Why do you need to build proprietary software? Benefits for your business

When a company decides to build a software project for meeting industry-specific needs, say, increasing revenue or automating workflows, common issues it aims to resolve are:

  • how to protect intellectual property
  • how to ensure data security
  • how to develop custom software for commercial use.

Privately-owned software enables businesses to address these challenges. However, what does proprietary software mean?


In this article, we will consider the main advantages of this type of software. You will also learn the difference between proprietary and open-source solutions. 


What is proprietary software?

When trying to clarify proprietary software definition, think it about as closed-source or non-free software. Being a synonym to privately owned, proprietary means that a software solution is a legal property—involving the intellectual property rights to the original code—of its creator, whether it is a company or an individual. 


Therefore, it is the subject of copyright laws. In most cases, organizations build proprietary software for earning a profit. With this model, they protect trade secrets and source code.


The main advantages of proprietary software development 

1. Profit generation

Building closed-source software, engineers earn a profit by using it for commercial purposes. For example, a software house, i.e. IT service vendor can create a CRM system for digital marketing agencies and earn money from selling it. 


Cooperating with an IT firm, a logistics company can develop an admin dashboard for supply chain data analytics and visualization. As a result, you make money by releasing a proprietary product that resolves industrial challenges. 


2. A clear business model

When developing privately-owned software, you have a clear business model that includes the following steps: 

  • analysis of the target audience and competitors
  • development and testing
  • release
  • promotion, which can start even before the development
  • upgrades (are paid in most cases).

Furthermore, there are no tight deadlines you have to meet. So, you can focus on competitor analysis, software testing, user feedback collection, and other important activities. As a consequence, your digital product will have more chances to achieve success. 


3. Control and stability

Since open-source software is constantly evolving—often with the support of open-source contributors—it is difficult to manage the development process and updates. If you aim to have full control over the project, privately-owned software offers a higher level of stability.  


4. Improved security

When you build proprietary software, you restrict access to its use, code inspection, modification, and redistribution. Competitors can’t view the original code to steal ideas. It is much more difficult for them to obtain a clear vision of how your product works. 


5. Tailored customer support

While free open-source applications generally offer premium support only if the user upgrades to the PRO (read “paid”) version, closed-source software provides it from the very beginning. 


Purchasing privately-owned software, customers receive excellent service. This is explained by a business model. As the primary objective of commercial software vendors is to earn a profit, they are more interested in positive reviews and long-term relationships with clients. 


6. Enhanced user experience

Software development companies do their best to deliver quality digital solutions that provide a seamless user experience. This may involve a beautiful design, intuitive navigation, responsiveness, valuable features, client support, special offers. 


If you decide to build a privately-owned application, you will need to convince users to choose it instead of multiple free open-source alternatives. For this purpose, you should ensure an engaging customer experience. 


Read our article “How to effectively sell software development online” to learn useful promotion strategies.



Proprietary software vs open-source software

To define what you should develop—a closed-source or open-source solution—you should know the difference between them. In the first case, the original code is the company’s intellectual property. 

As the code reveals how the website or application works, engineers keep it in secret.

This allows companies to protect products from:

  • stealing ideas 
  • reusing the code in competitor projects
  • distributing the product
  • receiving a clear understanding of how a software system works, how programmers solved technical challenges, etc. 

Open-source software means that engineers can see, inspect, change, and redistribute the code. It comes under a software license, which removes restrictions imposed by copyright law.


An open-source software license can provide users with the right to: 

  • Inspect the code to understand how the product works and how programmers completed different tasks. This is especially useful for beginners as they can learn from the experience of other engineers.
  • Replicate the code in their own projects to automate the software development process. 
  • Change the code to resolve a different issue, include additional features, or remove some functionality.
  • Redistribute a digital solution with code modifications. If the software is available under a free license, users are often allowed to redistribute it as a paid application.

Software code can come under many open-source licenses that involve MIT, Apache, GPL, etc. An MIT license provides customers with the right to see and change the original code. They also have permission to release the modified system as a new, privately-owned solution.  


Some licenses are more strict. For instance, the GNU General Public License (GPL) enables vendors to sell and distribute software only if the code remains open-source, including new applications developed with the help of the product source code. 



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Open-source vs proprietary software

Source: ResearchGate



Proprietary software

Open source software

Cost drivers

Competitors, value added

Development costs

Typical upgrade frequency

When competing products or serious bugs threaten — annual

When new release tested and robust — bimonthly

Use of proprietary tools, data formats



Consequences of developer, company

abandoning area

Catastrophic (even if source code deposited in escrow)

Not applicable

Software selling points

“Creeping featurism”

Robust, tested, user-centered software

Suitability for safety-critical applications

Only if relevant development and testing methods followed

Only if relevant user and developer community engaged

Risk of monopoly

Low to medium


Ability of purchaser to influence quality, cost, upgrades

Low to medium

Medium to high

Training issues

Applications distinctive, specific training usually needed

Less training: generic look and feel so applications resemble one another

Process for tailoring to local needs

Pay remote software developer and wait

Ask local member of developer team and wait



Is closed-source software the same as commercial?

Although these terms are often used as synonyms, they don’t mean the same sort of thing. Commercial software is about a web or mobile application development for sale. 


For instance, you build a customizable machine learning tool for HR managers and then deliver it to other companies that tailor it to their needs. Privately-owned software solutions are not necessarily built for commercial purposes. They also can use the open-source code. 


How to protect proprietary software

Closed-source software creators can impose different rights on product control and distribution. When selling software, you can restrict: 

  • Use of software—the application can be used on a certain number of computers only. To ensure that customers follow the rules, vendors can employ a specific key, copy protection.
  • Product sharing—as the product comes under a proprietary software license, customers are not allowed to share it with other parties. 
  • Use of hardware—according to some licenses, the software can be installed and/or used only on specific hardware. 
  • Inspection and learning—in this case, you don’t release the source code, so that competitors are not able to inspect and learn from it. 


It is worth noting that privately-software creators can release the original code to customers who have bought a license (but its redistribution will be forbidden, involving product modified versions). If you ask yourself how to protect proprietary software in this case, you should conclude an NDA (non-disclosure agreement) with the client.


When should you build proprietary software? 

A privately-owned solution will suit your needs if:

  1. the primary goal is to earn money
  2. you are going to create an application for a narrow audience
  3. you want to build a B2B software solution 
  4. there are some trade secrets—know-how, product ideas, etc.—that you aim to protect
  5. the code had to be closed for the public, so that competitors are not able to modify the application or learn how engineers solved complex tasks.


If there are two or more matches, proprietary software development will be the best model for your business. 

Remember that creating a proof of concept will help you avoid unplanned software development costs.



Frequently Asked Questions about Proprietary Software

1. What are the main characteristics of closed-source software?

If you want to clearly define proprietary software, you should know its key characteristics:

  • this type of software is the vendor’s legal property and the subject of copyright laws
  • proprietary solutions have the code closed for inspection, modification, and redistribution 
  • privately-owned applications are generally used for commercial purposes.

2. Can you name famous proprietary software examples?

Microsoft Windows, Adobe Photoshop, Apple macOS, WinRAR, Norton, McAfee, iTunes, AssetCloud, AssetManage, Skype, ZohoAssist, and Google Earth are globally renowned examples of closed-source software solutions.


3. What are the disadvantages of privately-owned software?

Although there are many advantages of proprietary software, it has some drawbacks you should consider:

  • Customers depend on the product development strategy—users cannot influence software owners’ decisions. If you have set up multiple business processes on the base of closed-source software, it will be difficult to reorganize them if the vendor decides to stop the delivery and close the project. Additionally, you may not need some updates.
  • Licensing issues—building privately-owned software, you will have to consider licensing plans for different audiences. Prices should be reasonable in order not to scare away buyers. Remember about imposing fines for license breaches. You will need time and money to make everything right. 
  • Less flexibility—in most cases, closed-source software is a full-fledged solution, developed to perform certain tasks. As a result, it can be difficult for clients to tailor it to business needs. Also, compatibility issues can arise during integration. For example, already installed systems may not support data formats used in proprietary software.

4. Does proprietary software provide increased security?

Yes. It is the owner’s legal property protected by copyright law. Since the original code is closed for users, you protect trade secrets and ideas. If you decide to showcase some part of the code to customers, a non-disclosure agreement is concluded to ensure data confidentiality. 


5. What is the difference between proprietary and open-source software?

Privately-owned software means the original code is closed for the public. Choosing the open-source model, you give users permission to inspect the code, learn from it, and redistribute the modified solution. 

“Why do so many companies and individuals build open-source products?”, you may ask. First, it is proof of quality. Second, you can allow other software developers to fix bugs and make enhancements. Third, your application may quickly get recognition due to thousands of downloads. 


6. Is open-source software better than privately-owned software? 

No. Everything depends on your business-specific requirements. Open-source software suits for increasing customer credibility and gaining popularity among engineers. Proprietary solutions offer far more stability while bringing profit.

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