Big Blue collects about $1 billion a year in licensing fees from its hoard of 40,000 patents. So it came as quite a surprise to some on Jan. 11 when IBM (IBM) pledged to make 500 of its software patents, valued at about $10 million, freely available to open-source software projects such as the Linux operating system and the Apache Web page server software. Why would IBM allow others to use its intellectual property free of charge?
In a word: Microsoft. The move is central to IBM's efforts to fend off Microsoft Corp. (MSFT) and its Windows monopoly. While the computing giant will continue to innovate and gather new patents as aggressively as ever, at the same time it is stepping up efforts to bolster the world of open-source software. IBM figures that doing so will give it a leg up in selling the software and services that work with the open-source programs it helped develop. And that in turn should help it gain an edge against its Redmond (Wash.)-based rival. "They're poking their thumb in Microsoft's eye," says Alfred S. Chuang, chief executive of software maker BEA Systems Inc. (BEAS), a competitor of both tech giants.
It's striking how different IBM's strategy is from Microsoft's. Microsoft, which declined to comment, is building a legal team to enforce intellectual property claims. In so doing, it hopes to protect its monopoly: When makers sell PCs and servers loaded with Windows, Microsoft has the best shot at selling an array of applications.
IBM has a different tack. In a strategy it calls "collaborative innovation," it shares some of its intellectual property, hoping to bolster open-source alternatives to Windows, such as Linux. Such programs are shared by thousands of companies and tens of thousands of programmers. "It's a blending of both worlds, a balancing of proprietary and open technologies," says Jim Stallings, IBM's vice-president of standards and intellectual property. It helps IBM create a non-Microsoft ecosystem. By selling a server with Linux, IBM boosts chances of selling databases, application integration software, and services. Big Blue is also creating "innovation networks," says analyst Navi Radjou of tech market researcher Forrester Research Inc. (FORR) "No single company can have all the answers. They can't rely on themselves for all the innovations. They need partners."
IBM, not Microsoft, seems to have the wind at its back. Increasingly, info tech managers see open-source programs as trusted building blocks for critical computing systems. Linux and Apache, which serves up Web pages, are the best-known examples, and both have become market share leaders. But companies are also embracing a host of other applications, including software for managing databases and writing custom programs.
Not only do companies typically pay less for open-source software than for traditional software; they're also less likely to be locked in by any one tech supplier, Microsoft or IBM. "I can't tell you the countless billions of dollars that have been spent on replacing closed technology," says Kevin Souza, an engineering fellow at Raytheon Co. (RTN), which uses some open-source software. "You install [proprietary] software and you get dependent on a vendor's hardware line or on somebody's operating system."
IBM hopes its move will spur others to contribute patents to an "intellectual property commons." The 500 patents cover 14 categories, from storage management and e-commerce to video processing. They're not aimed at specific open-source projects; the idea is to give entrepreneurs and companies free rein.
Tech companies have already pitched in key pieces of technology for open-source projects. IBM spent more than $1 billion bolstering Linux and donated its Cloudscape database, valued at $85 million, and Eclipse software development tools, worth some $40 million. Sun Microsystems Inc. (SUNW) handed over a suite of desktop applications, now called OpenOffice, which is a free alternative to Microsoft's pricey Office suite.
It's harder for tech companies to make a buck in the open-source world, but IBM feels it has no choice but to forge ahead. Better to give up a little -- and potentially gain a lot more in its unending battle with Microsoft.
By Steve Hamm