Open source as a competitive advantage

Here’s an interesting piece of news: Cyanogen, the company created to commercialize the CyanogenMod operating system, a direct derivation of Android, has just closed an 80 million dollar financing round that includes the participation of Rupert Murdoch, Twitter, and Telefonica, bringing the total to 110 million dollars over the last 18 months.

What’s so interesting about that, you might ask. Google put Android on the market in November 2007, a product that came out of the purchase of Android, Inc. in 2005, and a response to the growth of iOS, Apple’s operating system, which threatened to become the leader in the then growing smartphone segment that Apple had just redefined with its iPhone. The first Android model, the HTC Dream, was launched in October 2008.

Google’s strategy with Android, which proved to be effective, was to copy IBM’s approach at the beginning of the 1980s with its IBM PC: launch an open product that can be adapted by any manufacturer using a licensing model that facilitated its commercial use, allowed for modifications, and that, in practice, very business friendly. The IBM PC offered manufacturers the chance to enter the personal computer segment, one in which Apple was gaining considerable traction and popularity, and that proved to be an enormously successful move: the market generated by the IBM platform was sufficiently dynamic and competitive to shunt Apple’s machines pretty much to the sidelines.

Google’s approach with Android has been more or less the same, and has largely succeeded: it was launched via the Open Handset Alliance, a consortium of 34 companies (now 84) created for the occasion and its adoption generated an ecosystem that was so varied and competitive that today it has practically 90 percent of the world market. That said, Android is not totally open: Google maintains an important degree of control over the operating system, and just about all phones include a combination of open and proprietary software that includes models developed and licensed by Google itself. In reality, a large part of the appeal of Android for many users is because of the integrated nature of many of its tools.

The appearance of Cyanogen was a response to Google’s control: with its operating system, it could put a phone on the market independent of Google, a move that made a lot of sense in markets where the company’s tools are not dominant, such as China, Russia, or South Korea. Now Cyanogen not only has a product and a strategy, but a large amount of money that will allow it to implement its strategy, along with partners very interested in developed platforms able to weaken Google’s stranglehold. In practice, it is competing with one open platform by saying that its platform is even more open.

Obviously, if Cyanogen, which is clearly still looking for its place at the table, wants to be a credible threat, it still has much to do. But form a strategic perspective, what it has just done is very interesting, raising a key question for the times we live in: what is the business value of an open source approach?

(En español, aquí)