Common business wisdom is that software as digital good can be commercialized to the
mass-market most successfully as
proprietary good, meaning that the free sharing and copying of the users ("
software piracy") can be prevented. Control over this can be achieved by
copyright which, along with
contract law,
software patents, and
trade secrets, provides a legal basis for the software's owner, the
intellectual property (IP) holder, to establish
exclusive rights on distribution and therefore commercialization. Technical mechanisms which try to enforce the exclusive distribution right are
copy-protection mechanisms, often bound to the
physical media (
floppy disc,
CD, etc.) of the software, and
digital rights management (DRM) mechanisms which try to achieve the same also in physical media-less
digital distribution of software. When software is sold in binary form only ("
closed source") on the market, exclusive control over software derivatives and further development are additionally achieved. The
reverse engineering reconstruction process of complex software from its binary form to its source code form, required for unauthorized third-party adaptation and development, is a burdensome and often impossible process. This creates another commercialization opportunity of software in source code form for a higher price, e.g. by licensing a
game engine's source code to another
game developer for flexible use and adaptation. This
business model, also called "research and development model", "IP-rent model" or "proprietary software business model", was described by
Craig Mundie of
Microsoft in 2001 as follows:
"[C]ompanies and investors need to focus on business models that can be sustainable over the long term in the real world economy…. We emphatically remain committed to a model that protects the intellectual property rights in software and ensures the continued vitality of an independent software sector that generates revenue and will sustain ongoing research and development. This research and development model … based on the importance of intellectual property rights [was the] foundation in law that made it possible for companies to raise capital, take risks, focus on the long term, and create sustainable business models…. [A]n economic model that protects intellectual property and a business model that recoups research and development costs have shown repeatedly that they can create impressive economic benefits and distribute them very broadly." Free and open-source software commercialization While less common than commercial proprietary software,
free and
open-source software may also be commercial software in the
free and open-source software (FOSS) domain. But unlike the proprietary model, commercialization is achieved in the FOSS commercialization model without limiting the users in their capability to share, reuse and duplicate software freely. This is a fact that the
Free Software Foundation emphasizes, and is the basis of the
Open Source Initiative. Under a FOSS business model, software vendors may charge a fee for distribution but additional support services (especially for enterprise applications) are usually available for an additional fee. Some proprietary software vendors will also customize software for a fee. Free software is often available at no cost and can result in permanently lower costs compared to
proprietary software. With free software, businesses can fit software to their specific needs by changing the software themselves or by hiring programmers to modify it for them. Free software often has no warranty, and more importantly, generally does not assign legal liability to anyone. However, warranties are permitted between any two parties upon the condition of the software and its usage. Such an agreement is made separately from the free software license. == Reception and impact ==