Examples of companies undercutting smaller companies using FOSS?

Question

When speaking to my friends about FOSS, a common concern comes up that if they release their code under a free and open source license, this might encourage companies to 'steal' their hard work without giving them compensation. Obviously if the code was released under a free and open license it wouldn't be stealing but the sentiment remains.

My question is:

Are there cases where individual contractors or small companies (1-5 employees, say) have released their source code under a free and open license and had a bigger company under cut them, take customers or profit away from them or drive them out of business?

Ultimately I think there are stronger arguments to make source code free and open than "bigger companies won't take business away from you" (i.e. "that doesn't happen") but I'm curious if there are any real world cases where making software free and open have significantly hurt a small software shop.

Answer 1

"Stealing" code is copyright infringement, which is obviously avoided by most legitimate companies. Losing a copyright infringement suit can easily destroy most companies. On the other hand, without patents, reverse-engineering and feature-matching is perfectly legal and done all the time. Some unethical companies can very well be doing the former whilst pretending to do the latter, and this is where access to the source code lets them do that easily. But as soon as these companies become big enough and of consequence, they quickly clean up their act - DivX being a prominent, closed-source example, where it's suspected that the initial release was based on infringing Microsoft's source code.

Therefore it highly depends on how visible and active those FOSS projects are. It's important to remember that not all FOSS projects are Linux, GCC or Mozilla, and it also depends on your adversaries.

• Large and active projects are practically immune; their tremendous goodwill and visibility makes it very risky to "steal" from, and their pace of development makes it hard to out-compete them regardless.
• Medium-sized projects can suffer but the damage is limited. The reason is, again, if unethical competitors get large enough, it also makes them more attractive targets of lawsuits, so they either stay small or clean up. For example, FFmpeg - a suite of FOSS audio/video codecs - is a popular target of copyright infringement. Although most are minor infractions of their (L)GPL licenses, no doubt some are blatantly infringing.

• Small projects can indeed be undercut. If the market is small enough to stay under the radar of lawsuits, an unethical company can easily claim the code as their own, release a closed-source competitor and crowd out the market through providing superior value. Here's an example:

  A competitor [to DikuMUD], at the time, also had based theirs on the same codebase, and they opted to blatantly ignore the copyright, rip out all traces of it, and basically lie to everyone including themselves. Their logic was "none of the original code exists" and "we have done massive rewrites and improvement" and generally ignoring the fact that they started with 20,000 lines of code. They were charging for items in the game, and making too much money to stop.

Answer 2

Plausible, an open source alternative to Google analytics, released a blog post detailing their move from MIT licensing to the AGPL (Affero GNU Public License).

In it, they have the following claim:

Here are a couple of events that made us aware of the risks with a permissive open source license:

• There’s been at least one case where a corporation has taken parts of our code, made it closed source and started selling it as a direct competitor

...

As of this writing, Plausible looks to have two full time employees.

Answer 3

I'm going to answer your question from the perspective: what is the risk to open sourcing the technology that your friend's business has developed. I try to tackle your more specific question at the end.

TL,DR If your friend's company is built around the technology the company would open source, it's a real risk that their company would not be financially viable if the make the code available as open source, but it's unlikely to be as the result of a competing company forking their code.

If you venture outside the GPL-only ecosystem, I classify companies that support major open source projects in two categories:

1. The open source project is an important part of their infrastructure but not central to their business (think Microsoft with .NET Core or Facebook with React)
2. The open source project is the central to their business (think Cassandra and DataStax)

Within each category there are different ways to try to monetize the open source, but I think this high level view is sufficient for this question.

If your friend's company finds itself in the first category, putting the code out under an open source library is minimal risk to them in terms of other companies adopting it and using it to compete against them. For example, having access to React would not immediately let another company recreate Facebook's business and compete against them.

If your friend's company finds itself in the second category, they need to more carefully think about their business model. There are two major risks here:

1. The vast majority of people and companies that use the open source project will do so without paying for it. The business must be sustainable based on income from the minority that chooses to pay. If the technology is in a niche business area where the pool of potential users is small, this may be unsustainable.
2. If the business is too closely linked to the technology (e.g. all they do is provide consulting services to enhance the technology and help people install it), it would be possible for another business to provide the same service and do it better, whether that is with the same or with competing technology.

Your question is really about the second risk here, but the first risk will be the bigger one. Unless the company has convinced itself that there are enough users that are actually willing to pay for the use of the technology (or services associated with it, etc), then the company will not be viable if they make it open source.

How big a risk the second one is really depends on how unique and complex the technology is and how big the market for it is. Forking an open source project is kind of like any software maintenance work: there is a body of code that costs time and money to understand and improv. If the potential reward for doing this is not greater than the cost and time to do it, then it's not worthwhile.

If your friend's company's codebase is not that big and the market for it is not that large, it's probably not worth the effort for a competitor to fork the code and compete against your friend's company. If the codebase is not that big and the market is huge, then the risk is potentially real, but, because the codebase is not that big, it's equally likely a competitor would come in with their own implementation.

The most likely scenario for head-to-head competition based on a fork is large codebases with large markets. A ground up rewrite would be painful so a competitor would want to start with something it can already monetize. Companies built around Linux distributions as examples of this. StarOffice / OpenOffice / LibreOffice is another example.