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Making money with free software

Some call it "freeware," others "free software," but that doesn't mean it can't make a business profitable, as illustrated by Cygnus Solutions.

It may alternately be called "freeware" or "free software," but it can still make a business profitable.

A case in point is nine-year-old Cygnus Solutions, tagged last year as a hot candidate for an initial public stock offering. But freeware pioneer Richard Stallman contends that Cygnus's moneymaking strategy violates the spirit on which free software was based.

The three company founders, inspired more than a decade ago by Stallman's free-software manifesto, decided to package the source code for his GNU software development toolkit and deliver it to customers in ready-to-use format. Because the GNU source code--essentially the underlying recipe of the software--is free for anyone to download and distribute, Cygnus knew it had to deliver something else to make money.

"We have to guarantee performance and quality to our customers," says Scott Petry, general manager of applications at Cygnus. "And the most important element of that is mission-critical technical support."

If a customer has a bug problem, Cygnus will fix it and return a patch within days, Petry says. When the customer signs a contract, Cygnus customizes the toolset according to his or her specifications and guarantees a year of support.

Cygnus (and anyone else, for that matter) is allowed to manipulate, distribute, and make money from the GNU tools under the general public license--the brainchild of Stallman, who also runs the Free Software Foundation. The general public license (GPL) stipulates that, in exchange for unlimited distribution, the licensee must donate all changes it makes in the source code back to the project to be rolled into future releases of the core toolset. Cygnus's Petry estimates that 70 percent to 75 percent of the changes in GNU have come from Cygnus's work.

GNU Project founder Richard Stallman is disappointed that Cygnus has
drifted away from the spirit of the free software licensing model. The company, which specializes in customizing the GNU toolsets for microprocessor developers, is privately held and doesn't discuss revenue figures, but director of communications Nancy Chou says it has been profitable since it began--except in 1997, when it decided to step up its research and development and accept outside funding. At that time, analyst extraordinaire Esther Dyson, among others, joined the company's board. Cygnus also has shown an average annual revenue growth of 65 percent since 1992, Chou said.

"They pretty much dominate the marketplace with their GNU compiler," says Paul Hughes, project manager for telecom and embedded systems at market research firm Venture Development.

Hughes sees good prospects for growth as well. "[Its tools] cover a broad range of microprocessors as well as niche markets, and they have a great leg up into the consumer electronic marketplace," he says.

Another analyst estimates last year's revenues at $20 million, with a recent infusion of about $7 million in venture capital.

"They've been doing very well," says Paul Zorfass, embedded systems analyst at International Data Corporation. "The fact they've been venture funded is a sign of that. That original team understands their roots and where they've been."

Not so, Stallman says. He expressed disappointment that the company, which has grown to 125 employees, has drifted away from the spirit in which he founded the free software licensing model.

"Cygnus is no longer a 'free software' company; they develop proprietary software also," Stallman says. "I'm very unhappy about this change. We no longer have a link to their Web site, because their Web site is advertising proprietary software."

Stallman believes that the company went back on its founding principle of free software development and lost its sense of self-reliance that would make it eschew outside investment.

Cygnus is aware of Stallman's disappointment, but a "best of both worlds" approach to combine free and proprietary software is necessary to serve its customers, according to Chou.

In addition to the technical support and the proprietary add-ons, Cygnus says it must stay ahead of the typical development cycle of the GNU Project, which gathers all the changes made by licensees and incorporates them back into the core source code before releasing the next version, all on a schedule that isn't ruled by the dictates of a commercial product cycle.

"The optimized code is given back to the Net community, but there's a time lag If Cygnus had an easy or intuitive business model, lots of other companies
would be doing it. to traffic the changes to the source code," says Chou. "[The GNU Project's] ability to take in and redistribute code is limited by their own infrastructure."

Whether it has violated the spirit of the free software ethos or not, its path is not an easy one. "If this were an easy or intuitive business model, lots of other companies would be doing it," Petry says.

Any company looking to adopt Cygnus's model should first talk to Scott Grigsby, who is part of a grassroots community that prefers the challenge--and the cost--of free, unsupported software straight from the Web.

"I just download the GNU source code, and there's no support other than my friends and discussions on Usenet," says Grigsby, systems administrator for a staff of 17 at Citizen 1 Software. "That's all the support I need. Anyway, it's my job to do these things myself."  

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