. In their respective series, these companies are instigators of conspiracies and use treason, murder and crime to reach there presumably business objectives.

This expression of the popular culture demonstrates the current perception of companies in communities : ruthless managers will do whatever it takes to optimize short-term financial results at the expense of the rest of the world.

Companies, under customer or regulatory pressure, try to correct this image through periodic social actions. However, according to Kramer and Porter, creating shared value (for both society and corporations) should not be put at the margin of the business model, but at the core.
An interesting example to me was the quarterly earnings calls of a tech company I have invested in. The top managers spoke for one and a half hour about financial results, goals and business  initiatives, until the VP of corporate responsibility had a meager fifteen minutes time slot to present all charitable actions undertaken by the company. Charitable actions are laudable. However, it really gave me the feeling that  making profit while doing something good for communities was an indirect result through the product and services sold but it was not at the core of this company’s business.

I think Kramer and Porter are on the right track and I think Free Software businesses are a great example of creating shared value. Companies, such as Red Hat, Talend, or Pentaho embody the principles of shared value by making billions of US dollars of revenue and supporting communities worldwide. Distributing software under, for instance, the General Public License, these businesses charge neither companies nor consumers for the use of their products, but rather for support, consulting and services. Moreover, they provide the source-code (the instructions that make the programs work) for study or modification purposes.

The authors of the article state that shared value should be created in three ways:

- reconceiving products and markets
The products creating shared value should serve disadvantaged communities, providing products to lower-income homes. The beauty of Free and Open-Source Software (FOSS) is that it can be distributed at no charge. Anyone can install and use a zero-cost operating system and applications, provided by company-sponsored initiatives, such as Fedora or Ubuntu. Of course, communities still need to invest in hardware, but open-source software can be used by poor people in developed countries, as well as by users anywhere in developing countries, thus providing cutting-edge technology (such as virtualization) at no cost.
Moreover, the open-source licenses make it very easy to adapt the products to the needs of users, reusing components already developed by other projects.

- redefining productivity in the value chain
Many of Kramer and Porter’s elements that participate to the value creation, such as “energy use and logistics”, “procurement”, etc. do not apply directly to the production of software products, let alone FOSS.

However, the development of a project, such as the Linux kernel, is a collaborative approach. Anyone can participate and send patches to correct bugs in the program or launch a new module. Companies relying on such community projects and benefiting from the huge manpower provided by these communities cannot take total control of them. Though they can influence them by offering more technological support, they have to take in account the will and motivation of the community to make sure they still benefit from it. They have to balance between their agenda and the motivation of the community. This, to me, is creating shared value.

An example of a bad approach is the OpenSolaris project. After Sun Microsystems had opened and backed OpenSolaris for years as an open-source Unix operating system project, Oracle, which bought Sun, decided to close completely the development process, thus chasing any goodwill to contribute to the project. Although OpenSolaris is still open-source software, Oracle does not allow any change from non-Oracle developers. They do not open their development process and hence do not contribute to any community.

This combination of working for a company and for the community makes me think that employees working for companies selling solutions around Free Software certainly have a sense of working on something greater than just their own business. By helping produce software that can be used to the benefit of anyone around the world, they have a feeling of fulfillment, contributing to the global enhancement of societies.

- building supportive industry clusters
This point is, in my opinion, less relevant to Free Software. The reason for that is that anyone who has a decent Internet connexion can get access to all the FOSS knowledge (by downloading the source code of the programs) and also participate to the process of improving the products by sending improvement suggestions. Obviously, this can be done worldwide – the only prerequisite being a sufficient Internet infrastructure and working computer hardware. The work of NGOs, such as Linux4Afrika may help accelerate the penetration of the market in developing countries by providing support and by teaching classes. Nonetheless, Kramer and Porter name the North Carolina research triangle as an example of a successful cluster. Interestingly, it is where Red Hat’s worldwide headquarters are located.

The HBR article concluded that companies creating shared value would be the ones “unlocking the next wave of innovation and growth”.
I believe companies working in the FOSS ecosystem definitely create shared value. By giving their software for free, these companies make it accessible to all. By using processes based on the Internet, they make it possible for virtually anyone connected to the Internet to participate in their development and support communities. And finally, by publishing the source code, they allow anyone to take a look at how cutting-edge software is written and learn from it.

The current financial success of Free software companies is a proof that their business model is a sustainable success.