Popular programs like Adobe Photoshop, Microsoft Windows and Apple iTunes have one thing in common: They are copyrighted and prohibit users from selling, distributing or modifying them. That's why you must sign a lengthy end-user license agreement when installing them on your computer. These programs and others are known as proprietary software, or closed-source software.

As a business owner, you can develop your own proprietary system to build new income streams, promote innovation and have more control over your data.

What Does Proprietary Software Mean?

A growing number of companies worldwide are developing their mobile apps and computer programs. Some do it to streamline communication and business operations. Others create apps and software systems that can be monetized. Almost all commercial software is proprietary, meaning that it's owned by the company that developed it.

Proprietary software can only be bought, obtained through a software license or leased from its publisher or developer. The company that owns it retains intellectual-property rights and may pose restrictions on its use and distribution. Its source code is usually handled as a trade secret and cannot be modified by its end users. The restrictions imposed by vendors are listed in the product's terms-of-service agreement or end-user license agreement.

Adobe, Oracle, IBM and Microsoft are popular developers of proprietary software. Although some of their products include free software, they still fall into this category.

Microsoft's Internet Explorer, for example, is a proprietary browser — it's free to use, but you cannot see or modify its source code. On one hand, this prevents Microsoft's competitors, such as Apple, from installing and using it on their computers.

On the other hand, it limits the company's reach and may hinder innovation. Open-source browsers such as Firefox and Chromium are compatible with most operating systems, including Mac, Windows and Linux, and can be modified by users, which allows for continuous improvements.

What Is Open-Source Software?

Think of open-source software as the opposite of proprietary software. It's free to use and can be studied, modified and distributed by its end users. Anyone is allowed to make changes to its source code and port it to new operating systems. This allows users to identify and fix security vulnerabilities and other bugs, integrate new features into the code and work together to create a better version.

About 53% of businesses use open-source software for IT infrastructure modernization. More than 43% rely on it for app development, and 42% use it for digital transformation. Software programs that fall into this category are free to install, but their users may need to pay for support and maintenance. Their license allows for modifications and derived works and poses no restrictions on how the program can be used.

Open-source systems offer greater flexibility and allow for quicker innovation than proprietary software. These programs are not dependent on the company that developed them. If the company goes out of business, the source code continues to exist and can be improved. The InterBase database, GNU/Linux, Mozilla Firefox, Open Office, Drupal, WordPress and GIMP are all examples of open-source software.

Open-Source vs. Proprietary Software

Both systems have advantages and drawbacks. Open-source software involves lower costs because it's developed and improved by a global community of developers. Sometimes, it can be more secure than proprietary software. Users can easily spot bugs and either fix them or report a workaround.

The security holes in proprietary software are not as easy to identify. If, say, you develop a proprietary system to manage customer data, it may have security bugs of which you're not aware. This may lead to data breaches and can harm your company's bottom line. Fixing the problem could take weeks or months, so the costs will add up.

This doesn't mean that open-source software (or open source code) is a better choice, though. It all comes down to how you're planning to use it. A software vendor, for example, may lose its competitive advantage and make less profit by developing products on open source.

Furthermore, closed-source software is more accessible and user-friendly. Your employees won't have to spend months to learn how to use the program and leverage its features. Additionally, companies capable of developing proprietary systems may find it easier to attract investors and build new streams of revenue. If you're not sure what to choose, check out the five advantages that proprietary software has over open-source technology.

1. Increased Functionality and Convenience

Proprietary systems are easier to use and learn, leading to faster work processes. Skype, for example, is used by organizations worldwide. It takes minutes to sign up for an account and make international phone calls or conduct video interviews online. On top of that, your customers, suppliers and employees may already have a Skype account, so they know how to use it.

Open-source programs are trickier to use and may lack user-friendly features, affecting productivity in the workplace. Unskilled end users may find it difficult to navigate them and take full advantage of what they have to offer. After all, there is a reason so few people use Linux.

Proprietary technology appeals to specific users and has a smaller number of features than open-source software. A product developed within open-source communities will appeal to more users and have lots of features. This isn't a bad thing as long as you have basic coding skills. However, not everyone in your organization possesses these skills, and therefore, they may end up feeling confused.

2. Superior Customer Support

Open-source software can be difficult to install and set up. Customizing it isn't easier either. Plus, your staff may not be familiar with the program and may need additional training.

The average employee lacks the expertise to use open-source programs. Therefore, your team members may need help with most tasks. They will spend hours trying to figure things out instead of focusing on the tasks at hand.

Proprietary software is more accessible and includes technical support. Most companies offering these programs provide dedicated sources, 24/7 assistance, live chat and user manuals. The antivirus program Bitdefender, for example, offers online resources, technical support around the clock and security-configuration services for enterprises. If your employees experience any issues, they can simply call or email the service provider.

3. Lower Maintenance Costs

As a small-business owner, you may prefer open-source software due to its low cost. Most programs are free or cost next to nothing. The downside is that you may end up paying a lot more for setup, maintenance and customization than you'd pay with proprietary software.

Some open-source programs are difficult to install and set up, so you may need to call an expert to do the job. In some cases, new hardware may be necessary to use the software. If your employees are not familiar with the program, they will need support and training, which may further increase the costs. Updating the software, testing new versions and applying patches isn't cheap either.

Proprietary software comes at a higher price, but you'll save money in the long run. Whether you develop the program in house or buy an existing system, expect to pay more up front. If you have an internal IT department, your staff members can create, update and configure the program. If you purchase proprietary software, its developer may assist with maintenance, configuration and technical issues at no extra charge.

4. Stronger Competitive Advantage

Proprietary technology enables organizations to be more profitable, productive and innovative. This is particularly true for software-development companies, which often use custom programs at the core of their business model.

By creating your own proprietary software, you can fill a gap in the market and provide customers with a valuable and unique offering. Over time, you may gain market share and build customer loyalty. Open-source software, on the other hand, may diminish your competitive advantage.

Even if you're not a software developer, you can still benefit from using proprietary systems. For example, you may hire a team to create software programs that integrate with your existing technology. This may improve work performance and productivity in your organization, streamline business processes and increase production. Furthermore, you may customize the program and add new features as your business changes.

This technology gives you the ability to create solutions that are tailored to your company’s needs and existing processes. You may even use it to expand and diversify your offerings. Apple, for instance, has developed a line of proprietary software diagnostic tools for the 2018 MacBook Pro and iMac Pro to block third-party repairs, and as a result, users can only reach out to Apple-authorized service providers when their computers crash. This gives the company a competitive advantage and increases its profits.

5. Secure Financing for Your Business

Nearly one-third of startups close their doors because they run out of capital. Developing proprietary technology doesn't guarantee success, but it could make it easier to secure financing for your small business. Plus, you will be able to charge higher prices because no other company offers the same product as you do.

As it turns out, big data investors prefer to put their money in companies selling proprietary software — or at least something other than open-source software, such as proprietary add-ons. This kind of technology isn't restricted by what already exists in the market.

Additionally, proprietary systems are often protected by copyrights and patents. Both are a form of intellectual property. In some industries, intellectual property makes up a majority of assets on a company's balance sheet. Therefore, it can increase the value of your business and enhance its appeal to investors.

Considerations for Developing Proprietary Software

As a small business, you can develop your own proprietary system and then monetize it or use it to streamline your operations. If you choose the first option, you can profit from the sale of licensing your software to individuals or companies. Either way, there are some things to consider before getting started.

First of all, decide whether you'll create the software program in house or outsource this project. Ask your team to sign a nondisclosure/noncompete agreement. If you're planning to distribute the software for profit, draft a licensing scheme for the end users. Consider reaching out to an attorney to assist you.

Make sure you register your software's copyright and apply for trademarks. Although your product is under copyright protection the moment it is created, you cannot sue those who use it without your permission unless you register for copyright. A trademark, on the other hand, will protect the name of your software program. These legal steps are complex and time consuming, so discuss your options with an intellectual-property lawyer.