Guidelines to thinking about when your products should be free
May 2012∙Srini Pillay, M.D.
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Increasingly, companies are offering some or all of their technology free, and the obvious question arises: Why? A recent study in Productions and Operations Management outlined when open source innovations work and when they do not 1. The most obvious disadvantage to offering your software free of charge is that lose revenue. But losing this revenue makes sense when users can help you refine the quality of your product and when there is a complementary product for which you can charge. Firms typically open the source code when they are competing with similar products in the marketplace and when there is less competition for a complementary product as well. Typically, the complimentary product should be of high quality. Also, if a competitor offers its source code free of charge, it behooves a company to do the same.
When considering being “open” companies would benefit from thinking of the opportunities inherent in open applications such as collaboration 2. For example, offering a free diagnostic product can be combined with offering targeted solutions that one charges for. Those solutions may be provided by someone else as well. Overall, thinking of open source applications as part of a technology ecosystem can help a company understand the interactions between its current and projected technology systems as well 3.