Software Secrets: Do They Help or Hurt?

Businesspeople tend to assume that secrets are assets. But the value of holding a secret has to be traded off against the cost of doing so. That cost includes foreclosing the possibility of independent peer review, and betting your company on a product that is dramatically less reliable than it could have been as open source.

Are there circumstances under which going closed makes sense?

Trade Secrets: Perishable Goods

Yes. Closed software and trade secrets make short-term sense in areas where serious research is required. Today, the R&D cost behind (e.g.) speech and handwriting recognition, high-performance 3D engines and MPEG codecs makes them candidates to stay closed. This is not systems software that benefits greatly from debugging by users; robustness typically isn't even much of a problem. So the cost of forgoing independent peer review is relatively low.

The general pattern here is that if the main cost driver is research cost rather than implementation and maintenance, then it makes sense to be closed. But there's a management trap here, because the moment anyone else publishes a functionally similar technique, your cost picture reverses. The value of the `secret' evaporates, and you're left with all the chronic problems of a closed approach – and to fix them, you've got to start building a co-developer community late in the game.

So probably there still will be some permanent trade-secret software in the future, in the few cases where it confers a stable long-term advantage in a narrow specialty. Petroleum companies, for example, might have good reasons never to share the data-analysis routines they use to map oilfields. But in most cases, the strategic challenge is to know when letting go serves your interests.

Hot technologies don't stay hot forever – so, in the long run, open source is the winning model even for research intensive software. Today we can see this happening with such recently-hot technologies as scalable font rendering and 3-D animation engines for action games.

In general, the optimum strategy will be to stay closed until it becomes clear that someone else is likely to soon go open with a similar technique, and jump first. In this way you start building a co-developer community at the earliest possible time.

Trade Secrets Considered Marginal

It's important to notice that none of the advantages that make trade secret protection valuable in the short term have ever applied to most of the bread-and-butter products of the software industry.

For the office-business market that supports most commercial software, it's hard to even imagine what techniques could have significant trade-secret value. Doing spreadsheet recalculations, addressing bulk mailings and computing payrolls are not deep problems; we probably have public algorithms for these now that are as good as we're going to get.

For most commercial software, then, research value is trivial and implementation cost everything. Reliability and stability is the most important requirement. This is a good argument for making it open.